F.b.d.hldgs Regulatory News (FBH)

FBD HOLDINGS PLC

4 March 2013

FBD HOLDINGS PLC

PRELIMINARY ANNOUNCEMENT

For the Year Ended 31 December 2012

HIGHLIGHTS

·; Excellent performance with profit before taxation up 5.3% to €52.9m

·; Improvement in combined operating ratio from 91.4% to 89.1%, driven by excellent loss ratio

·; Significant progress in building platform for further growth

·; Successful multi-channel distribution strategy increased market share to 12.5%

·; Return on equity of 21.7% (2011: 26.0%)

·; Operating earnings per share of 172 cent (2011: 157 cent)

·; Final dividend increased 29.0% to 30 cent, delivering full year dividend growth of 22.5%

·; Capital base further strengthened with solvency level of 73.5%, up from 66.0% at 31 December 2011

·; Operating earnings per share guidance for 2013 at 145 - 155 cent

Commenting on the results, Andrew Langford, Group Chief Executive, said: "2012 was another excellent year for the Group, generating profit before taxation of €52.9m, up 5.3% on 2011. In addition to the outstanding results, we invested further in our business to ensure continued delivery of superior performance in future years. The 29% increase in final dividend reflects the Board's confidence that the Group can continue to outperform its peers."

* Comparative figures have been restated to exclude operations that were sold during 2011 and 2012. All figures refer to continuing activities unless otherwise stated.

A presentation will be made to analysts at 11am today, a copy of which will be available on our Group website, www.fbdgroup.com, from that time.

About FBD Holdings plc ("FBD")

The Group was established in the 1960s and is one of Ireland's largest property and casualty insurers looking after the insurance needs of farmers, private individuals and business owners.

Forward Looking Statements

Some statements in this announcement are forward-looking. They represent expectations for the Group's business, and involve risks and uncertainties. These forward-looking statements are based on current expectations and projections about future events. The Group believes that current expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the Group's control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.

The following details relate to FBD's ordinary shares of €0.60 each which are publicly traded:

FBD Holdings plc

Review of operations

Overview

FBD delivered another excellent performance in 2012, generating a profit before tax of €52.9m, an increase of 5.3% from €50.3m in 2011. In a challenging economic climate and against keen competition, the Group again demonstrated its ability to deliver superior returns to shareholders by outperforming peers and expectations. Operating profit in the core underwriting business of €60.4m surpassed even the very strong 2011 performance.

Gross premium written reduced 2% to €344.3m (2011: €351.1m) in a market that declined by 5.5%. Market rates were uneconomic in some areas that FBD had targeted for growth in 2012, particularly home insurance and larger premium business insurance. By focusing on the development of opportunities within FBD's risk appetite and through disciplined underwriting, the Group outperformed its peers and increased market share to 12.5%, its highest ever share. FBD has grown market share in 11 of the last 12 years.

Net claims incurred improved by 5.1% to €191.9m, resulting in an excellent combined operating ratio of 89.1% (2011: 91.4%). Significant progress was made in reducing those elements of claims costs within FBD's control, including risk selection, rating and claims management initiatives. The Group also benefited from factors over which it has less influence, particularly the low level of weather related claims in 2012. Following the low incidence of large claims in 2011, experience in 2012 reverted to the norm, as anticipated.

FBD continued to make progress in advancing its strategic initiatives to protect and develop relationships with both farming and business customers, to increase penetration of urban markets and to enter into partnerships with insurance brokers to grow business insurance. In addition, the repositioning of the No Nonsense low-cost on-line offering to include 'ready-made' options and the introduction of a telematics product, SmartDriver, in late 2012, provide foundations for further sustainable growth in car insurance.

FBD's financial services operations reported an operating profit of €5.6m in challenging market conditions, well ahead of the €4.2m delivered in 2011.

Operating earnings per 60 cent ordinary share ("share") increased by 9.6% to 172 cent. Fully diluted earnings per share at 133 cent increased 8.1% from the 123 cent earned in 2011. The Group further strengthened its capital base and balance sheet with net asset value per share increasing by 14.4% to 721 cent. FBD Insurance had a solvency level of 73.5% of net premium earned at 31 December 2012, up from 66% at 31 December 2011. From this position of strength, the Board has decided to increase the full-year dividend by 22.5% to 42.25 cent (2011: 34.5 cent).

Business Review

Underwriting

Premium Income

The Irish property and casualty insurance market contracted by 5.5% in 2012 as insurable risk and values continued to decline, in line with economic activity. FBD's gross premium written reduced by 2.0% to €344.3m (2011: €351.1m) thereby increasing FBD's market share from 12.2% to 12.5%.

FBD maintained its underwriting discipline, demonstrating its willingness to grow only where sustainable. FBD's ambition is to grow premium income but, in 2012, pricing in certain areas of the market was insufficient to generate an acceptable return and, as a result, FBD decided not to compete aggressively on price.

FBD continued to successfully develop its multi-channel distribution strategy in response to the needs of customers. It made further progress in protecting and developing relationships with farming and business customers, increasing penetration of urban markets and entering into partnerships with insurance brokers to increase business insurance premium.

FBD Holdings plc

Review of operations (continued)

A key strategic priority for FBD is to understand the insurance needs of farming customers and to provide the insurance products that matter to them. FBD had another strong year in 2012, increasing its farm related policies by 2,600. FBD now protects more farming customers than at any time in its history.

The initiative to enter into partnerships with insurance brokers to increase penetration of the business insurance market progressed positively and accounted for 46% of new business insurance premium income in 2012. The broker channel has met its initial target of 80 brokers with 146 outlets. The increase in broker business has offset declines in business insurance written directly as the economic challenges facing Ireland have had a significant impact on small and medium enterprises. Overall, FBD maintained the level of business insurance underwritten in 2012.

The Group's online offerings, FBD.ie and No Nonsense, made good progress, increasing share of urban personal lines in 2012 with premium income up 12.6% on 2011 levels. In late 2012, No Nonsense introduced SmartDriver, a telematics offering targeted at drivers under 30, which monitors driver performance so as to reward good driving behaviour with discounts from standard rates. In addition, No Nonsense was repositioned so as to add low-cost 'ready-made' motor insurance packages to the existing 'build-your-own' options.

FBD assessed customer satisfaction using "Net Promoter Score" for the first time in 2012. The resulting score of +38% is far higher than competitors and an endorsement of FBD's success in delivering products and services that matter to our customers.

Although gross premium written reduced by 2% in 2012, the Group maintained the level of net premium earned between 2011 and 2012 as FBD ceded less risk to reinsurers.

Claims

Net claims incurred reduced to €191.9m, an improvement of 5.1% on 2011, as the loss ratio improved from 67.2% to 63.8%. Further savings were made in reducing those elements of claims costs that are within the Group's control, including risk selection, rating and technology improvements together with increased fraud detection and early settlement of claims.

Other factors over which the company had less influence, particularly the weather and the reduction in economic activity, also contributed to the reduction in loss ratio. From a claims perspective, the weather in 2012 was even better than that of 2011. However, while FBD benefited from a low incidence of large claims in 2011, experience in 2012 reverted to the norm, as anticipated.

The continued improvement in claims performance is highlighted by the attritional loss ratio, which has improved each year since 2009. It is a measure of the day-to-day or routine loss ratio and is a very positive indicator of improvement in underwriting and claims performance. It improved to 50.7% in 2012 from 52.4% in 2011.

Expenses

Gross management expenses increased by 1.1% to €81.7m compared to €80.8m in 2011. This arises primarily from the Group's increased investment in marketing, a key factor to enable the Group to maintain its share of voice as competitors increased their advertising presence. Reinsurance commissions receivable fell by 18.2% as reinsurance became more expensive and FBD ceded less risk to reinsurers. Reinsurance commissions receivable have reduced for four successive years reflecting the poor weather-related claims history in Ireland and internationally and higher retention. As a result, the net expense ratio increased from 24.2% to 25.3%.

The Group's combined operating ratio for 2012 was an excellent 89.1% (2011: 91.4%) resulting in an underwriting profit of €32.6m, an improvement on the €25.8m achieved in 2011.

Investment return

Actual investment income in 2012 benefited from higher equity returns and a profit on the disposal of secured loans offset by the reinvestment of funds previously held in German bonds which had higher returns than the prevailing market.

FBD Holdings plc

Review of operations (continued)

The longer-term investment return of €27.8m in 2012 was lower than the €30.3m in 2011 due to the Group's continuing prudent investment strategy in light of the on-going sovereign bond market dislocation and the maturation of most of the remaining German bonds during 2012. The Group's overriding investment principle is to protect its solvency and asset base even if this has an impact on investment returns. On an industry-wide basis, lower investment returns should encourage focus on profitable underwriting.

During the year, the Group realised its secured loans, reducing the balance sheet value to nil from €21.9m at the end of 2011. In one instance this was achieved through the sale of land provided to FBD as security, resulting in a profit of €5.0m on the December 2011 valuation. In the second instance, FBD exercised its security over a loan thereby taking possession of the underlying land, which is included in investment properties at a market value of €3.2m at the end of 2012.

Financial services

Market conditions for FBD's financial services businesses continue to be challenging. Despite this, the Group's financial services operations generated an operating profit of €5.6m, a significant improvement over the €4.2m generated in 2011.

Financial services includes life, pension and investment broking (FBD Financial Solutions) and premium instalment services, net of holding company costs. FBD Financial Solutions increased profitability by focussing on customer service, best quality advice and new investment products, designed specifically for its customers, such as "Agri Bond". In addition, an increasing proportion of insurance customers availed of premium instalment facilities.

Profit before taxation

Group operating profit before taxation increased 9.6% to €66.0m. The benefit of the excellent operating performance was somewhat offset by €2.8m of negative short term investment fluctuations and €1.0m of property impairment.

During 2012, the Group sold its reinsurance captive, Abbey Re, whose only activity was participation in the Group's reinsurance programme. The sale has no material effect on the on-going operations or profitability of the Group and a profit on the sale of €4.1m has been recognised in the Consolidated Income Statement.

The trading performance of the property and leisure joint venture improved compared to 2011, driven by growth in occupancy and rates, particularly in the Irish market which delivered double digit growth in revenue per room. Sales of units in La Cala continue to be strong with twenty four units sold during the year bringing the remaining units at the year end to nine. The joint venture generated cash flow from operations of €11.8m in 2012, refinanced its debt facility, and reduced its bank debt by 25%. The Group's share of the joint venture's results was a loss of €1.7m (2011: €0.5m) as the positive trading performance was offset somewhat by a reduction in Spanish property values.

The Consolidated Income Statement also includes the €2.6m cost of writing off the Group's legacy investment in a stockbroking firm, a provision of €3.0m for future onerous lease costs and a restructuring charge of €2.1m.

Profit before tax amounted to €52.9m (2011: €50.3m) and, including the gain on discontinued operations, total profit before taxation amounted to €56.6m (2011: €59.7m). After a taxation charge of €7.6m (2011: €8.7m), the profit after taxation was €49.0m (2011: €51.0m).

Earnings per share

Operating earnings per share based on longer-term investment return amounted to 172 cent compared to 157 cent the previous year. Fully diluted earnings per share amounted to 133 cent (2011: 123 cent).

Return on equity in 2012 was 21.7% (2011: 26.0%). On the basis of continuing operating earnings, return on equity amounted to 25.6%.

FBD Holdings plc

Review of operations (continued)

Dividend

The Board believes that it is in the long-term interest of all stakeholders to maintain strong solvency and liquidity margins and it is determined to ensure that the Group's capital position continues to be robust and its financial position well managed. The Group is committed to a progressive dividend policy and efficient management of capital. The Board is satisfied that it is appropriate to increase the level of dividend significantly in 2012 to reflect the excellent profit performance, the robust financial position and the Board's desire to move towards its target of a 40% to 50% operating pay-out ratio.

The Board is recommending a final dividend payment of 30 cent per share (2011: 23.25 cent), an increase of 29%, bringing the full 2012 dividend to 42.25 cent (2011: 34.5 cent), an increase of 22.5%. This represents a dividend payout ratio of 24.6% based on operating earnings and 31.8% based on fully diluted earnings per share. This increase in dividend will help the Group move towards its desired pay-out ratio while maintaining a high dividend cover and providing the potential for a progressive dividend in future years. The Board intends to increase the 2013 interim dividend by a similar percentage.

Subject to the approval of shareholders at the Annual General Meeting to be held on 15 May 2013, this final dividend for 2012 will be paid on 22 May 2013 to the holders of shares on the register on 15 March 2013.

The dividend is subject to withholding tax ("DWT") except for shareholders who are exempt from DWT and who have furnished a properly completed declaration of exemption to the Company's Registrar from whom further details may be obtained.

Statement of financial position

The Group's financial position further strengthened in 2012. Ordinary shareholders' funds grew to €241.3m (2011: €209.9m) and net assets per share increased 14.4% to 721 cent (2011: 630 cent). The primary items explaining the increase in shareholders' funds were profit after taxation of €49.0m, less an increase in provision for retirement benefit obligations of €8.2m and dividends of €12.1m. Excluding the retirement benefit obligation liability, net asset value per share increased to 802 cent (2011: 687 cent).

Table 1 shows how the assets of the underwriting business were invested at the beginning and end of the year.

Table 1 - Underwriting Asset Allocation

The Group was encouraged by policy actions taken to address the euro crisis and the improvement in confidence in the global economy during 2012. As a result, the Group increased its investment in equities to €60.3m, generating an annual return of 15.8% in 2012, and increased its investment in corporate bonds to €152m. The sovereign bond market dislocation continued throughout 2012, albeit with some signs of potential stability emerging as the year progressed.

FBD Holdings plc

Review of operations (continued)

At the year end, 90% of the underwriting investment assets were invested in lower-risk bank deposits, corporate bonds and sovereign bonds. The average term of these assets was less than 8 months, far shorter than the average term of FBD's liabilities, thereby reducing the risk of investment volatility, albeit at the cost of a lower investment return but providing liquidity and flexibility. The high proportion of lower-risk investment assets at the year end demonstrates the Group's desire to preserve capital, effectively ensuring that customers and shareholders are protected.

During 2011 and 2012, most of the German bonds purchased by the Group in 2006 and 2007 reached their maturity dates. Given the current low yield on bonds and the sovereign bond market dislocation, the Group did not reinvest in longer-dated sovereign bonds. As a result, FBD holds nearly €500m of bank deposits, which represent a relatively attractive lower-risk investment allocation given the unique circumstances of the sovereign bond market. To achieve diversification and a higher return, FBD has invested €145.0m in a diversified portfolio of high-quality corporate bonds. FBD increased its equity portfolio by €29.5m following the realisation of secured loans and investment properties.

In common with most companies that have legacy defined benefit pension schemes, FBD's obligation for retirement benefits increased during 2012 because of a reduction in the discount rate applied in calculating the International Accounting Standard 19 pension liability. The corporate bond yields used to determine the discount rate fell to historic lows during 2012 and was the primary factor leading to the increase in pension scheme liabilities from €21.7m to €30.8m.

FBD Group has a strong capital base and balance sheet providing capacity for further growth. FBD Insurance had a solvency level of 73.5% of net premium earned at the end of 2012, up from 66% at the end of 2011. FBD also has a conservative reserving strategy and this is supported by a positive run-off of prior-year claims reserves of €41m in 2012. The Group has a long history of recording positive run-offs on its claims reserves and the surplus over the actuarial best estimate remains as healthy as in 2011.

In line with all European insurers, FBD Insurance is preparing for the introduction of the new Solvency II regulations which are to come into effect over the next few years. FBD Insurance has calculated its solvency capital requirement on the basis that Solvency II, as currently proposed, was fully implemented at 31 December 2012. The results showed that FBD Insurance had excess capital over the proposed requirement.

Director change

During the year, Adrian Taheny, the Group's executive director of sales and marketing retired from the Group and from the Board for health reasons. His contribution to the Group over an extended period of time has been substantial.

Outlook

Economic uncertainty has reduced. Irish domestic demand, the best indicator of risk available to the insurance market, has stabilised but is unlikely to show significant return to growth in the short-term. It is likely that any growth in the Irish insurance market will be negligible in 2013.

However, FBD is committed to achieving profitable growth by constantly evolving its business to reflect the needs of customers. The Group intends to continue delivering products and services that matter to its farming and business customers. In 2013 FBD expects to further increase penetration of key urban markets, in particular Dublin, and of the business insurance market, in partnership with brokers. These channels, together with opportunities provided by No Nonsense through its new low cost 'ready-made' comprehensive motor product and the SmartDriver telematics product, provide the Group with the ability to outperform the market again in 2013. Take-up of the repositioned No Nonsense offerings in the early months of 2013 has been encouraging.

The Group's understanding of what matters to its customers will be key to its ability to continue to outperform the market and achieve profitable and sustainable growth. The Group will continue to invest in human resources and technology to drive the capacity for growth, while at the same time maintaining its competitive cost advantage.

FBD's policy to only write profitable and sustainable insurance will continue in 2013. The Group has the ambition, capability and capital strength to take advantage of appropriate market opportunities that provide profitable growth.

FBD Holdings plc

Review of operations (continued)

During 2012, the Group again benefited from favourable weather and this is unlikely to be as positive again in 2013 which should lead to claims costs reverting towards the norm in 2013. The Group's initiatives on those aspects of claims costs that are within its control will continue to have a positive impact on the loss ratio.

Should sovereign bond markets normalise and interest rate risk reduce, the Group will move further towards its long-term investment allocation. However, in the interim, lower returns on deposits and short-dated bonds will lead to negative short-term investment fluctuations.

FBD Group has a strong financial position, a low-risk investment allocation and a prudent reserving strategy. The Group is also in a very strong position to progress its strategic plans and the Board is confident that FBD will continue to outperform and deliver superior returns to shareholders.

The Group is guiding full year 2013 operating earnings per share of between 145 and 155 cent, excluding any exceptional events that may arise.

FBD Holdings plc

Consolidated Income Statement

For the Year Ended 31 December 2012

FBD Holdings plc

Consolidated Statement of Comprehensive Income

For the Year Ended 31 December 2012

FBD Holdings plc

Pro Forma Reconciliation of Consolidated Operating Profit to Profit after Tax

For the Year Ended 31 December 2012

FBD Holdings plc

Consolidated Statement of Financial Position

At 31 December 2012

FBD Holdings plc

Consolidated Statement of Financial Position (continued)

At 31 December 2012

FBD Holdings plc

Consolidated Statement of Cash Flows

For the Year Ended 31 December 2012

FBD Holdings plc

Consolidated Statement of Changes in Equity

For the Year Ended 31 December 2012

FBD Holdings plc

Supplementary Information

For the Year Ended 31 December 2012

Note 1 Operating Profit by Activity - continuing operations

Note 2 Underwriting Operating Profit

FBD Holdings plc

Supplementary Information (continued)

For the Year Ended 31 December 2012

Note 3 EARNINGS PER 60 CENT ORDINARY SHARE

The calculation of the basic and diluted earnings per share attributable to the ordinary shareholders is based on the following data:

The 'A' ordinary shares of €0.01 cent each that are in issue have no impact on the earnings per share calculation.

FBD Holdings plc

Supplementary Information (continued)

For the Year Ended 31 December 2012

The calculation of the operating earnings per share, which is supplementary to the requirements of International Financial Reporting Standards, is based on the following data: