FBD chief awaits Fairfax move on its stake
Fairfax may seek a sweetened deal to convert its FBD bond into shares while foregoing interest, CEO Fiona Muldoon has indicated.
Fairfax - the Canadian financial giant founded by billionaire Prem Watsa - can convert a bond into a 19.1pc equity stake in FBD from September 23 under the terms of a 2015 deal.
FBD, Ireland's only stock market-listed insurer, sourced the €70m, 10-year convertible bond from Fairfax to shore up its capital solvency.
Fairfax receives 7pc interest a year on the bond.
The conversion price for the bond is €8.50 per FBD share. But shares in the insurer are currently trading at about €10.40. While the bond can be converted to shares from next month, it must be converted to the equity stake by next March if the shares have been trading above €8.50 for 180 days prior to that date.
Fairfax has already received more than €10m in interest from FBD, while it's also sitting on a paper profit of more than €21m based on FBD's share price yesterday. When the €8.50 conversion price was set in 2015, it was a 37pc premium to the FBD share price at the time.
FBD CEO Fiona Muldoon told the Irish Independent that management at the firm are "very conscious" of the looming conversion window.
She said that the Canadian company has been a "very supportive investor".
"They invested at the right time and have made a good return on their investment, as have all of our ordinary shareholders who've seem the share price go from a low of €5.50 to where it sits today," she said.
"We talk to all of our investors. We're very conscious that those dates are coming," she added. Ms Muldoon said earlier this year that she expected Fairfax to keep taking interest payments on the bond for as long as it could.
"Everything in life is negotiable," she said yesterday. "I'm sure if something were to happen, they'd just price that coupon into everything that might happen. It's impossible to speculate."
Ms Muldoon was speaking as FBD reported interim results yesterday that saw its pre-tax profit soar almost 55pc to €18.4m. Its gross written premiums edged 1pc higher in the period to €191.8m.
The profits came despite €11m in claims that FBD paid out as a result of Storm Emma. The cost to FBD net of reinsurance was €6.6m.
The insurer also reported that on an annualised basis, its total investment return turned negative during the first half of the year for the first time ever, at -0.4pc. Insurance companies invest policy money that is held to cover claims.
"The negative returns ... are driven by credit spreads widening more generally on the corporate bond portfolio and spread widening on sovereign bonds following the political turmoil in Italy and in a generally uncertain investment environment," noted FBD.
Ms Muldoon confirmed it was the first time FBD had recorded a negative return.
"It's not something we want to see repeated, but we're subject to the same volatility as the investment market," she said.
Ms Muldoon declined to comment on an internal investigation at FBD initiated in June on foot of a complaint made against her by the group's human resources director.
"It's an independent process," said Ms Muldoon. "It's very hard for me to make any comment on it other than to say it's ongoing. We are all working to try and get it concluded."