FBD’s shares fall 24% after share warning

FBD has issued a share warning of losses of zero to 10c today, citing unexpectedly higher than estimated claims from 2011 and 2012, other claims and severe weather claims.

It says it is predicting an operating loss for 2014 and as a result, the group saw its share price plunge by 24% on the Irish Stock Exchange this morning.

In an interim management statment, issued this morning, the group says that given the unprecedented volatility in claims costs in recent months, the group is reducing the forecast result for the final quarter of the year by €10m. As a result, the group is guiding full-year 2014 operating loss per share of zero to 10c, excluding any exceptional events that may arise.

Its statement says that in the second half to date, the development pattern on a small number of prior year medium-sized injury claims (cost between €0.2m and €1m net of reinsurance) has been significantly higher than normally expected. This adverse development related to accidents that occurred in 2011 and 2012 and was due to factors such as the deterioration in claimants’ medical conditions or an increase in the probability of liability

The combined cost of the adverse development and maintenance of the reserve level results in a charge of €13m.

In addition, the Group has experienced an increase in large claims costs due to a very small number of very large accident and liability claims (cost greater than €1m net of reinsurance). Such large claims, which can be very volatile especially over a short period and were in line with expectation in the first half, cost €7m more than expected in the four months to October. By their nature, these large claims can be expected to revert to norm over a period.

In 2014, FBD’s customers and the Group’s profitability have been impacted by severe weather, an increase in frequency associated with economic growth, poor large claims experience and adverse development of prior year injury claims. However, the growth in economic activity will have a very positive effect on FBD in the medium term, particularly given the Group’s track record of outperforming the market. While the adverse events have had a short term impact on profitability in 2014 and part of 2015, FBD has taken appropriate rating and underwriting actions to date, and continues to monitor trends to ensure that risks are adequately priced.

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