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

FBD HOLDINGS PLC

26 August 2014

FBD HOLDINGS PLC

Half Yearly Report

For the Six Months Ended 30 June 2014

OPERATIONAL HIGHLIGHTS

§ Gross written premium up 5.1% to €184.9m with growth achieved across all customer segments, further increasing the Group's market share

§ As expected, profit is lower than in the same period in 2013 primarily due to an increased cost of severe and persistent weather and increased frequency of car insurance claims

§ Annualised investment return of 3%, an excellent result in a continuing low return environment

§ FBD Insurance's capital base further strengthened with a solvency level of 73.4%, compared to 69.7% at 30 June 2013

§ Interim dividend increased to 17.0 cent per share, demonstrating the Group's commitment to a progressive dividend policy

§ Full year operating earnings per share guidance re-affirmed at 70 - 80 cent per share subject to no further exceptional weather events arising

Commenting on the results, Andrew Langford, Group Chief Executive, said:

"These are robust results in a period significantly influenced by weather and an increase in claims frequency across the Irish car insurance market. In this period, we have worked tirelessly to put things right for over 9,000 customers directly impacted by the severe weather, at a cost of €44.3 million. Our strong position and continuing investment in the Irish market delivered further growth in premium and market share. The increased interim dividend delivers on our commitment to a progressive dividend policy and reflects our confidence in our strategy for the future."

A presentation will be made to analysts at 10.30am 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

Half Yearly Report

For the Six Months Ended 30 June 2014

INTERIM MANAGEMENT REPORT

OVERVIEW

FBD increased gross written premium by 5.1% and delivered a profit before tax of €3.3m (2013: €19.1m) in the first half of 2014, a robust performance in extremely difficult market conditions. In the period, an already challenged and competitive Irish insurance market experienced severe weather and an increase in car insurance claims frequency arising from a sharper than expected increase in Irish economic activity. The cost of severe and persistent weather in the period was €44.3m, gross of reinsurance, and €15.3m, net of reinsurance.

Premium in the Irish insurance market stabilised during the period following eleven consecutive years of decline. While the market remains very competitive, rates have continued to harden for both car insurance and business insurance. FBD increased gross written premium by 5.1% to €184.9m (2013: €175.9m). Average premiums increased by 3.1% and policy volume increased by 2.0%. Growth was achieved across all customer segments and, as a result, the Group's market share increased again in the first half of 2014.

Underwriting

FBD incurred an underwriting loss of €10.9m in the first half of 2014 (2013: profit of €7.7m).

FBD has made further progress in delivering on its strategic priorities and in aligning its business to continue to meet the needs of customers. Gross written premium increased by 5.1% to €184.9m. Average premiums increased by 3.1% and policy volume increased by 2.0%. Growth has been delivered across all of FBD's customer segments during the period. The Group further increased its market share, and has done so in twelve of the last thirteen years.

FBD maintained its focus on the insurance needs of its key farm and direct business customers. This delivered growth in premium and policy volume from these customers during the period. FBD's relationships with broker partners are developing well and business written is gaining momentum. Growth has also been achieved in online sales through both FBD.ie and No Nonsense. The recently launched "Clan" car insurance product for the broker market, has delivered as expected. Growth generated by these initiatives was somewhat offset by home insurance, where FBD has continued to maintain its underwriting discipline rather than compete with uneconomic rates in the market.

Net claims incurred increased to €117.9m (2013: €100.6m) and, as a result, the loss ratio increased from 68.8% to 79.5%. Severe and persistent weather and large claims accounted for 26% of earned premium compared to an average of 16.5% for the previous seven years. The attritional loss ratio increased to 53.9% (2013: 50.4%) with the increase in car insurance claims frequency, arising from the sharp increase in economic activity, more than offsetting increased rates.

The cost of the weather experience in the first half of 2014 is the highest in the Group's history. The wind storm in mid-February ("Storm Darwin") is likely to cost FBD €30.4m, gross of reinsurance, and €7.8m, net of reinsurance including reinstatement premium. A series of persistent wind storms in the previous six weeks cost the Group €13.9m, gross of reinsurance, and €7.5m, net of reinsurance. These events create great difficulties for our customers, more than 9,000 of whom were directly affected. Putting things right for them is at the centre of what we do and is the reason why they reward us with their loyalty. The frequency of large claims with a cost, net of reinsurance, in excess of €1m is in line with expectations during the first half of 2014, reverting to norm following the unusually high level experienced in 2013.

The Irish car insurance market has been unprofitable for some time, with a combined operating ratio for the period 2011 to 2013 of approximately 112%. As the domestic economy moved from contraction to recovery, increased activity led to higher claims frequency, with more vehicles driving more miles on increasingly busy roads. Retail sales of automotive fuels, a proxy for miles driven and motor insurance risk, is up almost 9% year on year, far exceeding expectation. The increase in frequency is not restricted to any one segment of FBD's book and applies equally across all customer profiles. Although FBD took rating action, policy volume continued to rise in the first half of 2014, suggesting that a market wide adjustment to compensate for the increase in frequency is underway.

While the increase in economic activity is positive for FBD in the medium term, the pace of growth in economic activity does impact profitability in the short term, as there is inevitably a time lag before rate increases match growth in accident frequency.

The Group continues to invest in its platform for growth, which will have an influence on its expense ratio in the short-term. The expense ratio rose from 26.0% to 27.8%. One of the primary reasons for this increase was the reinstatement premium payable to reinsurers following Storm Darwin in February 2014. In addition, as FBD's relationship with broker partners has gained momentum, there has been an increase in broker commissions payable.

FBD's combined operating ratio for the first half of 2014 was 107.3%, compared to 94.7% in the first half of 2013. Longer-term investment return at €14.6m was higher than the €14.2m in the first half of 2013. The operating profit before taxation for the Group's underwriting operation amounted to €3.7m (2013: €21.9m).

Financial Services

The Group's financial services operations include premium instalment services and life, pension and investment broking (FBD Financial Solutions) less holding company costs. These generated a solid performance in a tough environment, delivering an operating profit of €1.7m (2013: €2.2m).

Profit before taxation

Group operating profit before taxation was €5.4m (2013 €24.1m). The operating result was somewhat offset by adverse investment return fluctuations of €2.2m (2013: €4.3m). In the low interest rate environment resulting from accommodative monetary policies, investment income levels were below historic long term norms. The Group achieved an actual annualised investment return of 3% (2013: 2.4%), an excellent result.

The Group's share of the profit from the property and leisure joint venture in the seasonally less profitable first half was €0.1m, an improvement of €0.5m on 2013. The trading improvement was due to growth in occupancy, rate and revenue per room, particularly in the Irish market which is performing strongly. The joint venture's agreement with Taylor Wimpey for the sale of a segment of the development land in La Cala is progressing according to plan and is in line with the joint venture's objective of realising value as market conditions improve. The joint venture continued to be cash generative in the period.

The Group achieved a profit before tax of €3.3m (2013: €19.1m).

Dividends

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.

FBD has a track record of delivering superior returns to shareholders. The nature of the insurance business is that earnings will be influenced by the timing of weather events and the fact that the industry is inherently cyclical. Despite the reduced profitability in the period, the Board is committed to its progressive dividend policy and efficient management of capital and restates its desire to have a 40% to 50% pay-out ratio across the insurance cycle. In recognition of this, the Board approved an interim dividend payment of 17.0 cent per share (2013: 15.75 cent), an increase of 8%.

The interim dividend will be paid on 1 October 2014 to the holders of shares on the register on 5 September 2014. It is subject to dividend 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.

Earnings per share

Operating earnings per share based on longer-term investment return amounted to 14 cent per ordinary share, compared to 63 cent in the first half of 2013. The diluted earnings per share was 8 cent (2013: 49 cent) per ordinary share.

STATEMENT OF FINANCIAL POSITION

The Group's financial position remains robust. Ordinary shareholders' funds stand at €265.1m (December 2013: €277.2m). Net assets per ordinary share are 776 cent, compared to 823 cent per share at December 2013. The reduction in shareholders' funds is mainly attributable to the payment of the final 2013 dividend of €11.3m and an increase in the liability for the Group's retirement benefit obligations of €7.2m, offset by earnings in the period. The increase in the liability for the Group's retirement benefit obligations arises as the discount rate used to value the pension scheme's liabilities reached an all-time low. This was partially offset by increased equity values.

Table 1 shows how the assets of the Group were invested at the beginning and end of the period.

Table 1 - Asset Allocation

The Group continues to be encouraged by the improvement in confidence in the global economy and by policymakers' actions to address the dislocation in the international monetary system. However, given continuing low bond yields, the Group believes it is appropriate to maintain its tactical asset allocation and is holding 87% of its underwriting assets in cash and short dated bonds. The average term of the Group's assets remains shorter than the average term of its insurance liabilities, with more term deposits and less fixed interest securities than the Group's strategic investment allocation.

Taking advantage of the attractive valuations attributable to equities during the first six months of 2014, FBD reduced its equity holdings by over 20%. FBD's current investment allocation continues to be appropriate and guards against any volatility which may emerge as the era of low investment returns draws to a close. The high allocation to cash reduces the risk of unrealised losses on fixed income and provides FBD with the opportunity to capitalise on higher yield opportunities as they emerge. This tactical asset allocation is indicative of the Group's desire to preserve capital, particularly as the reward available on longer dated assets does not justify the additional risk. This protects customers and shareholders and positions the Group well for a rising yield environment.

FBD Insurance had a solvency level of 73.4% of net premium earned at 30 June 2014, up from 69.7% at the same period in 2013, which represents 366% (2013: 342%) of the minimum solvency margin, and a reserving ratio of 241% (2013: 235%). FBD continues to maintain a healthy surplus over the claims reserves best estimate. 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 on 1 January 2016. FBD Insurance has calculated its solvency capital requirement on the basis that Solvency II, as currently proposed, was effective at 30 June 2014. The results showed that FBD Insurance had excess capital over the expected requirement.

OUTLOOK

Economic indicators point to an improved outlook for Ireland. The Irish insurance market is likely to grow in 2014 following eleven consecutive years of decline. The rate of growth will depend on the speed and extent with which the market chooses to adjust rates to deliver an acceptable return.

The Group is well positioned to continue to outperform the market. Growth in the second half is more likely to come from rate than volume as the Group ensures that car premiums reflect increasing claims frequency.

Market profitability will continue to be challenging for the remainder of 2014 as the effect of rate increases are likely to have been more than offset by the upturn in frequency. The precise timing and quantum of the improvement in market profitability will depend on the evolution of frequency arising from economic growth and any further rating action.

Rate increases implemented by FBD since the beginning of 2014 will improve the loss ratio over time. The inevitable lag before rate actions are effective will have a short term impact on profitability in 2014 and the early part of 2015, as previously guided.

Growth in economic activity will have a positive effect on FBD in the medium term, particularly given the Group's track record of outperforming the market. FBD is committed to achieving profitable growth by constantly focussing its business on the needs of customers. The Group has developed the ability to broaden its customer reach, allowing it to increase its penetration of key urban markets, in particular Dublin, and of the business insurance market, in partnership with brokers when market conditions are appropriate. This, together with its continued focus on farming and direct business customers, will enable the Group to continue to outperform the market and deliver superior returns to shareholders.

The Group re-affirms its previous guidance, subject to no further exceptional weather events arising, for full year 2014 operating earnings per share of between 70 and 80 cent.

PRINCIPAL RISKS AND UNCERTAINTIES

Under the Transparency (Directive 2004/109/EC) Regulations 2007 the Group is required to give a description of the principal risks and uncertainties it faces.

The Board considers that the risks and uncertainties disclosed in the Annual Report for the year ended 31 December 2013 continue to reflect the principal risks and uncertainties of the Group over the remainder of the financial year. In the 2013 Annual Report, risk was categorised as general insurance risk, capital management risk, operational risk, liquidity risk, market risk, credit risk, concentration risk and macro-economic risk.

Further information on these risks is included in pages 115 to 124 of the 2013 Annual Report, which quantifies the sensitivity of parameters such as loss ratio, equity and property values and exchange and interest rates. The risks and uncertainties have not altered and movement in the parameters described above may be experienced in future periods.

The Group has a risk management policy which provides a systematic, effective and efficient way for managing risk in the organisation and ensures it is consistent with the overall business strategy and the risk appetite of the Group.

Risk appetite is a measure of the amount and type of risks the Group is willing to accept or not accept over a defined period of time in the pursuit of its objectives. The Group's risk appetite seeks to encourage measured and appropriate risk taking to ensure that risks are aligned to business strategy and objectives.

The risk appetite in the Group's underwriting subsidiary is driven by an overarching desire to protect its solvency at all times. Through the proactive management of risk, it ensures that it does not have or will not take on an individual risk or combination of risks that could threaten its solvency. This ensures that it has, and will have at all times, sufficient capital to pay its policyholders and all other creditors in full as liabilities fall due.

RELATED PARTY TRANSACTIONS

There were no related party transactions in the half year that have materially affected the financial position or performance of the Group.

AUDIT REVIEW

This half yearly financial report has not been audited or reviewed by the auditors of the Group.

FBD HOLDINGS PLC

Condensed Consolidated Income Statement

For the half year ended 30 June 2014

FBD HOLDINGS PLC

Condensed Consolidated Statement of Comprehensive Income

For the half year ended 30 June 2014

FBD HOLDINGS PLC

Pro Forma Reconciliation of Consolidated Operating Profit to PROFIT after TaxATION

For the half year ended 30 June 2014

FBD HOLDINGS PLC

Condensed Consolidated Statement of Financial Position

At 30 June 2014

FBD HOLDINGS PLC

Condensed Consolidated Statement of Financial Position (continued)

At 30 June 2014

FBD HOLDINGS PLC

Condensed Consolidated Statement of Cash Flows

For the half year ended 30 June 2014

FBD HOLDINGS PLC

Condensed Consolidated Statement of Changes in Equity (UNAUDITED)

For the half year ended 30 June 2014

FBD HOLDINGS PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the half year ended 30 June 2014

Note 1 - General information

The information for the year ended 31 December 2013 does not constitute statutory accounts as defined in Section 19 of the Companies (Amendment) Act 1986. A copy of the statutory accounts for that year has been delivered to the Register of Companies. The auditors' report on those accounts was not qualified and did not contain any matters to which attention was drawn by way of emphasis.

This half yearly financial report has not been audited or reviewed by the auditors of the Group.

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 the foreseeable future, a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the 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 2014 are the same as those used to prepare the Group Annual Report for the year ended 31 December 2013 except as described below.

The following new and revised Standards and Interpretations have been adopted in these financial statements in the current period:

IFRS 10: Consolidated Financial Statements

IFRS 11: Joint Arrangements

IFRS 12: Disclosure of Interests in Other Entities

Amendments to IAS 27: Separate Financial Statements

Amendments to IAS 28: Investments in Associates and Joint Ventures

IAS 32: Financial Instruments: Presentation

The adoption of these standards has not had any significant impact on the amounts reported in this interim report.

Critical accounting estimates and judgements in applying accounting policies.

The critical accounting estimates and judgements used by the Group in applying accounting policies are the same as those used to prepare the Group Annual Report for the year ended 31 December 2013. While there have been some changes in estimates of amounts in the current financial period, these changes do not have a significant impact on the results for the period.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the half year ended 30 June 2014

Note 3 - Longer-term investment return

The rates of investment return underlying the calculation of the longer term investment return are set out below. These rates are reviewed annually and reflect both historical experience and the Directors' current expectations for longer term investment returns.

Note 4 - 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. These two segments are the basis upon which information is reported to the chief operating decision maker, the Group Chief Executive, for the purpose of resource allocation and assessment of segmental performance. Discrete financial information is prepared and reviewed on a regular basis for these two segments.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the half year ended 30 June 2014

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