FBD cuts out brokers to return to profit

FBD almost halved broker sales in last financial year, writes Dan White

INSURER FBD has significantly cut back on the use of brokers, almost halving sales through intermediaries in 2016, as it works its way back to profitability.

After losing almost €86m in 2015, FBD made it back into the black in 2016 — with pre-tax profits of €11.4m. Even more importantly it recorded an underwriting profit, the difference between claims paid or provided for and premiums received, of €3.2m as against an underwriting loss of €125m in 2015.

As the only Irish-owned insurance company, FBD is now the sole source of up-to-date figures on the state of the market. In common with all of its competitors FBD was hit by the rapid upsurge in claims from 2013 onwards — with claims costs jumping by 35pc to €341m in 2015 as the company was forced to set aside more money to cover previous years’ claims.

This huge adjustment in prior year claims seems to have done the trick, with FBD’s 2016 claims costs falling by 34pc to €217m. As insurers have struggled to cope with soaring claims costs they have been forced to change the way they do business. One of these changes is the increasing proportion of business being done in-house by the insurers themselves, rather than through brokers.

The 2016 FBD results confirm this shift in-house, with the value of premiums written through brokers falling by €15m to €20m, a reduction of over 40pc.

“We signalled that we were pulling back from the broker channel. We have refined the number of our [broker] relationships,” said FBD chief executive Fiona Muldoon.

While FBD was always a relatively small player in the broker segment of the insurance market, many of its larger, foreign-owned competitors have also been routing an increasing proportion of their business in-house.

Some of this shift has been driven by technology. Most insurance sales to individual consumers — motor, home, etc — are now done either on-line or over the phone, rather than through a broker or an insurance company branch. This is generic, low-margin business. While the steep rise in premiums of recent years has undoubtedly accelerated this trend, it would probably have happened anyway.

“The insurance industry has undergone a hardening, with many insurers suffering losses in recent times and consequently taking a more conservative stance,” said Ciaran Phelan, chief executive of the Irish Brokers’ Association.

“Insurers, like other business entities, would probably prefer to deal directly and ‘own’ the customers, but with underwriters regularly changing their acceptance criteria and pricing, it’s rarely in a consumer’s best interest to hitch their wagon to one provider.”

FBD shares have strengthened on the return to profitability. They traded at €7.85 on Friday, less than 8pc below the €8.50 conversion price for the 2015 convertible bond issue to Canadian firm Fairfax Financial that raised €70m.

The earliest date at which the bonds, which carry a 7pc interest rate, can be converted is September 2018. If this happens Fairfax will become FBD’s second-largest shareholder with a 19.1pc stake while the shareholding of FBD’s largest shareholder, the IFA-dominated Farm Business Developments, would shrink even further — from 24.6pc to 19.6pc.

“We are hopeful that they [Fairfax] will convert. It would be good for all shareholders,” said Muldoon.