FBD Holdings plc Annual Report 2011 Contents 1 Financial Highlights 3 Chairman’s Statement 5 Review of Operations 15 Directors and Other Information 16 Biographies of the Directors 18 Report of the Directors 23 Corporate Governance Report 32 Report on Directors’ Remuneration 40 Statement of Directors’ Responsibilities 41 Independent Auditor’s Report Financial Statements: 43 Consolidated Income Statement 44 Consolidated Statement of Comprehensive Income 45 Pro-Forma Reconciliation of Consolidated Operating Profit to Profit/(Loss) after Tax 46 Consolidated Statement of Financial Position 48 Consolidated Statement of Cash Flows 49 Consolidated Statement of Changes in Equity 50 Company Statement of Financial Position 51 Company Statement of Cash Flows 52 Company Statement of Changes in Equity 53 Notes to the Financial Statements 126 Letter from the Chairman in relation to the Annual General Meeting 128 Notice of Annual General Meeting Financial Highlights Continuing & Continuing operations discontinued operations 2011 2010 2011 2010 €000s €000s €000s €000s Gross premium written 351,111 358,385 351,111 358,385 Net premium earned 301,952 302,540 301,952 302,540 Operating profit before taxation 62,507 38,462 64,900 40,666 Profit/(loss) before taxation 52,280 14,657 59,718 (3,083) 2011 2010 2011 2010 Cent Cent Cent Cent Operating earnings per share 164 100 170 106 Basic earnings per share 130 42 153 (8) Ordinary dividend per share 34.5 31.5 34.5 31.5 Net asset value per share 630 547 630 547 Calendar: Preliminary announcement 5 March 2012 Annual General Meeting 30 April 2012 Final dividend payment date 4 May 2012 FBD Holdings plc Annual Report 2011 1 “An excellent year for FBD in terms of both operational performance and strategic developments” Michael Berkery CHAIRMAN 2 FBD Holdings plc Annual Report 2011 Chairman’s Statement I am very pleased to report an excellent year for FBD in During the year, in furtherance of FBD’s commitment to both operational performance and strategic developments best practice in Corporate Governance in every respect, in 2011, a year in which the Group delivered operating the Board completed a careful review of its composition profits before taxation of €62.5 million. The contraction of with the support of the Nomination Committee. This the Irish economy and the insurance industry continued review was designed to ensure that the composition of to provide a challenging business environment. However, the Board, and its Committees, included an appropriate FBD benefited from the relative strength of the mix of independence together with the specific skills and agricultural sector and the continued development of its experience required to do its work. As a result of this multi-channel distribution strategy in 2011 and delivered review, the Board has implemented a programme of an improved combined operating ratio and strong refreshment during the course of 2011. profitability. The Group recorded an improvement in the detection of fraudulent claims during 2011 and this will Dr. Patrick O’Keeffe, the founding chairman of FBD, and benefit all policyholders in the form of lower insurance Mr. John Donnelly retired from the Board on 29 August premiums. It is in the interests of all policyholders that 2011 and Mr. Philip Lynch retired on 23 December 2011. the industry and the State’s institutions remain vigilant It is difficult to overstate the enormous contribution which in detecting and eliminating exaggerated or fraudulent each has made to the Board of FBD, to its Committees insurance claims. and to the development of the Group’s business in the extensive period over which each served as non- FBD also made significant progress in its strategic executive Directors. The success, strength and focus initiatives. The Group entered into a joint venture to own of the FBD Group today are testament to their energy, and manage its property and leisure operations and sold wisdom and entrepreneurial vision. On behalf of the its general insurance broking business. These two Board and the Group, I want to record our deepest initiatives will allow the Group to focus on insurance appreciation to each of them for their contribution. underwriting. In addition, the Group increased penetration of urban markets, particularly Dublin, and I am very pleased to welcome Mr. Dermot Mulvihill, increased distribution via brokers. The Company’s sales who was co-opted to the Board in August 2011, and office network has continued to successfully develop Mr. Padraig Walshe and Ms. Brid Horan who were farming and business insurance during 2011, a key co-opted in December 2011 and I look forward greatly strategic priority for FBD. to their contribution to the Board in the years ahead. The Group is committed to a progressive dividend policy Finally, I would like to again extend my sincere thanks while maintaining a strong balance sheet and robust to the Board, the management and the staff for their solvency margins. The Board is recommending a 2011 combined efforts in delivering an excellent profit final dividend payout of 23.25 cent per ordinary share, performance in a difficult environment. We will continue bringing the full 2011 dividend to 34.5 cent per to focus on maximising benefits for all stakeholders, ordinary share. and I am confident that FBD will continue to outperform its peers in delivering superior returns for shareholders. Michael Berkery Chairman 2 March 2012 FBD Holdings plc Annual Report 2011 3 “FBD has demonstrated its capacity to deliver operating profits in difficult market conditions” Andrew Langford GROUP CHIEF EXECUTIVE 4 FBD Holdings plc Annual Report 2011 Review of Operations Overview Following a strategic review, the Board concluded that FBD should focus on the Group’s core insurance FBD delivered an excellent performance in 2011 and underwriting operations. As a result, two transactions made significant progress in advancing its strategic were undertaken during 2011. Firstly, FBD entered into a priorities. In continuing difficult economic conditions, FBD joint venture, which now owns and manages the Group’s generated a profit before taxation of €59.7m, a significant former property and leisure operations. Secondly, the turnaround from the loss of €3.1m incurred in 2010. Group sold its general insurance broking business. These two transactions represent significant strategic steps for At €64.9m, operating profit before tax was up by 60% on the Group, allowing it to focus on insurance underwriting 2010. Operating profit in our core underwriting business and to pursue further growth in the business insurance increased 61.5% to €58.3m (2010: €36.1m), influenced by market through the wider broker channel. benign weather and an exceptionally low level of large claims. Like most sectors in the Irish economy, the Operating earnings per 60 cent ordinary share (“share”) property and casualty insurance market contracted again increased by 60.4% from 106 cent to 170 cent. Fully in 2011. By focusing on the development of opportunities diluted earnings per share at 152 cent represents a within FBD’s risk appetite and through disciplined significant turnaround from the loss of 8 cent per share in underwriting, the Group increased market share and 2010. The Group further strengthened its capital base and delivered substantially improved profitability. balance sheet with net asset value per share increasing by 15% to 630 cent. From this position of strength, the Gross premium written of €351.1m is down 2.0% Board has decided to increase the full-year dividend on 2010 in a market that declined by 4.9%. FBD has by 9.5% to 34.5 cent (2010: 31.5 cent). FBD Insurance continued its growth in market share, now standing had a solvency level of 66% of net premium earned at at 12.2%, with market share gains in ten of the last 31 December 2011, up from 61% at 31 December 2010. eleven years. Net claims incurred in 2011 reduced by 14.1% or €33.1m. Business Review The Company made significant progress in the key elements that contributed to this reduction that were Underwriting within its control including claims management initiatives, Premium income risk selection and other underwriting improvements. The Irish insurance market contracted by 4.9% in 2011 as Factors over which the company has less influence such the benefit of hardening rates during the year was offset as weather events, the frequency of large claims and the by the continued reduction in insurable risk and values, reduction in economic activity, contributed positively to in line with economic activity in Ireland. FBD’s gross the reduction in 2011 claims incurred. All of these three premium written reduced by 2.0% to €351.1m (2010: factors are not expected to behave in such a positive €358.4m) thereby increasing FBD’s market share from manner in each financial year and therefore claim costs 11.8% to 12.2%. This growth in market share, all organic, are likely to revert towards the norm in 2012. is primarily driven by the continuing development of the FBD’s financial services operations have delivered Group’s multi-channel distribution strategy, particularly an operating profit of €4.2m in challenging market the development of NoNonsense.ie and an expanded conditions, which was ahead of the €2.3m (restated) presence in the broker market. achieved in 2010. Operating profit from discontinued activities was €2.4m (2010: €2.2m). FBD Holdings plc Annual Report 2011 5 “FBD gave us our first payment within a week of the fire happening and that got us back on track. Within two months, we had received 90% of the policy money and were able to get back into production and meet orders nationwide. FBD put their money where their mouth was…they were saying, we support you, we won’t drag this out, we’ll make sure you’re looked after.” SIOBHAN AND PAUL LAWLESS, THE FOODS OF AtHENRY, FAMILY BAKERY 6 FBD Holdings plc Annual Report 2011 Review of Operations (continued) The rate of contraction in FBD’s gross premium written The initiative to develop business insurance in Dublin reduced as the year progressed – from 3.1% in the first and elsewhere, via intermediaries, continues to prove half to 0.9% in the second half.