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

FBD HOLDINGS PLC

31 July 2020

FBD HOLDINGS PLC

Half yearly Report

For the Six Months ended 30 June 2020

KEY HIGHLIGHTS

· Tomás O'Midheach will join the Group on 1 February 2021 as Chief Executive Officer

· Gross Written Premium (GWP) of €176m down 7% on 2019 (down 1% excluding €11m of the Covid-19 pandemic related premium rebates included in Half Year)

· Loss Before Tax of €9m compared to profit before tax of €39m in 2019

· On-going uncertainty surrounding the Covid-19 pandemic related business interruption claims, which are subject to legal proceedings, with best estimate costs of €30m included taking into account the most up to date information in assessing the expected costs and probability of occurrence of potential outcomes

· Combined Operating Ratio of 103% impacted by the business interruption claims costs and benefiting from positive prior year claims development of €8m

· Investment portfolio down 1% at Half Year (annualised equivalent: -2%), equating to negative investment returns of €10.5m

· Our capital position remains strong with a Solvency Capital Ratio of 186% (unaudited) - we continue to deduct the 2019 proposed dividend of €35m, however the timing and amount of distribution of capital is uncertain

· Average premiums down 3.4% across the portfolio, Private Motor down 7.6%, Farm down 3%, Home down 2.3% and Business up 1.5%

· Disciplined underwriting maintained despite competitive and economic challenges

· Increase of 6,500 policy holders since the beginning of 2020

· Broader relationship with Bank of Ireland being finalised to become a panel member for Home and Motor insurance with expected launch in 2021

· Investment in customer first strategy continuing despite the challenging economic environment

o New Van product launched in April 2020

o Post Insurance partnership continuing to grow

o New business Farm offer recently launched in the market

o Web sales up as customers shift to on-line purchases

o Brand awareness increased to top 3

· GWP of €176m (2019: €190m). New business increased 15%, with continuing strong level of customer retention

· Underwriting loss of €5m (2019: profit of €29m), impacted by the business interruption costs and reduced premium income offset by frequency reductions during the lockdown period and positive prior year reserve development of €8m - this equates to a H1 COR of 103% (2019: 83%)

· Negative investment returns of -€3m through the Income Statement (2019: +€9m) and a further -€7m through Other Comprehensive Income (2019: +€14m) reflecting the impact on investment markets of the Covid-19 pandemic

· Expense ratio of 28.4% (2019: 26.1%), with the impact of the Covid-19 pandemic premium rebates increasing the ratio by two percentage points

· Net Asset Value per share 1,035 cent (2019: 896 cent) with 100 cent of increase being due to non-payment of dividend in respect of 2019 financial year

Commenting on these results Paul D'Alton, Interim Group Chief Executive, said:

"These are a robust set of results in very difficult circumstances for our customers and employees. Our profitability excluding the business interruption costs and capital position remain strong and we continue to invest in our business for the future.

We have introduced a number of measures to assist our customers through the Covid-19 pandemic including premium rebates, suspension of cover reductions and payment flexibility where required. We have also assisted customers with a wide range of supports reflecting the changed environment for individuals and businesses. We are grateful to our loyal customers for their continued support.

From an operational perspective our business continuity plans continue to work very well. Service to customers has been maintained and in FBD it has been business as usual. The vast majority of our employees have worked remotely since late March and we are now commencing a slow process of returning to the office. As part of this process our branches reopened to customers on 29th June.

We have experienced a lot of publicity in recent months regarding business interruption claims by customers. We acknowledge the disappointment and frustration of affected businesses that their Business Interruption insurance does not respond to cover pandemics. However, we are unable to provide cover for what we believe to be, and are advised is, an uninsured risk not covered by our policies. We have a duty to all of our customers to settle claims consistently with the coverage provided so that we can continue to offer products at affordable pricing levels and pay valid claims. Proceedings will be brought, by way of test case, which is now scheduled for hearing in the Commercial Court in October 2020. We believe that this is the quickest and most efficient way of achieving clarity for our customers.

Until clarity emerges in relation to Business Interruption Insurance we expect a period of uncertainty for FBD. However, we remain confident in the underlying profitability, future growth prospects, capital strength of the business and in our ability to continue to provide excellent service to our customers."

A presentation will be available on our Group website www.fbdgroup.com from 9.00 am today.

About FBD Holdings plc ("FBD")

FBD is one of Ireland's largest property and casualty insurers, looking after the insurance needs of farmers, consumers and business owners.  Established in the 1960s by farmers for farmers, FBD has built on those roots in agriculture to become a leading general insurer serving the needs of its direct agricultural, small business and consumer customers throughout Ireland. It has a network of 34 branches nationwide. 

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:

OVERVIEW

The Group reported a loss before tax of €9.3m (2019 profit: €38.7m), reduced by Covid-19 pandemic related business interruption best estimate costs of €30.0m and premium rebates to customers of €11.1m to date offset by positive prior year reserve releases of €8.0m, claim frequency reductions during Quarter 2 and benign weather. Negative investment returns of €3.3m through the Income Statement are reported reflecting the challenging market conditions as a result of the Covid-19 pandemic albeit mitigated by our conservative investment portfolio.

The Group reported an underwriting loss of €4.7m (2019 profit: €29.2m) and a GWP decrease of 7% to €176.2m (2019: €189.7m). GWP reduced by 1% compared to the first half of 2019 when the Covid-19 pandemic related premium rebates are excluded.

The Covid-19 pandemic has introduced greater levels of uncertainty to FBD and its customers including the outcome of the test cases on business interruption cover. The Group remains well positioned to support our customers through web sales, our Mullingar support centre and branch network which are fully operational and following government guidelines.

UNDERWRITING

Premium income

Gross written premium trends were strong in the first quarter of 2020 while the second quarter was impacted by the pandemic as economic activity reduced. GWP decreased to €176.2m (2019: €189.7m). €11.1m of the €13.5m decrease relates to Motor and Commercial customer rebates included to date. Motor customers with policies in place at 31 March 2020 received a €35 One4All voucher as many cars were off the road in H1 while restrictions were in place with corresponding claims frequency reductions. Commercial customers' rebates reflected the reduced exposure to Employers Liability, Public Liability and Business Interruption while businesses were closed in H1. Commercial rebates paid in H1 amounted to €0.6m and the balance of the rebates will be paid as businesses re-open. Additional commercial rebates will be made in H2 for closure periods beyond the end of June.

Customer policies increased by 6,500 compared to 2019, with new business volumes increasing year on year by 15%. Retention remains high as we provide flexibility, where possible, to our customers in these challenging times.

Average premiums reduced by 3.4% across the book. Average premium for Private Motor reduced by 7.6% due to competitive pressure and discounting, as well as a change in mix. Average Farm premium reduced by 3% while providing an improved product offering and increased covers. Home average premium reduced 2.3% due to rate reductions and discounting. Average premiums for Business increased 5.7% reflecting mix change rather than rate increases.

Reinsurance

The 2020 reinsurance programme remains largely unchanged from 2019. This programme limits our exposure to large claims, weather events and other aggregations of claims. FBD's continued strong underwriting performance resulted in modest reductions in rates.

Claims

Net claims incurred increased by €22.7m to €117.0m (2019: €94.3m) and includes business interruption claims costs. Positive prior year reserve releases of €8.0m (2019: €8.8m) are coming from frequency being better than expected (in particular for the 2019 accident year) and better than expected settlements of some larger claims.

FBD is taking a test case, now scheduled in the Commercial Court for October 2020 to resolve publicans' business interruption claims as a consequence of the Covid-19 pandemic public health measures. FBD remains strongly of the view that our business insurance policies do not provide cover for a pandemic of this nature. However, a probability weighted best estimate of claims costs has been booked on the basis that uncertainty exists surrounding the test case outcome. Further detail surrounding these claims is included in the Risks and Uncertainties section below. 

Motor damage and injury claims frequency reduced over the period primarily due to the government lockdown restricting movement. Property claims frequency increased as business interruption claims were notified and there were also more claims for smaller weather events. No significant weather events occurred in the first half of the year although attritional weather claims experience is higher than 2019, which was an exceptionally benign year.

Average cost of all capped injury claims and settlements marginally decreased over the last 12 months. However settlement activity was impacted by court closures and the inability to engage in pre-trial negotiations as a result of the Covid-19 pandemic restrictions. The average cost of property claims has reduced over the last 12 months although the Covid-19 pandemic health and social distancing guidelines are likely to have an inflationary impact on domestic building costs. Motor damage claims increased as parts and paint costs were higher, as well as average labour hours per repair.

The Motor Insurers Bureau of Ireland (MIBI) levy and Motor Insurers Insolvency Compensation Fund (MIICF) contribution combined were €6.2m (2019: €6.2m).

Claims Environment

There has been limited changes to the claims environment in recent months given the pandemic restrictions which affected the ability of courts to operate. The delay in forming a government after the election also has meant limited legislative changes.

Claims reform needs to be progressed by the new government as reducing costs for customers should remain a priority. The underlying issue of personal injury (and in particular, soft tissue) award levels must be tackled to reduce claims pay-outs and ultimately premiums for customers.

FBD welcomes the establishment of The Personal Injuries Guidelines Committee last April with guidelines due in October 2020. The guidelines when agreed by the Committee will replace the Book of Quantum, and judges will be required to provide reasons for any departure from the new guidelines in assessing damages in personal injury cases. This Committee has the chance to reduce personal injuries awards addressing the anomaly where Ireland pay awards at more than four times the UK, and provide more consistency in the assessment of damages for personal injury claims in the future. We are hopeful we will continue to see consistency with the Byrne v Ardenhealth case with responsibility placed on individuals to exercise reasonable care for their own personal safety. This should assist businesses who are being held to unreasonably high standards in personal injury cases.

Early indications are positive in respect of the PIAB (Amendment) Act enactment, addressing the non-co-operation of claimants and their legal representatives, although until claims settlements and the courts return to more normal operation the real impact is unknown.

No obvious impact is noticeable from The Civil Liability & Courts Act amendment to reduce the timeframe of notification of a claim to a defendant from two months to one month.

The new government will in time decide if the second amendment to the Civil Liability & Courts Act will be passed that would allow a claim to be dismissed if a claimant's affidavit is false or misleading. The claimant could also be referred to the DPP at the judge's discretion.

The Court of Appeal has appointed four new judges, increasing the number of sitting judges to sixteen, with three new appointments made to the High Court. Justice Mary Irvine was appointed as President of the High Court in June 2020. The impact of these recent changes will be seen over time.

The change in the Court Taxation System and adjudication of legal bills is resulting in more formal bills being presented by legal cost accountants rather than solicitor firms, and appears to be increasing legal costs and will be kept under close review.

There is a growing possibility the personal injury discount rate in Ireland will decrease, which would augment future claims liabilities. We await the outcome of the June 2020 consultation launched by the Minster for Justice and Equality to address two key issues. Firstly to determine if the judiciary should decide on the appropriate discount rate on a case by case basis, or if the Minister for Justice and Equality should be allowed to determine the discount rate and review at intervals (legislative change required to 2004 Civil Liability and Courts Act). The second issue (as has happened in the UK) is to agree if there is a need to update the investment strategy that a plaintiff is assumed to take in determining the discount rate.

We welcome an update on the Law Reform Commission review of capping of general damages on personal injury claims, to understand which model is being proposed and if the decision on the cap will lie with the Oireachtas or the judiciary.

Action is still required on many areas to see meaningful reform such as:

· Speeding up litigation and reducing legal costs;

· Creating pre-action protocol to fast-track rejected Injuries Board awards;

· Making gross exaggeration an offence; and

· Establishing and resourcing a Garda fraud investigation unit.

Claims costs may increase further as:

· The Consumer Contracts Bill was passed by the Oireachtas but has not yet been enacted. The proposed changes will make it more difficult for insurers to repudiate exaggerated claims;

· Motor and property damage repair claims may be hit by Brexit supply chain issues; and

· Property costs continue to increase as demand increases and labour supply shortages continue.

Weather, Claims Frequency and Large Claims

No significant weather events of note occurred in the period which is consistent with the experience in 2019. January and February brought a return to the more normal level of attritional weather claims and June experienced a number of Lightening claims, with overall attritional weather claims costs almost double 2019.

As a result of the Covid-19 pandemic and the restrictions put in place by the government there has been a significant reduction in Motor and Liability claims in the first half of the year. This was particularly evident in the second half of March and all of April with frequency increasing again in May and further in June. The frequency of claims relating to Farm activities remained relatively stable throughout the period.

A much lower than normal number of large claims, defined as a value greater than €250k, have been reported to FBD at 30 June. However, this metric is unreliable given that hospital priorities have been directed toward the Covid-19 pandemic and there has been very little ability in the last few months to get access to medical information in order to place a reliable estimate on injuries being reported. This uncertainty has been allowed for in arriving at our best estimate of claims liabilities.

Expenses

The Group's expense ratio was 28.4% (2019: 26.1%). Other underwriting expenses were €44.6m which increased by €0.9m due to increasing regulatory costs and IT costs, some of which were Covid-19 pandemic related to allow for home working by the Group's staff. The ratio is impacted by the decrease in earned premium as a result of the Covid-19 pandemic rebates to customers. Excluding this impact would reduce the expense ratio to 26.5%.

GENERAL

FBD's Combined Operating Ratio ("COR") was 103.0% (2019: €82.5%) generating an underwriting loss of €4.7m (2019 profit: €29.2m).

Investment Return

FBD's total annualised investment return for the first six months of 2020 was -1.9% (2019: 4.3%). This is broken down between annualised investment income of -0.6% (2019: 1.6%) through the Income Statement and annualised mark to market movements of -1.3% (2019: 2.7%) in Other Comprehensive Income (OCI). The negative returns reflect the impact on FBD's portfolio from the downturn in investment markets as a result of the Covid-19 pandemic. Markets have rallied from the worst days of the pandemic in March and all asset classes posted positive returns in Quarter 2 as a result of unprecedented fiscal and monetary support coming from central banks and governments worldwide, however earlier losses suffered were not fully recovered at the reporting date. Whilst in general markets have been very positive and appear to be pricing in a V-shaped recovery the emerging consensus among economists including the IMF, Federal Reserve and ECB is for a much longer drawn out recovery. It remains to be seen what type of recovery comes to fruition and in the meantime we can expect elevated volatility in investment markets.

The pension surplus increased during the period due to positive investment returns from sovereign bonds in which over 80% of the scheme's assets are invested and a reduction in the inflation assumption, while the discount rate remained unchanged. The assets and liabilities are reasonably well matched as a result of the structural changes made to the pension scheme in 2015 and 2016.

Financial Services

The Group's financial services operations returned a profit before tax of €0.7m for the period (2019: €2.1m). Revenue increased by €0.2m, costs increased from €2.7m to €4.2m primarily due to legal and other expenses in FBD Holdings plc.

Loss per share

The diluted loss per share was 23 cent per ordinary share, compared to a profit of 95 cent per ordinary share in 2019.

Dividend

The Board rescheduled the Annual General Meeting (AGM) to 31 July 2020 as a result of the Covid-19 pandemic, regulatory and public authority recommendations and in the interest of health and safety. The proposed dividend of 100 cent per share detailed in the 2019 Annual Report will not be brought forward for approval at the AGM as a result of the statement issued in April by the European Insurance and Occupational Pension Authority (EIOPA) urging the suspension of all discretionary dividend distributions, the heightened uncertainty resulting from the Covid-19 pandemic and the importance of maintaining capital in the business. The Board will keep the timing and amount of distributions of capital to shareholders under continuing review. The solvency of the Group remains robust and is currently at 186% (unaudited), including continuing to deduct the 2019 proposed dividend of €35m.

The Group dividend policy continues to target an annual pay-out range of 20% to 50% of full year after tax profits when appropriate given the inherent cyclicality of all insurance businesses.

STATEMENT OF FINANCIAL POSITION

Capital position

Ordinary shareholders' funds at 30 June 2020 amounted to €362.8m (December 2019: €372.2m). The decrease in shareholders' funds is driven by the following:

· An increase in the defined benefit pension scheme surplus of €4.0m after tax;

· An increase of €1.1m due to share based payments; and

· Loss after tax for the half year of €8.2m;

· Mark to market losses on Available for Sale investments of €6.3m after tax.

Net assets per ordinary share are 1,035 cent, compared to 1,068 cent per share at 31 December 2019.

Investment Allocation

The Group has a conservative investment strategy that ensures that its technical reserves are matched by cash and fixed interest securities of similar nature and duration. There has been no material changes to investment allocation since year end. The changes below reflect the impact on valuations of those asset classes impacted by the Covid-19 pandemic. There has been an increase in the overall cash held by the business.

The allocation of the Group's underwriting investment assets is as follows:

Solvency

The half year Solvency Capital Ratio (SCR) was 186% (unaudited) and continues to deduct the 2019 proposed ordinary dividend of €35m. The audited Solvency Capital Ratio (SCR) at 31 December 2019 was 193%. There is more than normal uncertainty surrounding the calculation of the Solvency Capital Ratio pending the outcome of the test cases relating to the Covid-19 pandemic related business interruption claims and movements in investment markets.

RISKS AND UNCERTAINTIES

The principal risks and uncertainties faced by the Group are outlined on pages 18-24 of the Group's Annual Report for the year ended 31 December 2019. The Covid-19 pandemic and the measures taken to mitigate its impact are having a significant effect on economic activity and give rise to additional specific risks and uncertainties for the Group.

We have experienced a reduction in claims volumes as a result of the restrictions put in place to tackle the spread of the virus. However it is feasible that shortages in parts and/or other supplies and a possible increased propensity to claim by financially stressed customers will result in increased claims costs. Court closures and difficulties in obtaining medical reports are impacting our ability to settle claims. We are continuously monitoring claims patterns as the situation unfolds.

FBD anticipates an impact on revenue as some customers reconsider their coverage amidst changing needs and financial strain causes some businesses not to re-open or individuals not to renew.

Future financial market movements and their impact on balance sheet valuations, pension surplus and investment income are unknown.

FBD has modelled a number of possible scenarios on the potential impact of the Covid-19 pandemic to its business plans. The scenario modelling included assumptions on the potential impact of the pandemic on revenue, expenses, claims frequency, claims severity, investment market recovery and in turn solvency. The output of the modelling demonstrates that the Group is likely to be profitable and remain in a strong capital position. However, the situation cannot be accurately predicted and unforeseen difficulties and events could arise.

In May and June 2020 FBD issued market updates in respect of business interruption claims received, in particular with regard to those sold to publicans, and our approach to seek a test case to have the issues resolved as quickly as possible to achieve clarity and minimise costs for all parties. We confirmed that litigation between FBD and a number of publican customers claiming cover for business interruption as a consequence of the Covid-19 pandemic public health measures has been scheduled for hearing in the Commercial Court in October 2020. FBD remains strongly of the view, and our legal advice is, that our business insurance policies do not provide cover for a pandemic of this nature. However, a probability weighted best estimate of claims costs has been booked in the half year financial results on the basis that uncertainty exists surrounding the test case outcome.

In arriving at the business interruption best estimate of €30m, FBD have assessed all available and up to date information which may impact on ultimate costs. The estimated cost of a number of different scenarios have been modelled including the degree of application of reinsurance cover. Based on legal advice received by the Group, probabilities have been assigned to each scenario and the probability weighted expected cost recognised in respect of business interruption claims received which are subject to the test case judgement. There are scenarios which could result in a significantly more adverse outcome for the Group than this but our assessment is that these have a lower probability of occurrence. It is acknowledged that there is a high degree of uncertainty in arriving at the best estimate of likely costs and in addition the Group holds a margin for uncertainty over the best estimate of claims liabilities.

In the meantime the solvency of the Group remains robust and is currently at 186% (unaudited) (31 December 2019: 192%) even while continuing to deduct the proposed 2019 dividend. As noted above, there is more than normal uncertainty surrounding the calculation of the Solvency Capital Ratio pending the outcome of the test cases relating to the Covid-19 pandemic related business interruption claims and movements in investment markets.

Economic downturn threatens increased credit exposure and concentration risk. The Group's Investment Policy, which defines investment limits and rules and ensures there is an optimum spread and duration of investments, is being monitored as the situation progresses. Regular review of the Group's reinsurers' credit ratings, term deposits and outstanding debtor balances is in place. All of the Group's current reinsurers have a credit rating of A- or better. All of the Group's fixed term deposits are with financial institutions which have a minimum A- rating. An increase in customer defaults is possible and we are actively working with customers to ensure continuation of cover where possible. As at the reporting date there was no obvious increase in distressed customers but will be subject to on-going monitoring.

The Group continues to manage liquidity risk through ongoing monitoring of forecast and actual cashflows ensuring that the maturity profile of its financial assets is shorter than or equal to the maturity profile of its liabilities and maintaining a minimum amount available on term deposit at all times. The Group's asset allocation is outlined on page 8 with a less than 15% allocation to risk assets.

Monitoring of overall business strategy adopted is required to determine continuing relevance considering the potential impacts of the pandemic on customer needs and the way in which we operate.

The restrictions put in place to fight the Covid-19 pandemic resulted in the need for current business processes and distribution models to be re-imagined by all. FBD itself has been able to adapt to the changing environment with substantially all employees working from home at the height of the restrictions. The majority of functions were largely able to maintain business as usual. We have not implemented job reduction programmes or received any government support.

From a third party risk management perspective, alternative processes were put in place with many providers to ensure continuity of service while under restricted movement. Unfortunately, due to government guidelines, our vehicle repairers and windscreen providers were only able to support emergency repairs for essential workers.

As the country re-opens, FBD has developed its own transition plan. Pre-planned actions aim to ensure operational resilience and the safety of staff and customers through extra health and security measures. Our nationwide network of 34 branches is now open to the public. We are following all government and HSE public health guidelines and ensuring that the appropriate social distancing measures are in place.

There is an inherent increased risk of regulatory action and reputational damage associated with how well a business is perceived to respond to the crisis. At FBD the safety of our staff, customers and the community within which we operate is a priority as we navigate through these difficult times. We understand the extraordinary and unprecedented challenges our customers are experiencing as a result of the actions taken to reduce the spread of Covid-19. FBD Insurance is taking several measures to support our customers through these challenging times including rebates to business customers for temporary closures and rebates to motor customers covering periods of restricted travel. From our support of the Irish Olympic Team to our sponsorship of the many other national and local initiatives, FBD Insurance is committed to continue supporting the local communities in which we operate and in which our customers live and work. We acknowledge the disappointment and frustration of affected businesses that their business interruption insurance does not respond to cover pandemics. However, we are unable to provide cover for what we believe to be, and are advised is, an uninsured risk not covered by our policies.

Since 31 December there has been minimal updates to Brexit associated risks and uncertainties as the UK and the EU continue to negotiate and agree details of their future trade relationship. The EU has formally accepted that the UK will not seek an extension to the Brexit transition period, which expires at the end of December 2020.

OUTLOOK

The half year results for 2020 reflect economic and legal challenges faced by the business as a result of the Covid-19 pandemic resulting business interruption claims costs, negative investment returns and lower premium income. There are also positive impacts in the result as the weather was relatively benign with some positive prior year releases and continued underwriting discipline in a highly competitive environment. New business has grown although overall premium levels are decreasing as discounting and mix changes feed through.

The Group is following a clear strategy that is expected to deliver sustainable growth in book value through a customer centred approach, underwriting discipline and careful risk selection. Continuing underwriting discipline and careful risk selection is critical, particularly in a softening market, to ensure FBD maintains its capital strength and secure its future ability to service customers and pay claims.

The determination of the Commercial Court in the test cases relating to the Covid-19 pandemic business interruption claims will bring clarity to FBD and customers and we await the outcome in due course. In addition we will be monitoring the progress of the FCA test case on business interruption policy wordings in the UK and will consider developments here carefully.

The Covid-19 pandemic and Brexit are both major challenges that face all businesses for the foreseeable future. The Covid-19 pandemic has changed the way we live and work and as a business we are following all government guidelines and regulations to ensure safe interactions for our employees and customers alike. Despite government support there will be economic casualties as people lose jobs and businesses close and we as a business have to adapt to the changing environment as it evolves. The business is planning for all possible Brexit scenarios to ensure our customers can be fully supported no matter the outcome.

FBD will continue to advocate for moderation of injury awards and personal accountability to reduce claims costs as these changes will have a positive impact on premium levels for all. The Personal Injuries Guidelines Committee has an opportunity to reset the dial for personal injury awards in Ireland, reducing claims payouts and tackling the compensation culture that permeates Irish society.

We remain confident in the capital strength and underlying profitability of the business, strategic opportunities that exist for growth and in our ability to continue to provide excellent service to our customers.

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Income Statement

For the half year ended 30 June 2020

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Income Statement

For the half year ended 30 June 2020

1 Diluted earnings per share reflects the potential vesting of share based payments.

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Statement of Comprehensive Income

For the half year ended 30 June 2020

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Statement of Financial Position

At 30 June 2020

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Statement of Financial Position (continued)

At 30 June 2020

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows

For the half year ended 30 June 2020

FBD HOLDINGS PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Statement of Changes in Equity (UNAUDITED)

For the half year ended 30 June 2020

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 1 - Statutory information

The half yearly financial information is considered non-statutory financial statements for the purposes of the Companies Act 2014 and in compliance with section 340(4) of that Act we state that:

• the financial information for the half year to 30 June 2020 does not constitute the statutory financial statements of the company;

• the statutory financial statements for the financial year ended 31 December 2019 have been annexed to the annual return and delivered to the Registrar;

• the statutory auditors of the company have made a report under section 391 Companies Act 2014 in respect of the statutory financial statements for year ended 31 December 2019; and

• the matters referred to in the statutory auditors' report were unqualified, and did not include a reference to any matters to which the statutory auditors drew attention by way of emphasis without qualifying the report.

This half yearly financial report has not been audited but has been reviewed by the auditors of the Company.

Note 2 - Accounting policies

Basis of preparation

The annual financial statements of FBD Holdings plc are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than twelve months from the date of this report. In making this assessment the Directors considered the potential impact of the Covid-19 pandemic on the Group's business over the period of assessment. This included reviewing projections reflecting the Covid-19 pandemic potential impacts across base case, pessimistic and optimistic scenarios. The scenarios included a range of estimates based on the length of time the economy takes to recover as well as the outcome of the business interruption test cases. The economic recovery will impact on premiums including potential reductions in exposures, new business and retention levels. The timing of recovery will also impact on the claims frequency and severity as the economy rebounds as well. Expense assumptions changed depending on the level of premiums as discretionary spend and resources were adjusted. A positive and more adverse view of investment markets were assumed in arriving at assumptions for future investment returns. The scenarios are most sensitive to changes in business interruption claims costs. The pessimistic scenario assumes the loss of the business interruption test cases and indemnity being provided for the closure period under government advice in place at the date of this half yearly report. The Solvency Capital Requirement of the business was calculated for each of the scenarios run and the capital position was well in excess of the Group's preferred risk appetite.

We have implemented required health and safety changes to our branch offices, contact centre and head office to ensure the safe working conditions for all customers and employees. Many of our staff continue to work remotely. No structural changes are required by the business as a result of the Covid-19 pandemic and the capital investment and change projects undertaken by the business have continued.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 2 - Accounting policies (continued)

Going concern (continued)

 The Own Risk and Solvency Assessment (ORSA) process monitors current and future solvency needs. A number of ORSA scenarios were run that included an extreme scenario of losing the business interruption test cases for the full indemnity period with no reinsurance cover. The Solvency Capital Requirement of the business remained within the risk appetite range of the Group and all scenarios included payment of the 2019 proposed dividend.

On the basis of the scenarios projected by the Group and the additional ORSA scenarios run, the Directors are satisfied that there is no material uncertainty that the Group will have sufficient capital to meet its Solvency Capital Requirements for the next twelve months and therefore continue to adopt the going concern basis of accounting in preparing the condensed financial statements.

Consistency of accounting policy

The accounting policies and methods of computation used by the Group to prepare the interim financial statements for the six month period ended 30 June 2020 are the same as those used to prepare the Group Annual Report for the year ended 31 December 2019 except as described below.

Premium Rebates

Premium rebates relate to elements of premium written returned to policyholders as a result of agreed reductions in risk exposure. In previous periods the earnings impact of premium rebates was recognised over the remaining term of the policy on a 365th of premium written basis in line with the above policy. To the extent that current period premium rebates relate to reduced exposure for a specific period within the term of impacted policies, the earning impact has been recognised directly in that period.

Standards adopted in the period

The impact of new standards, amendments to existing standards and interpretations issued and effective for annual periods beginning on or after 1 January 2020 has been assessed by the Directors and none have had or are expected to have a material effect for the Group.

Standards and interpretations not yet effective

IFRS 17 Insurance Contracts1

IFRS 9 Financial instruments2

1 Effective for annual periods on or after 1 January 2023, with earlier application permitted.

2 Effective for annual periods on or after 1 January 2023, with earlier application permitted.

IFRS 17 Insurance Contracts

IFRS 17 Insurance Contracts is effective for annual periods beginning on or after 1 January 2023.

IFRS 17 is expected to have a material impact on the Consolidated Financial Statements of the Group. There is a project team in place and training has been provided on the impact of the new standard. The Groups implementation programme is progressing in line with expectations.

IFRS 9 Financial Instruments in respect of the Consolidated Financial Statements is being considered as part of the project for the adoption of IFRS 17 Insurance Contracts.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 2 - Accounting policies (continued)

Critical accounting estimates and judgements in applying accounting policies

The accounting policies and methods of computation used by the Group to prepare the interim financial statements for the six month period ended 30 June 2020 are the same as those used to prepare the Group Annual Report for the year ended 31 December 2019 other than as noted above. In the application of these accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The key judgements and the key sources of estimation uncertainty are detailed below. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results may differ from these estimates.

The following are the key judgements and critical estimates that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Claims provisions

Claims provisions represent the estimation of the cost of claims outstanding under insurance contracts written. Actuarial techniques, based on statistical analysis of past experience, are used to calculate the estimated cost of claims outstanding at half year. Allowance is made for any changes or uncertainties that may cause the cost of unsettled claims to increase or reduce. In addition the Group holds a margin for uncertainty over the best estimate of claims liabilities. At each reporting date liability adequacy tests are performed to ensure the adequacy of the liabilities. Any deficiency is recognised in the Income Statement.

Litigation between FBD and a number of publican customers claiming cover for business interruption as a consequence of the Covid-19 pandemic public health measures has been scheduled for hearing in the Commercial Court in October 2020. FBD remains strongly of the view that our business policies do not provide cover for a pandemic of this nature, however claims liabilities include a provision to cover costs that may be incurred. The outcome of the litigation is uncertain and the provision made represents a mix of possible scenarios and assumptions around compensation and legal costs. Judgement has been applied in assigning probabilities to possible scenarios. As at the reporting date the claims provisions are most sensitive to the outcome of the business interruption test cases. The ultimate cost to the Group is unknown at 30 June 2020 and it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from the assumptions made could require a material adjustment to the carrying value of the liabilities. The going concern assessment outlined on pages 18 to 19 of this report considered the potential impact of the Covid-19 pandemic on the Group's business including an extreme scenario of losing the business interruption test cases for the full indemnity period with no reinsurance cover.

Uncertainties in impairment testing

As at the reporting date it is noted that the market capitalisation, that is the quoted share price multiplied by the number of ordinary shares in issue, is lower than the Shareholders' Funds as per the Statement of Financial Position. There are a large number of factors driven by market conditions that can influence the market capitalisation of a company which includes but are not limited to, uncertainties such as Brexit and the Covid-19 pandemic or other factors such as shares being traded less frequently. The current economic conditions as a result of the global pandemic and the market capitalisation being below net assets are considered to be external indicators of impairment and create a necessity to make a formal estimate of recoverable amount to test whether any actual impairment exists. For tangible and intangible assets, the

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 2 - Accounting policies (continued)

Critical accounting estimates and judgements in applying accounting policies (continued)

recoverable amount of an asset is the higher of its value in use or its fair value less costs to sell. In the case of the Property, Plant and Equipment, Policy Administration System, Intangible Assets and Right of Use Assets there is no reliable estimate of the price at which an orderly transaction to sell the assets would take place and there are no direct cash-flows expected from the individual assets. These assets are an integral part of the FBD General Insurance business, therefore, the smallest group of assets that can be classified as a cash generating unit is the FBD General Insurance business.

The Value in Use of the cash generating unit has been determined by estimating the future cash inflows and outflows to be derived from continuing use of the group of assets, therefore the FBD General Insurance business, and applying a discount rate to those future cash flows. As with all projections there are assumptions made that will be different to actual experience however given the increased uncertainty surrounding the economic recovery from the pandemic these estimates are considered a critical accounting estimate as at the reporting date.

The Value in Use cash flow projections are based on business plans covering a three-year period. These plans represent management's best estimate of future underwriting profits and fee income for the FBD General Insurance business factoring in both past experience as well as expected future outcomes relative to market data and the strategy adopted by the Board. The underlying assumptions of these forecasts include average premiums, number of policies written, claims frequency, claims severity, weather experience, commission rates, fee income charges and expenses. The average growth rate used for the first three years is 1.9% while the later three-year period is extrapolated using a declining growth rate on average of -1.0%. Future cash flows are discounted using an estimated weighted average cost of capital of 9.4% in the discounted cash flow model which is adjusted through sensitivity analysis to approximate a market equivalent discount rate.

Sensitivity analysis was performed on the projections to allow for possible variations in the amount of the future cash flows and potential discount rate changes used to assess the impact on the headroom. Projections reflecting Covid-19 pandemic potential impacts across base case, pessimistic and optimistic scenarios were considered. These projections included a range of estimates based on the length of time the economy takes to recover as well as the outcome of the business interruption test cases.

The scenarios run resulted in headroom ranging from 1.1 to 2.3 times when comparing the Value in Use of the cash generating unit to the carrying value of the assets, indicating that there is no impairment of the assets.

Accounting for the Defined Benefit Pension Obligations

The valuation of the pension scheme is provided by the Group's consultant actuaries. The critical accounting estimates in recognising the defined benefit pension surplus is the measurement of the defined pension obligations.

The valuation of the defined benefit obligation is sensitive to actuarial assumptions. These include demographic assumptions covering mortality and longevity, and economic assumptions covering price inflation and the discount rate used. Sensitivities regarding the principal assumptions used to measure the scheme liabilities are detailed in note 31 of the Group Annual Report for the year ended 31 December 2019.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 3 - Segmental information

(a) Operating segments

The principal activities of the Group are underwriting of general insurance business and financial services. For management purposes, the Group is organised in two operating segments - underwriting and financial services. The profit earned by each segment is reported to the chief operating decision maker, the Group Chief Executive, for the purpose of resource allocation and assessment of segmental performance. Central administration costs and Directors' salaries are allocated based on actual activity. Income taxation is a direct cost to each segment. Discrete financial information is prepared and reviewed on a regular basis for these two segments. The accounting policies of the reportable segments are the same as the Group accounting policies.

The following is an analysis of the Group's revenue and results from continuing operations by reportable segments:

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 3 - Segmental information (continued)

(a) Operating segments (continued)

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 3 - Segmental information (continued)

(b) Geographical segments

The Group's operations are located in Ireland.

Note 4 - Underwriting result

The Group's half yearly results are not subject to any significant impact arising from seasonality of operations.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 5 - Dividends

The FBD Board has decided not to proceed at this time with the proposed dividend payment for the 2019 Financial Year detailed in the 2019 Annual Report, taking into account the statement issued in April by the European Insurance and Occupational Pensions Authority (EIOPA) urging the suspension of all discretionary dividend distributions due to the heightened uncertainty resulting from the Covid-19 pandemic and the importance of maintaining capital in the business. The Board will keep the timing and amount of distributions of capital to shareholders under continuing review.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 6 - Ordinary share capital

The number of ordinary shares of €0.60 each held as treasury shares at 30 June 2020 was 408,744. At 31 December 2019 the number held was 598,742.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 7 - Earnings per €0.60 ordinary share

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

1 Diluted earnings per share reflects the potential vesting of share based payments.

The 'A' ordinary shares of €0.01 each that are in issue have no impact on the earnings per share calculation. The 'A' ordinary shares of €0.01 each are non-voting. They are non-transferable except only to the Company. Other than a right to a return of paid up capital of €0.01 per 'A' ordinary share in the event of a winding up, the 'A' ordinary shares have no right to participate in the capital or the profits of the Company.

The below table reconciles the profit or loss attributable to the parent entity for the period to the amounts used as the numerators in calculating basic and diluted earnings per share for the period and the comparative period including the individual effect of each class of instruments that affects earnings per share:

FBD HOLDINGS PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2020

Note 7 - Earnings per €0.60 ordinary share (continued)

The below table reconciles the weighted average number of ordinary shares used as the denominator in calculating basic earnings per share to the weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share including the individual effect of each class of instruments that affects earnings per share:

Note 8 - Retirement Benefit Surplus

The Group operates a funded defined benefit retirement scheme for qualifying employees that is closed to future accrual and new entrants. The retirement benefit surplus increased by €4,577,000 in the period mainly due to positive investment returns and a decrease in the inflation assumption from 1.3% to 1.0%, while the discount rate remained unchanged at 0.9%.

The amounts recognised in the Statement of Financial Position are as follows: