Premiums must increase to meet insurance sector claim costs: FBD
Insurance group FBD has predicted the sector will remain loss-making this year and next, and warned that rates have still not risen enough to compensate for a "significant deterioration" in the claims environment.
FBD has endured a tumultuous year, with rising claims and poor investment returns having heaped extraordinary pressure on the business.
In an interim statement, FBD said that it's continuing to prioritise profitability over volume growth. In the year to date, its policy volumes have fallen 9.2pc, while its rates have increased by an average of 9.1pc.
It said there's evidence that market rates "continue to harden" for both car insurance and business insurance.
Insurance premiums have already been rising in the sector. In September, Insurance Ireland, a representative body, said motor premiums had jumped 24pc so far this year and would go up by as much again next year.
FBD added that the claims settlement environment "remains challenging", but since the end of the second quarter the impact has been in line with expectations.
It said that underwriting action taken over the past 18 months is having a positive effect, with improvements in claims frequency despite the increased level of activity in the wider economy.
"This improvement in attritional claims has been offset somewhat by increased large claims experience since the last market update," it warned.
FBD also said that it's too early to say how a landmark personal injuries case involving young child Gill Russell will impact the insurance sector. Insurance firms now face higher payouts in cases involving catastrophic injuries.
Last month, FBD chief executive Fiona Muldoon, pictured, revealed that the financial regulator was nervous about the company's position prior to it securing a deal with Canadian firm Fairfax and entering a deal to sell property assets.
FBD had been exploring ways of shoring up its solvency buffer, especially in advance of new rules set to come into force in January.
In September, Fairfax agreed to invest €70m in FBD via a convertible bond. The Canadian company, founded by Prem Watsa, can convert the bond into equity in FBD after three years and up to 10 years after its issue. Converting the bond would give Fairfax about a 19pc stake in the Irish insurer.
FBD also agreed to sell its 50pc stake in its leisure business for €48.5m. It sold it to Farmers Business Development, which owns almost 29pc of FBD.
The company has also been making progress on cost-cutting measures. It aims to reduce costs by about €7m, and will cut about 100 jobs as part of that process.
It has also closed its defined benefit pension scheme. A deficit of €50.9m at the end of June has now been eliminated, with a small surplus now recorded.
The changes remove significant volatility from the group's balance sheet and solvency capital position," said FBD.