UPDATE 1-Irish Insurer FBD warns on outlook for 2008

(Adds CEO, analyst comment, share price)

By Jonathan Saul

DUBLIN, Aug 27 (Reuters) - FBD (FBD.I) posted a 33 percent drop in first-half earnings on Wednesday and warned that recent severe weather would impact on claims, which was expected to hit the Irish insurer's full-year outlook.

FBD (FBH.L), which faces mounting competition in the Irish insurance market, said operating earnings per share in the six months to the end of June fell to 105.43 euro cents from 158.45 cents a year earlier.

"The reduction in operating profits is as a result of anticipated lower underwriting margins and a reduced longer-term investment return," Chief Executive Andrew Langford said.

The group said lower investment returns reflected ongoing volatility in equity markets compounded by weak sterling and the slowdown in the UK's commercial property market.

FBD said underwriting profit from its primary business in the first-half fell just over 50 percent to 12.8 million euros from 26.2 million in the same period a year ago.

Gross written premiums slipped to 198.3 million euros from 205.4 million in the same period last year.

The group said there was increasing evidence that underwriting rates had stabilised and would "harden in the near future".

"FBD's people, products and infrastructure place us in an ideal position to benefit from such market conditions," it said.

But the group said a recent spate of bad weather had led to flooding across Ireland, which would lead to claims costs and was likely to result in full-year operating EPS being "marginally below" analysts' forecasts.

FBD said the consensus range for EPS in 2008 was between 211 to 233 cents.

"If there was any more severe weather, which you would not rule out, obviously it would have an impact," Langford told Reuters. "Also if (insurance) rates go up very sharply in the market in the near-term, that will have a positive impact."

Davy Stockbrokers said it would revise its current 2008 EPS forecast of 225 cents, which it described as too high.

Anna Lalor, analyst with Goodbody Stockbrokers, said: "We are currently sitting on 216.5 cents (for EPS), so our numbers will be coming down by a few percentage points this year."

Shares in FBD were 2.9 percent lower by 0948 GMT, underperforming a 0.5 percent fall on the Irish market .ISEQ.

The group, which has also invested in hotels and golf courses, said conditions remained challenging in the leisure sector particularly given the downturn in Spain and Ireland.

"Global economic conditions, credit constraints and the strong euro have created a demanding backdrop for our leisure and property businesses in Spain," it said.

"We continue to deliver new marketing and sales initiatives to counter market conditions."

FBD said it also faced a tougher environment in its financial services businesses. (Editing by Chris Wickham)