FBD suffered the ignominy on Friday of losing a high-profile case that will set it back tens of millions of euro. And what did its shares do, only surge almost 6 per cent.
The case involved four publicans who had successfully contested FBD’s refusal to issue business interruption payouts on its pubs policy as a result of the Covid-19 lockdown. The ruling has consequences for 1,100 Irish pubs and restaurants covered by the policy.
The stock market has taken heart from the insurer’s comments that its ultimate costs will be “well within the range of considered financial outcomes”, and that FBD remains strongly capitalised.
Goodbody Stockbrokers analyst Eamonn Hughes estimates – on the basis that FBD has committed to not dipping below certain capital reserve levels – that costs could fall anywhere between the €30 million the insurer has already set aside, and €75 million. But, on balance, he's forecasting the company will have to double its provisions to €60 million.
Fighting mode
FBD, whose lawyers were in fighting mode last October as the test cases were heard, appeared almost relieved on Friday, saying the Commercial Court ruling “provides much needed clarity to all concerned” and that it would not be appealing.
It’s likely that one of the reasons the company contested the cases in the first place – at considerable reputational cost – was to provide clarity to its own reinsurers, who will be on the hook for much more than FBD’s net costs.
We'll probably never know the gross costs. But FBD offered a glimpse of how much risk its reinsurers shoulder in an investor presentation for its 2017 results. It showed that while its net cost from Storm Ophelia, which battered Ireland that September, came to €5.4 million, total claims amounted to as much as €11 million.
Analysts reckon that the €35 million shareholder dividend that FBD provided for in its 2019 results, but held off from paying out last year amid uncertainty caused by the business interruption litigation, remains safe. But it’s unlikely the company’s chief executive of one month, Tomás O’Midheach, will be in a position to announce its release as the company reports full-year results at the end of this month.
