Annual Report 2015
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Strengthening our Roots STANDING WITH THE COMMUNITY FBD HOLDINGS PLC ANNUAL REPORT 2015 Cover Photo by Agtel Contents 2 Financial Highlights 4 Chairman’s Statement 8 Review of Operations 20 Corporate Information 21 Report of the Directors 26 Corporate Governance 38 Report on Directors’ Remuneration 47 Directors’ Responsibilities Statement 48 Independent Auditor’s Report FINANCIAL STATEMENTS 54 Consolidated Income Statement 55 Consolidated Statement of Comprehensive Income 56 Consolidated Statement of Financial Position 58 Consolidated Statement of Cash Flows 59 Consolidated Statement of Changes in Equity 60 Company Statement of Financial Position 61 Company Statement of Cash Flows 62 Company Statement of Changes in Equity 63 Notes to the Financial Statements 130 Letter from the Chairman in relation to the Annual General Meeting 136 Notice of Annual General Meeting FBD Holdings plc Annual Report 2015 1 Financial Highlights Restated ** Restated* 2015 2014 2013 2012 2011 €000s €000s €000s €000s €000s Gross premium written 363,263 363,735 351,195 344,255 351,111 Net premium earned 313,154 303,444 296,387 300,625 300,920 Result for the year – continuing operations (74,235) (3,924) 44,892 44,704 41,618 Restated Restated 2015 2014 2013 2012 2011 Cent Cent Cent Cent Cent Diluted (loss)/earnings per share (215) (13) 131 131 123 Net asset value per share 623 786 823 721 630 Ordinary dividend per share - 51.00 49.00 42.25 34.50 * 2012 fi gures restated to refl ect changes to IAS19 “Employee Benefi ts”. ** 2014 fi gures restated to refl ect a change in accounting policy in relation to other provisions and curtailments of defi ned benefi t pension. Calendar Preliminary announcement 29 February 2016 Annual General Meeting 29 April 2016 2 FBD Holdings plc Annual Report 2015 1. Full Year 110- €363m €96m 130% 2.2% GWP stable at €363m Total prior year claims Capital within target Investment return reserve strengthening range of Solvency II of €96m Coverage Ratio (SCR) 2. Strategic Developments FBD has stabilised during the second half of 2015 Key second half goals have Signifi cant governance Viable path to full year Clear strategy articulated been achieved changes announced profi tability in 2017 - continue to strengthen customer base in the Irish agricultural and small business sectors and pursue a single brand consumer strategy FBD Holdings plc Annual Report 2015 3 Chairman’s Statement Michael Berkery Performance n The closure to future accrual of the Company’s defi ned benefi t pension 2015 was an exceptionally challenging scheme on 30 September 2015 and year for FBD. As your Chairman, it is with the derisking of the scheme’s asset regret that I report our overall fi nancial allocation which together reduced performance in 2015 was so signifi cantly the level of volatility in unsatisfactory. the Group’s economic capital The Irish insurance industry faces a position; and signifi cantly changed claims environment, n The issue of a Solvency II compliant from a variety of structural factors Tier 2 Bond, to Fairfax Financial aff ecting the courts system in Ireland, Holdings, raising €70 million. including the new Court of Appeal, Shareholders later approved a changes in court jurisdiction limits and mechanism under which this debt a reduction in the discount rate used in instrument would convert into valuing severe personal injury claims. ordinary shares in the Group at All these factors led to an increase in a conversion price of €8.50, the cost of claims and a slowdown in representing a 37% premium to the settlement rates. price of the Group’s shares on the Recognising this, the Board took decisive date before the issue of the Bond action during the year and, following a was announced. review of prior year claims reserves, set Fairfax is a Canadian headquartered aside a further €96 million to provide property and casualty insurance group. for these. Their investment in FBD Group is a signifi cant and welcome vote of Economic Capital confi dence by a global insurance player Following the signifi cant additional in the strength of our business model and provision for prior year claims, the the relationships we have fostered since Board embarked upon a programme to our foundation with our core customers. replenish FBD’s available capital levels in We are pleased to have the support of anticipation of the coming into eff ect, on Fairfax and we look forward to a long 1 January 2016, of the Solvency II capital relationship for the benefi t to the Group regime. This included the following and our shareholders. initiatives: Dividend n The sale of the Group’s 50% interest In light of the deteriorating claims in the FBD Property & Leisure Limited environment, the Board decided early in joint venture for €48.5 million to the 2015 that no interim or fi nal dividend Group’s joint venture partner, would be paid for 2015. This was Farmer Business Developments plc, immediately announced to shareholders. a related party; 4 FBD Holdings plc Annual Report 2015 The Board appreciates the importance of Board Reorganisation and As a society we must make a choice the dividend to our shareholders, and did Governance Changes between affordable insurance costs for not make these decisions lightly, but consumers and businesses or excessive FBD Group is today a more streamlined stability and financial strength were awards to claimants for relatively minor business than at any time since I have prioritised. injuries. We cannot have both. Everyone been Chairman, following the disposal of pays for excessive awards through our non-core activities over recent years. The preservation of capital levels remains increased premiums. The sooner the The Group’s operations are now the strategic priority and the Group is Government, insurance industry, the legal concentrated in our general insurance unlikely to resume dividend payments until profession and consumers face that reality subsidiary, FBD Insurance plc, and our life, full year profitability has been achieved, the better. For example, in Ireland, the pensions and investment intermediary, which is currently expected in 2017. average cost of a soft tissue whiplash FBD Financial Solutions. claim is €15,000 compared to about Management Changes This requires an equally streamlined €5,000 in the UK. But even this lower On 31 July 2015 the Board announced the governance structure and in 2016, the cost is considered too high and the UK resignation of Mr. Andrew Langford, Group Group i.e. FBD Holdings plc and its is moving to limit compensation to actual Chief Executive, after nineteen years with principal subsidiary, FBD Insurance plc, loss, consistent with most other countries the Group. Andrew said on his departure will have a board comprised of the same in Europe. that he believed this was the right time for directors, with the dual board structure FBD will continue to work closely with the someone else to lead FBD through its next currently in operation retired. phase of development. Andrew made a industry and the next government to tackle significant contribution to FBD during his Subject to re-election at the 2016 AGM, the cost of claims for the benefit of all our time with the Group and we wish him every I intend to use my last year as Chairman to customers. success in the future. complete these changes and to ensure an orderly handover of responsibility to the Conclusion The Board moved decisively to appoint next chairman. I want to record my sincere thanks to the a new Chief Executive and, following an Board for their active involvement and external search and selection process, I want to record my own and the Board’s support during 2015. I also want to thank appointed Ms. Fiona Muldoon to the role deep appreciation to Ms. Emer Daly, the management team and our dedicated on 7 October 2015. Fiona was pivotal to the Mr. Eddie Downey, Ms. Brid Horan and staff for their commitment to our plans execution of the capital raising initiatives Mr. Ruairí O’Flynn for their valued input to and their hard work throughout 2015. I mentioned earlier and very significant the Group since their appointments. They credit is due to her for the strong capital have indicated that they will not be putting Finally I would like to thank our customers, position which FBD now enjoys. themselves forward for re-election at the many of whom are also shareholders, for AGM in April 2016. They have contributed their loyalty, trust and confidence in us. Since her appointment Fiona has, hugely to FBD and I want to wish each of FBD’s brand and reputation for customer with input and support from the Board them continued success in the future. service remain strong and these factors, and Nomination Committee, been along with FBD’s core financial strength strengthening her senior management Personal Injury Awards in underpin my confidence that with the team to ensure the Group is well Ireland business now stabilised, the Group is well positioned for the future. positioned to return to profitability in the In the late 1990s the Irish Government near future. Mr. Cathal O’Caoimh, former Finance recognised the unsustainable level of Director, retired from FBD and the Board personal injury costs in Ireland and Michael Berkery on 30 September 2015 following seven commissioned a wide ranging review which Chairman years in the role during which he lead the culminated in the establishment of the implementation of a number of initiatives Injuries Board (previously PIAB). I urge the 26 February 2016 to de-risk FBD’s balance sheet and simplify next Government to again take decisive and focus its operations. He also made action and try to tackle both the excessive a significant contribution to FBD and we cost of personal injury awards and the wish him well in retirement.