fbd holdings plc · this presentation contains certain forward-looking statements. actual results...
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Our Policy is You
FBD Holdings plc
2013 Results
March 2014
1
2013 Results
Forward Looking Statements
This presentation contains certain forward-looking statements. Actual results may differ materially
from those projected or implied in such forward-looking statements. Such forward-looking
information involves risks and uncertainties that could affect expected results.
Where applicable and unless otherwise stated, all comparative figures have been restated to reflect
changes to IAS19, “Employee Benefits” and are for continuing operations only.
2
2013 Results - Highlights
Strategic developments� More farms insured, more policies per farm
� Increased penetration of business insurance market
� Further penetration of consumer insurance market
� Launched Clan Insurance to access car insurance
customers who choose to buy through brokers
Performance � GWP up 2%, new market initiatives deliver first full
year increase in premium since 2010
� Highest ever share of market at 13.4%
� COR of 94.1%, despite large claims experience
� Strong investment return of 3.6%, with low risk
allocation
� Operating EPS of 136c, fully diluted EPS of 131c
� Excellent ROE of 17.3%
Financial strength� NAV of 823c
� Second successive year of 14% NAV growth
� Solvency strengthened to 78.1% of NEP
Dividend� Full year dividend of 49c, delivering dividend growth
of 16%
Excellent performance. Dividend growth. Increased financial strength 3
2013 2012
GWP €351.2m €344.3m
Operating profit €52.7m €65.4m
PBT €51.5m €52.2m
Operating EPS 136c 170c
Fully Diluted EPS 131c 131c
NAV 823c 721c
FY DPS 49c 42c
2013 Results – Performance in market context
Evidence of economic recovery. Market rates should rise
Economy� Economic activity turned around faster than
anticipated, welcome development post the peak to
trough decline in domestic demand of 22.5%
Insurance industry� Market COR of 109% in 2012, likely further
deterioration in 2013
� Market remains competitive, particularly in home
insurance and for higher value business risks
� Early signs of rate hardening before year end
4
Claims environment� Road deaths rose by 17% to 190 in 2013, the first
increase since 2005
� Increase in economic activity is likely to result in
increased claims frequency
70
75
80
85
90
95
100
105
110
115
Retail sales of automotive fuel
Volume adjusted index (Base 2005=100)
6 per. Mov. Avg. (Retail sale of automotive fuel)
GNP Domestic demand
2010 0.5% -5.0%
2011 -1.6% -3.0%
2012 1.8% -1.1%
2013 (e) 3.0% -0.7%
2014 (f) 2.6% 1.5%
Peak to trough decline -13.9% -22.5%
2013 Results – Customer segments
Opportunities for continued outperformance by meeting needs of existing and new customers
Farm and business direct � Strong performance, more customers, more policies
per customer
� More farming customers than anytime in history
� Business insurance written directly continued to
reduce
5
� Online offerings (FBD.ie and No Nonsense.ie) made
significant progress with premium income up 36.6% on
2012 levels
� Repositioning of No Nonsense via ‘readymade’ and
telematics product ‘SmartDriver’, aimed at drivers under
the age of 30, also helped deliver growth
Consumer
Brokers � Relationships with broker partners are developing well
and business written up 30%
� Brokers accounted for 14% of new business
� Growth closely controlled
� In Q4 launched Clan Insurance to access car
insurance customers who choose to buy through
brokers
At the Irish Brokers Association’s Annual Insurance Service Awards, FBD
was awarded
• The Most Improved Award
• Top Supporting Management Team
4%
9% 9%
11%11%
14%
12%23% 25%
35%
46%
62%
10%
30%
50%
70%
3%
7%
11%
15%
% of all new business via brokers LHS% of business insurance new business via brokers RHS
Broker as % of new business premium:
Overall and business insurance
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
H1
20
09
H2
09
H1
10
H2
10
H1
11
H2
11
H1
12
H2
12
H1
13
H2
13
Average rate change YoY
Average rate Change YoY
2013 Results – Premium trends
6FBD continues to outperform market
Analysis of change in GWP (YoY)
0%
10%
20%
30%
40%
50%
60%
Jan
-08
Jun
-08
No
v-0
8
Ap
r-0
9
Se
p-0
9
Fe
b-1
0
Jul-
10
De
c-1
0
May
-11
Oct
-11
Mar-
12
Au
g-1
2
Jan
-13
Jun
-13
No
v-1
3
CPI Cumulative % Change
Jan 08 to Jan 13
HOME CAR
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Policy volume Average rate Cover and mix Total GWP
2009 2010 2011 2012 2013
� FBD GWP up 2%
� Irish Insurance market down 4 - 5%
� Increased market share to c. 13.4%,
highest ever share
� Market share growth in 12 of the last 13
years
� Policy volume up 2.6%
� Average rate marginally
lower, improvement in
second half
� Stability in economy
contributed to first
improvement in cover
and mix since 2008,
cumulative reduction since 2008 of 15%
� Premium and volume growth stronger in
the second half of the year
� Market pricing for home insurance was
uneconomic, FBD maintained underwriting
discipline to generate an acceptable return
12.0%
24.9%
7.5%
15.2%
12.8%
7.6%
4.8%
9.7%
20.7%
10.7%
10.3% 11.6%
7.8%
12.0%
10.4%
19.9%
11.3%
10.0%
11.2%
8.0%
12.2%
10.4%
19.2%
11.6%
10.0% 11.5%
8.7%
11.2%
11.1%
16.1%
11.5%
10.7%
11.2%
10.7%
10.4%12.3%
16.0%
11.8%
11.5%
11.1%
9.0%
8.6%
14.7%
15.5%
12.2%
11.6%
11.8%
9.4%
6.2%
15.9%
15.4%
12.6%
11.6%
11.1%
10.0%
6.5%
13.4%
RSA Aviva FBD AXA Allianz Zurich Liberty/Quinn
2000 2006 2007 2008 2009 2010 2011 2012 2013 (e)
2013 Results – Market share (GWP)
Market share growth in 12 of the last 13 years7
Latest available
market data (II)
200
250
300
350
400
2300
2500
2700
2900
3100
3300
3500
3700
3900
4100
4300
FBD - €m Market - €m Premium Income - FBD and the Market
Total Market FBD
102
169
60
80
100
120
140
160
180
200
220
Premium Income - FBD and the Market
(Base 2000 = 100)
Total Market FBD
2013 Results – Claims
Loss ratio of 67.9%� Continued improvement in attritional claims
- risk selection
- claims management initiatives
- rating
- underwriting improvements
� Combined cost of severe weather and large claims ahead of norm, driven by volatile very large accident and liability claims
� Likely to revert to norm over time
� Variability mitigated by reinsurance
� Risk tools curtailed impact of flood damage
Combined cost of severe weather and large claims will revert to norm8
Analysis of Loss Ratio 2008 – 2013
Loss Ratio 2008 - 2013
79.1%
83.8%
77.4%
66.6%63.8%
67.9%
60%
65%
70%
75%
80%
85%
Loss Ratio
15.8% 19.4% 20.8% 14.2% 13.1% 18.7%
63.3%64.4%
56.6%
52.4%50.7% 49.2%
45%
50%
55%
60%
65%
70%
5%
7%
9%
11%
13%
15%
17%
19%
21%
2008 2009 2010 2011 2012 2013
Combined cost of severe weather and large claims (LHS)
Seven year average LR: Combined cost of severe weather and large claims
Loss Ratio excluding combined cost of severe weather and large claims (RHS)
Combined cost of severe
weather and large claims
Attritional Loss Ratio
-
5
10
15
20
25
Nine year average of €9m
€'m
Net cost of accident and liability claims (> €1m)
2005 - 2013
2013 Results – Financial services and JV
Financial services
9
� Includes:
- premium instalment services
- life, pension and investment broking (FBD Financial Solutions)
- less cost of Holding Company
� Generated an operating profit of €6.4m (2012: €5.6m)
� An increasing proportion of insurance customers continue to avail of premium instalment services
� The market for life, pension and investment broking business continued to be challenging
� FBD Financial Solutions is the largest retail broker in Ireland
Joint venture (JV)
� 50% share of property and leisure operations in Ireland and Spain
� Trading performance improved compared to 2012
� Growth in occupancy and rates, particularly in the Irish market
� Market for Irish hotel assets has improved significantly during 2013, with improving operational performance and higher multiples increasing property valuations
� JV sold remaining units in La Cala
� The Group’s share of JV profits was €1.3m, a significant improvement on the €1.7m loss in 2012
Strong performance in a challenging market
Prudent management of investment assets - protecting customers and shareholders
2013 Results – Asset allocation
• FBD maintained low allocation of long-dated bonds to
protect shareholders and customers from risk of rising
bond yields.
• Return on underwriting investments was €29.4m, up 18%
• Strong return of 3.6%, despite low interest rate
environment
• Return delivered with a low risk allocation aided by the
decision not to invest in long dated bonds and a strong
performance on 8.5% (2012: 7.0%) of assets invested in
equities
• FBD positioned to benefit from rising yields
10
31-Dec-13 31-Dec-12
Underwriting investment assets €m % €m %
Deposits and cash 454 53% 499 59%
Corporate bonds 144 17% 152 18%
Government bonds 134 16% 110 13%
Equities 73 9% 60 7%
Unit trusts 24 3% 0 0%
Own land & buildings 15 2% 16 2%
Investment property 12 1% 11 1%
Underwriting investment assets 856 100% 848 100%
Working capital & other assets 116 100
Investment in joint venture 45 44
Reinsurance assets 44 55
Plant and equipment 31 20
Total assets 1,092 1,067
2013 Results – Balance sheet
Position of strength 11
� Strong capital base with solvency level of 78.1% of NEP up from 73.8% (per Solvency I)
� Net asset value per share increased 14% (second year in a row) to 823c
� IAS 19 retirement benefit obligation reduced by €3m
� Excess capital over Solvency II requirement
NAV progression & solvency strength
FBD Insurance Solvency Ratio
NAV progression – Dec ‘12 to Dec ‘13
721
823
131
1646
700
800
900Cent
708
640
576
536 547
582
630
666721
740
823
500
550
600
650
700
750
800
850
Cent
49.8% 52.4%
61.3%
66.0%
73.8% 78.1%
45%
50%
55%
60%
65%
70%
75%
80%
Solvency RatioTarget
Evolution of NAV 2008 - 2013
2013 Results – Reserving strength
Robust reserves12
Net reserving and run off
20 30 40 50
Savings
Positive Run-off€m
Prior years 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
€m €m €m €m €m €m €m €m €m €m €m €m
Estimate of cumulative claims:
At end of underwriting year 265 290 298 307 338 308 283 233 235 248
One year later 228 287 257 281 319 286 265 208 219
Two years later 214 221 254 277 318 286 266 216
Three years later 184 210 251 273 317 284 260
Four years later 176 205 247 269 313 274
Five years later 171 201 243 263 306
Six years later 168 199 239 259
Seven years later 167 198 236
Eight years later 168 196
Nine years later 166
Estimate of cumulative claims 166 196 236 259 306 274 260 216 219 248
Cumulative payments (163) (189) (227) (243) (279) (236) (190) (131) (112) (73)
Claims outstanding at 12/13 6 3 7 9 16 27 38 70 85 107 175 541
Saving in 2013 1 2 1 4 5 8 11 6 (7) 16 - 47
15%17%
17% 19%
26%25%
46%
30%
21%25%
36%
0%
10%
20%
30%
40%
50%
60%
Dividend payout ratio (Operating EPS)
2013 Results – Dividend
Further significant increase with potential for progressive dividend in future years
Policy
� It is in the long term interest of all stakeholders
to maintain strong solvency and liquidity
margins
� FBD is committed to a progressive dividend
policy and efficient capital management
� Target is a 40% - 50% operating payout ratio
2013 Dividend
� Full year dividend of 49c, an increase of 16%
� Further step towards 40% - 50% operating
payout ratio
� Further increase - rationale:
� Strong profit performance
� Robust financial position
� Move towards target payout ratio
13
30
32
35
42
49
25
30
35
40
45
50Dividend per share
Dividend Per Share (c)
Cent
2013 Results - Investing in the future
14 Investing through the downturn - pace of change increasing
Meeting customers needs Pre 2010 2010 2011 2012 2013Realignment organisation around customer
Farm & Business Direct
Restructure sales office network and establish support centre
Increase policies holdings per customer
Optimise resources to match customer needs
Consumer
Launch No Nonsense and FBD.ie
NN Home, Readymade, Telematics, Top Driver
Brokers
Initiate pilot
Full launch, expand broker panel
Add car insurance via Clan
PeopleEnhanced managerial expertise
Management development
Enhanced product function
Redefine work practices
Technology and processImplementation of new back office system
New claims system
Cost management initiatives
Claims management initiatives
Focus on underwritingProperty and leisure JV
FBD Brokers sold
Abbey Re sold
2013 Results – Outlook
� Initial signs of a recovery in Irish economy. Resulting
growth will be very positive in terms of premium
income. Turnaround faster than the market anticipated
� Increased economic activity will lead to higher claims
frequency. There is invariably a time lag before this is
reflected in market premiums. This will have a short
term impact on profitability in 2014 and early 2015
� Market rates should rise given the profitability
challenges facing the industry, the extent of recent
weather losses and any impact of increased frequency
arising from economic activity
� The February windstorm will cost the industry up to
€130m. FBD cost within annual budget. FBD’s cost of
severe weather and large claims will revert to norm
� Persistent bad weather in January/February will lead to
an increase in industry and FBD claims
FBD aims to deliver superior returns to shareholders15
� The initiatives on those aspects of claims costs that are
within the Group’s control, will continue to have a positive
impact on the loss ratio
� FBD is committed to achieving profitable growth by focusing
on needs of customers by:
� delivering products and services that matter to its
farming and business direct customers
� increasing penetration of key urban markets, in
particular Dublin
� increasing business and car insurance in partnerships
with brokers
� These initiatives will enable the Group to outperform the
market in 2014 and deliver superior return to shareholders
� Subject to no exceptional events arising, the Group is
guiding full-year 2014 operating EPS of 120c to 130c
1
17
50
52
51
-5
5
15
25
35
45
55
PBT
PBT
€m
2013 Results – Track record
16 Track record of superior returns
30
32
35
42
49
25
30
35
40
45
50 Dividend per share
Dividend Per Share (c)
Cent
11.5%11.8%
12.2%
12.6%13.4%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
Market Share
Market Share
%
73.0% 78.0% 83.0% 88.0% 93.0% 98.0%
FBD
Allianz
Zurich
Axa
Top 7 Ave
RSA
Aviva
Liberty/Quinn
10 Year COR % 2003-2012
FBD has a track
record of:
� Outperforming
its peers
� Delivering returns
in difficult market
conditions
2013 Results – Summary
Well positioned to deliver long-term profitable growth
FBD has:� A strong track record
� A robust underwriting business with a strong
core franchise
� A strong capital base and balance sheet and
a prudent reserving strategy
� A low-risk investment allocation and is
positioned to benefit from rising yields
FBD will:� Increase investment to maximise potential
� Seek opportunities for sustainable growth and
profits
� Deliver superior returns to shareholders
� Continue to move to target 40% - 50%
dividend payout ratio
17
The insurance market:� Is facing a profitability challenge
� Has incurred weather losses
� Will see an increase in claims frequency due to the
economic recovery
� Should see rate adjustments, the speed and extent of
which, depend on competitive dynamics and priorities of
competitors
Our Policy is You
FBD Holdings plc
2013 Results
18