Annual Report • Apr 14, 2021
Annual Report
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FBD HOLDINGS PLC
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| Board of Directors | 44 |
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| Report of the Directors | 46 |
| Corporate Governance | 52 |
| Nomination and Governance Report | 63 |
| Report on Directors' Remuneration | 66 |
| Directors' Responsibilities Statement | 79 |
| Independent Auditors' Report | 82 |
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| Consolidated Income Statement | 92 |
| Consolidated Statement of Comprehensive Income | 93 |
| Consolidated Statement of Financial Position | 94 |
| Consolidated Statement of Cash Flows | 96 |
| Consolidated Statement of Changes in Equity | 97 |
| Company Statement of Financial Position | 98 |
| Company Statement of Cash Flows | 99 |
| Company Statement of Changes in Equity | 100 |
| Notes to the Financial Statements | 101 |
| Alternative Performance Measures | 159 |
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Established in the 1960s by farmers for farmers, FBD has built on our roots in agriculture to become a leading general insurer directly serving the needs of agricultural, small business and consumer customers throughout Ireland.
Explore online Visit our website to fi nd out more: www.FBD.ie or follow us and join the conversation
Further information on the above measures is found in Alternative Performance Measures on pages 159 and 160.
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| 2020 €000s |
2019 €000s |
|
|---|---|---|
| Gross premium written | 358,230 | 370,063 |
| Net premium earned | 315,232 | 337,553 |
| Profi t for the fi nancial year | 4,390 | 98,225 |
| 2020 Cent |
2019 Cent |
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| Basic earnings per share | 13 | 281 |
| Diluted earnings per share | 121 | 2761 |
| Net asset value per share | 1,095 | 1,068 |
| Ordinary dividend per share proposed | — | 100 |
| Ordinary dividend per share paid | — | 50 |
| 2020 % |
2019 % |
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| Combined operating ratio | 101.4% | 72.3% |
| Return on equity | 1% | 30% |
1 Diluted earnings per share refl ects the potential vesting of share based payments
| Preliminary announcement | 26 February 2021 |
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| Annual General Meeting | 12 May 2021 |
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FBD's purpose is to support, protect and stand with Ireland's families, farms and businesses to enable our customers to grow and thrive.
We are proud of our roots in farming and of our Irish heritage. We are proud of our expertise and appreciate the trust of our customers. We take pride in being part of the communities we serve. We evolve to meet the changing needs of our customers and the next generation of customers.
We look forward to supporting families and family businesses for generations in the same way we have supported Ireland's farmers.
We will carefully grow our business, building the FBD brand and securing FBD's future.
The pandemic presented its own challenges but despite these the Group has produced a robust set of results in the circumstances.
Liam Herilhy Chairman
The past year has been a very diffi cult one for people across the country with the impact of the pandemic felt by individuals personally as well as the economic challenges caused by the necessary public health measures put in place by the Government.
For FBD the pandemic presented its own challenges but despite these the Group has produced a robust set of results in the circumstances. Despite providing for costs of €65m relating to Covid-19 business interruption claims for customers holding our public house policies, we have been able to report a Group Profi t before Tax of €4.8m and our Net Asset Value (book value) per share grew to 1,095 cents. Our Solvency Capital Ratio continues to be very strong at 197% (unaudited). This demonstrates the resilience of our business in trying circumstances.
I would like to particularly acknowledge our loyal FBD staff for their unwavering commitment and contribution in this very challenging year. They have successfully adopted remote working and have continued to provide the dedication to customers and great customer service that continues to be a diff erentiator for
FBD. This has not been easy and it is much appreciated by the Board and I would like to say a very sincere thank you to all.
I am delighted that Tomás Ó'Midheach joined the Group on 4th January 2021 as Chief Executive Offi cer (CEO) and Executive Director of both the Group and of FBD Insurance plc. Tomás has considerable knowledge of the Irish fi nancial services landscape and he brings a wealth of experience to FBD in areas including fi nance, data, customer analytics, direct channels and digital. Tomás previously worked with Citibank and most recently has been Deputy CEO and an Executive Board member of AIB. I look forward to working with him to grow our business and deliver for our customers and stakeholders.
I would like to acknowledge the contribution to FBD of Paul D'Alton, who acted as Interim Chief Executive Offi cer since April 2020 and to thank him for his steady leadership through the challenging times brought about by Covid-19. We wish him well in his next endeavours.
I was also pleased to announce the appointment of Tim Cullinan as an
independent Non-Executive Director in December last. Tim was elected President of the Irish Farmers' Association (IFA) in December 2019 and has been heavily involved in the IFA over the past 15 years. He is also a Non-Executive Director of Bord Bia and represents Irish farmers at EU level on COPA, which is the offi cial umbrella representative body for European farmers. Tim brings to FBD considerable and valuable understanding and insights into Ireland's rural and agricultural communities.
I would like to thank Joe Healy who resigned from the Board in July 2020 following the conclusion of his period in offi ce as IFA President. Joe brought many helpful insights on issues aff ecting the farming community throughout his three years on the Board and I very much appreciate his contribution and wish him well for the future.
The Covid-19 pandemic has resulted in signifi cant personal and professional challenges for people and businesses across the country. 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 fl exibility where required. We have also assisted customers with a wide range of supports refl ecting 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. A signifi cant proportion of our employees have worked remotely since late March. FBD has developed its own action plan to ensure operational resilience and the safety of staff and customers through extra health and security measures as offi ces re-open. We are following all Government and HSE public health guidelines and ensuring that the appropriate social distancing measures are in place.
We have experienced a lot of publicity in recent months regarding Covid-19 related business interruption claims by customers holding public house policies. We acknowledge the diffi culties that the pandemic is causing these businesses. Our approach has been to achieve clarity on the liability and quantum position by taking proceedings in the Commercial Court by way of test case. We believed that this was the quickest and most effi cient way of achieving clarity for our customers. The hearing took place in October 2020 and the judgement was issued on 5th February last, where the interpretation of the policy wording was challenged.
FBD notes the decision of the Court that our public house policies do provide cover in the circumstances reviewed. We have now commenced the process of settling claims for the customers involved which will include issuing interim payments in the short-term while awaiting fi nal clarity on quantum. FBD will also consider the eff ects of the judgement with its long standing high quality panel of reinsurers and seek agreement on the correct application of our reinsurance cover.
FBD strives to be truly customer centric through delivering the best customer experience no matter the way the customer chooses to shop with us. We are determined to be the Irish insurer of choice with our customers and communities at the heart of what we do and who we are.
In 2020 FBD Insurance became the fi rst general insurance company to feature in the Top 10 Companies in Ireland for excellent customer experience. The results of the annual CXi Ireland survey showed FBD claiming the number 8 position. The annual independent "Customer Experience" (CX) study commissioned by The CXi Company is carried out by Amárach Research who interview 2,500 Irish consumers regarding their customer experience across Ireland's top 150+ brands. The 2020 report shows FBD having risen 17 places since 2019, and 102 places since 2017, the highest of any brand. The 2020 CXi Ireland ranking places FBD as best in class in terms of insurers in Ireland as defined by customer experience. We are very proud of this external validation of the excellent customer service we provide and it is a credit to our staff.
FBD continues to support Irish communities through investments in farm and agricultural excellence, encouraging education and safety as well as sustainability. FBD displays commitment to partnerships with local communities. We also provide insurance cover to sectors which are crucial to the economic and social fabric of the many communities we serve, particularly in rural Ireland.
Farming is a hazardous occupation and the continuing high number of farm accidents annually is cause for great concern to us. FBD supports many initiatives which make the farm a safer place for all. An example is our Farm Protect campaign to encourage farmers to make small but meaningful changes to their working behaviours.
We are also working to improve our sustainable business practices through active measurement, management and mitigation of our carbon footprint and to minimise our environmental impact. Our sustainability projects include a commitment to using less paper, printing less, being more efficient in our energy usage and encouraging others to be responsible through integrating Environmental, Social, and Governance (ESG) factors into our investment portfolio.
FBD continues to be supportive of the Government's insurance reform agenda and welcomes the establishment of a specific cabinet committee to prioritise and oversee the implementation of key actions required to reduce the cost of claims. Initiatives such as the work of the Personal Injuries Guidelines Committee
charged with providing guidance on soft tissue injuries, as well as the proposed capping of general damages by the Judicial Council have the potential to make a real difference in lowering costs and providing consistency. The willingness of the Court of Appeal to reduce excessive awards is also to be welcomed. However we remain concerned about legal costs in both the High Court and Circuit Court as they continue to increase. In the meantime the level of compensation remains too high and without reform Irish farmers, businesses and consumers will continue to bear the cost of significantly higher premiums than those seen in other countries.
The Board believes that it is in the long-term interest of all stakeholders to maintain a strong solvency margin and it is focussed on ensuring that the Group's capital position is robust and its financial position well managed. This has been particularly important over the past year with the Covid-19 pandemic and its effect on investment markets and economic activity generally. FBD has also had additional uncertainty surrounding business interruption claims on public house policies.
Following the statement issued in April by the European Insurance and Occupational Pensions Authority (EIOPA) urging the suspension of all discretionary dividend distributions, the heightened uncertainty resulting from Covid-19 and the importance of maintaining capital in the business, FBD decided not to proceed with the previously proposed dividend payment for the 2019 Financial Year.
Given the continuing uncertainty prevailing, the Board continues to believe that capital preservation is paramount and therefore no dividend is being proposed at this time. The Board will however keep the matter of capital return to shareholders under continuous review.
Our capital position remains strong with a Solvency Capital Ratio of 197% (unaudited) at 31 December 2020.
I would like to thank the Board for their continued support and hard work throughout the year. In an uncertain world, I am confident that whatever challenges lie ahead, FBD is strong and will continue to prosper as a business.
Finally, as always, thanks to our customers for their continuing support, loyalty, trust and confidence. Because of them, FBD is strongly positioned for the future.
With Best Regards.
Chairman 25 February 2021
All businesses faced extraordinary challenges in 2020 and, as we navigate towards a "new normal", we can reflect on a resilient performance over a uniquely challenging year for FBD.
Tomás Ó'Midheach Group Chief Executive
Further information on the measures referred to in our Review of Operations is found in Alternative Performance Measures on pages 159 and 160.
All businesses faced extraordinary challenges in 2020 and, as we navigate towards a "new normal", we can reflect on a resilient performance over a uniquely challenging year for FBD.
The challenges were highlighted by the recent judgement from the Commercial Court in respect of business interruption claims for public house policies. The team at FBD remains determined to meet our customer obligations and we have commenced paying interim payments for all valid claims and will endeavour to settle claims as quickly as possible. We are considering the impact of this judgement with our reinsurance partners and are confident about a satisfactory outcome.
We continue to support our customers with forbearance measures and commercial rebates continue to be provided to affected businesses. Our employees have risen to the challenges of the pandemic with excellent service levels maintained and productivity unaffected.
Some positives have come out of 2020 as we improved our ability to serve our customers in the ways they increasingly want to interact with us. Our enhanced digital capabilities led to more online purchases and an increased number of customers joining our business and staying with us. New opportunities launching in 2021 will include, the broadening of the Bank of Ireland relationship to include general insurance as well as life and pensions, and the successful evolution of other existing partnerships.
The insurance market continues to be very competitive and we have seen the premiums paid by our customers decreasing, particularly in Motor. We foresee a period of economic uncertainty ahead as the economic impact of the pandemic becomes known. We will adapt and change to ensure we are able to meet the evolving needs of our customers.
We are very supportive of the Government's insurance reform agenda to reduce claims costs and consequently insurance premiums for farmers, businesses and consumers.
I am delighted to take the helm of the only Irish insurer in the market, with a reputation second to none in customer service, earned over more than 50 years in business. I joined FBD in January and have been hugely impressed by the determination and ability of my new colleagues. The core of the business is strong with good underlying profitability, future growth prospects and resilient capital strength. We intend to build on this strong base to deliver more for all stakeholders in the years ahead.
The Group reported a profit before tax of €4.8m (2019 profit: €112.5m), reduced by Covid-19 pandemic related business interruption provision of €65.0m offset by positive prior year reserve development of €23.3m and lower frequency of claims. The investment returns reported of €10.4m through the Income Statement and €4.5m through Other Comprehensive Income (OCI) reflect the strong turnaround for most asset classes after the downturn in March caused by the Covid-19 pandemic.
The Group reported an underwriting loss of €4.4m (2019 profit: €93.7m) reflecting the Covid-19 pandemic related business interruption provision of €65.0m. GWP decreased by 3% to €358.2m (2019: €370.1m). GWP was in line with 2019 excluding Covid-19 pandemic related premium rebates.
The recent Commercial Court judgement provides greater clarity for FBD and our customers with public house policies around business interruption cover. We are now moving forward with the payment of claims including making interim payments pending the finalisation of all claims. We are actively engaging with reinsurers on the finalisation of reinsurance recoveries following the Court judgement.
We note the preliminary findings last September from the Competition and Consumer Protection Commission (CCPC) alleging that Irish insurers engaged in anti-competitive cooperation to which FBD has responded. We have also cooperated with the Central Bank in respect of the dual pricing investigation and await the final report during 2021.
Gross premium written decreased to €358.2m in 2020 (2019: €370.1m) primarily due to Covid-19 rebates of €11.8m. Excluding Motor and Commercial rebates of €6.0m and €5.8m respectively the gross written premium figure is in line with 2019, which is a solid result. Motor customers were rebated through €35 One4All vouchers in June reflecting the reduced claims frequency as a result of Covid restrictions. Commercial rebates of €5.8m reflected the reduced exposure of businesses to Employers Liability, Public Liability and Business Interruption claims.
Customer policy count increased by 3% which represents over 14,400 policies, with new business volumes increasing year on year by 18%. Our policy retention continues to be strong and increased by 1.7%.
Average premium reduced by 3.0% across the book. Average premium for Private Motor reduced by 5.7% due to a change in mix and increased discounting in a competitive market. Average Farm premium reduced by 1.5% reflecting additional discounting. Home average premium reduced 2.2% due to rate reductions and discounting. Average premium for Commercial increased 2.8% reflecting a mix change rather than rate increases.
The reinsurance programme for 2021 was successfully negotiated with a similar structure to that expiring. The negotiation of the 2021 renewal was not materially impacted by the potential of Covid-19 related business interruption claims as there was no judgement at that time.
Net claims incurred increased by €72.7m to €221.4m (2019: €148.7m) and includes €54.0m in respect of the Covid-19 pandemic related business interruption costs. There was positive prior year reserve development of €23.3m but lower than the €40.1m in 2019. This development was driven primarily by better than expected settlements and a very low large claims frequency in some recent accident years.
On 5th February the Commercial Court ruled in relation to the publicans' business interruption claims as a consequence of the Covid-19 pandemic public health measures. We will not be appealing this judgement and will work with our customers to ensure claims settlements are paid as expediently as possible. Gross claims costs (including legal and other expenses) are currently estimated to be approximately €150m. Engagement continues with our reinsurers to finalise the position on reinsurance recoveries.
Motor damage and injury frequency reduced during 2020 as claim notification patterns mirrored the lockdown and reopening of the economy. Injury claims severity in 2020 remains uncertain as the restrictions have affected access to updated medical information. Property claims frequency increased as business interruption claims were notified. There was also an increase in attritional weather claims for smaller weather events throughout 2020.
The average cost of injury claims settlements marginally decreased since 2019 due to a change in the mix of settled cases, affected by court closures and the inability to engage in pre-trial negotiation. The average cost of property claims saw a small increase in 2020 with further inflation expected on domestic building costs. Motor damage claims saw double digit inflation as costs of parts, paint and average labour hours per repair increased.
The Motor Insurers Bureau of Ireland (MIBI) levy and Motor Insurers Insolvency Compensation Fund (MIICF) contribution combined were €9.7m (2019: €8.0m).
Covid-19 continued to affect the claims environment throughout 2020 as easing of restrictions over the summer and Christmas periods were followed by further lockdowns. Lower injury and motor damage claims frequency was experienced in 2020 compared with 2019, as many businesses were forced to close and traffic volumes decreased due to remote working. Claim settlement activity also decreased as cases being prepared for settlement were impacted as well as actual settlement negotiation meetings and court trials.
FBD welcomes the prioritisation of the insurance reform agenda, including the establishment of a sub-committee of the Cabinet Committee on Economic Recovery and Investment with an objective of reducing insurance costs for businesses and consumers.
The Personal Injury guidelines could bring about a real reduction in both personal injury awards and settlements through reducing the awards currently four times higher than the UK and providing more consistency. Recent examples indicate a welcome downward trend in awards following Court of Appeal decisions.
The Judicial Council's proposed capping of general damages would also significantly assist in reducing claims costs and consequently insurance premiums.
We continue to support the Government's initiatives on reform of the insurance industry and have recently sent the latest National Claims Information Database submission. Increased market capacity could provide wanted cover in areas not within our risk appetite and increased competition helps to maintain a healthy insurance industry.
The majority of the new provisions of the Consumer Insurance Contracts Act 2019 commenced by way of ministerial order with effect from 1 September 2020. The requirements of the new Act has important implications for claims handling as changes to systems and processes are required for insurers who operate in an already heavily regulated environment. The Act reinforces existing duties and obligations adhered to by insurers under the Consumer Protection Code. Examples of the changes include reducing the retention on property damage claims, a requirement for explanations on third party claim settlements and engagement with policyholders on liability claims/decisions.
There is a possible challenge coming to the current discount rate used for personal injury claims which would increase future claims liabilities. No update has yet been provided in respect of the public consultation launched by the Minister for Justice and Equality on the manner in which the discount rate should be set in future. The discount rate could be set in future by the judiciary or the Minister along with potential proposals to amend the current assumed investment strategy in determining the discount rate.
Legal costs are on average at a higher level than 2019. There is significant inflation coming through in recent months on allowances being made by the Office of the Legal Costs Adjudicator and the County Registrars. We have seen costs increase by up to 30% in some cases. FBD are monitoring this worrying trend closely.
Brexit is already having an impact on supply chains, which in turn will increase motor and property damage repair claims. There is also a potential impact on construction costs from imported raw materials. The real impact from the trade deal will be observed over the next few months.
No significant weather events of note occurred during 2020 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 lightning claims. In addition August's Storm Ellen brought with it the highest number of property claims in any month of 2020. Overall weather claims cost €10.0m which was more than double 2019 weather costs.
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 during the year. This was particularly evident in the second half of March and all of April with frequency for Employers Liability and Public Liability claims increasing in the second half of the year but remaining at slightly lower levels. Frequency of Motor claims remained below normal levels in the second half of the year, albeit at much higher levels than those observed in March and April. The frequency of claims relating to Farm activities remained relatively stable throughout the year.
A much lower than normal number of large claims, those with a value greater than €250k, have been reported to FBD as at 31 December 2020. However, the flow of claims information may prove unreliable as there has been restricted 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.
The Group's expense ratio was 28.1% (2019: 25.9%). Other underwriting expenses were €88.5m, an increase of €1.3m. The increase is due to an additional €1.0m in commission payments, €0.5m in telecoms costs due to remote working and a €0.5m increase in depreciation charges net of reductions in other staff costs of €0.7m due to Covid-19 impacts on travel, training, recruitment and entertainment. Excluding Covid-19 impacts on earned premium from rebates and assumed reinsurance reinstatement premium the expense ratio would be 1.9 percentage points lower at 26.2%.
FBD generated an underwriting loss of €4.4m (2019: €93.7m) which translates to a COR of 101.4% (2019: 72.3%).
FBD's total investment return for 2020 was 1.3% (2019: 2.7%). 0.9% (2019: 1.7%) is recognised in the Consolidated Income Statement and 0.4% (2019: 1.0%) in the Consolidated Statement of Other Comprehensive Income (OCI). The positive returns represent a strong turnaround for most asset classes after the downturn in March caused by the Covid-19 pandemic.
The Income Statement return reflects the strong performance of the Group's risk asset portfolio. Equities in particular rallied towards the end of the year on the positive outlook for the development and distribution of vaccines. FBD's Global equity fund ended the year 11.6% higher and our Emerging Market equity fund ended 8.1% higher. Falling interest rates and tightening credit spreads, aided by strong central bank stimulus measures, resulted in positive mark to market returns on FBD's sovereign and corporate bond portfolios and this is reflected in the OCI.
The Group's financial services operations delivered a profit before tax of €2.1m for the year (2019: €3.7m). The life, pension and investment broking operation (FBD Financial Solutions) remained relatively flat year on year with income of €4.2m (2019: €4.3m), a strong performance in difficult circumstances, with minimal cost increases. Other financial services fees decreased by 7% as forbearance measures offered to customers reduced revenue. Holding company costs increased from €2.8m to €3.9m mainly due to legal expenses and increased management fees in 2020.
The diluted profit per share was 12 cent per ordinary share, compared to 276 cent per ordinary share in 2019.
Ordinary shareholders' funds at 31 December 2020 amounted to €384.0m (2019: €372.2m). The increase in shareholders' funds is mainly attributable to the following:
The allocation of the Group's investment assets is as follows:
| 31 December 2020 | 31 December 2019 | |||
|---|---|---|---|---|
| €m | % | €m | % | |
| Corporate bonds | 552 | 47% | 509 | 46% |
| Government bonds | 311 | 26% | 302 | 27% |
| Deposits and cash | 180 | 15% | 168 | 15% |
| Other risk assets | 68 | 6% | 65 | 6% |
| Equities | 49 | 4% | 46 | 4% |
| Investment property | 17 | 2% | 19 | 2% |
| 1,177 | 100% | 1,109 | 100% |
Net assets per ordinary share are 1,095 cent, compared to 1,068 cent per share at 31 December 2019.
The Group adopts a conservative investment strategy to ensure that its technical reserves are matched by cash and fixed interest securities of low risk and similar duration. FBD invested an additional €40m into its corporate bond portfolio during the year. The additional cash resulted from the non-payment of the 2019 dividend and slower than usual payment of claim settlements.
The latest (unaudited) Solvency Capital Ratio (SCR) is 197% compared to the 2019 SCR of 209% when excluding the 2019 dividend previously accrued.
The principal risks and uncertainties faced by the Group are outlined on pages 22 to 33 for the year ended 31 December 2020. The Covid-19 pandemic and the measures taken to mitigate its impact continue to have 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 at points throughout the year 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 there may be further impacts 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 and other uncertainties on its future business plans. The scenario modelling included assumptions on the potential impact on revenue, expenses, claims frequency, claims severity, investment market movements 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.
FBD notes the judgement on 5th February 2021 by the Commercial Court in Ireland in the test case taken, relating to public house policies, with the objective of achieving clarity for all parties around the application of business interruption insurance cover for losses suffered as a result of Covid-19 pandemic public health measures. The decision of the Court was
that our public house policies do provide cover in the circumstances reviewed. FBD is currently considering the effects of the judgement with its reinsurers in order to obtain agreement on the level of reinsurance recoveries to be received.
In arriving at the business interruption best estimate of €65m (including reinsurance reinstatement premium), FBD has assessed all available and up to date information which may impact on ultimate costs. The Commercial Court judgement has provided more clarity on likely gross claims costs albeit with some aspects of the calculation of quantum yet to be determined. The current estimate of gross claims costs is approximately €150m. The Group has also modelled a number of different scenarios relating to the application of reinsurance cover. In arriving at the best estimate, probabilities have been assigned to reinsurance scenarios based on discussions with reinsurers, our reinsurance broker and specialist legal advice. While more adverse outcomes for the Group are possible, our assessment is that these have a lower probability of occurrence. Business interruption as with all uncertainties, is assessed when the Group is considering the margin for uncertainty, being a provision held as an amount over the best estimate of claims liabilities net of expected reinsurance recoveries.
The solvency of the Group remains robust and is currently at 197% (unaudited) (31 December 2019: 209% before accruing proposed dividend). As noted above, there is more than normal uncertainty surrounding the calculation of the Solvency Capital Ratio pending final determination of the net cost of Covid-19 pandemic related business interruption claims.
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 continuously monitored. 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 this will be subject to on-going monitoring.
The Group continues to manage liquidity risk through ongoing monitoring of forecast and actual cash flows, including expected business interruption claims payments, ensuring that the maturity profile of its financial assets is well matched 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 10 with a less than 12% 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 at times only able to support emergency repairs for essential workers.
FBD has developed its own action plan to ensure operational resilience and the safety of staff and customers through extra health and security measures as offices re-open. 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 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 is committed to continue supporting the local communities in which we operate and in which our customers live and work. Having received clarity from the Commercial Court on liability for business interruption claims on our public house
policies, we will strive to settle all valid claims as expediently as possible.
2020 was a particularly challenging year for everyone as we faced the unforeseen challenge of the Covid-19 pandemic. The impact stretches into 2021 with a continued lockdown and further restrictions.The business interruption ruling has provided clarity around the liability for FBD and we have commenced the payment of claims to pub customers. We are working with our reinsurers to finalise the position on recoveries on the business interruption claims. Other uncertainties such as the length of the current lockdown are still unknown and we continue to monitor the situation. The vaccine rollout indicates the end of restrictions is in sight although the timing is unknown.
There are positive impacts in the 2020 result as the weather was reasonably good and positive prior year reserve development, together with continued quality risk selection and underwriting discipline contributed to strong underlying profitability. New business policy count has grown despite overall premium levels decreasing.
The Covid-19 pandemic has dominated all our lives during 2020 and changed our working and business environment as we embrace new possibilities of alternative working in the future. We work tirelessly to adhere to all Government guidelines and restrictions to protect our employees and customers and look forward to a time in the near future when we can come together again safely. The continuing Government supports mean we cannot see the full economic reality from the pandemic and we expect a clearer picture to unfold during 2021.
A Brexit deal was signed at the end of 2020 but it has been disruptive for many industries. We continue to monitor the evolving economic impact for farms and businesses, as well as consumers.
We anticipate the new Personal Injury guidelines will bring about consistency in awards and a real reduction in claims settlements in personal injury cases. This will positively result in lower premiums for customers.
The underlying insurance business is strong, well-capitalised and growing profitably. The new strategic opportunities are delivering for the business. We will continue to deliver careful growth while maintaining underwriting discipline. FBD will preserve its capital strength to guarantee its future ability to pay claims and deliver unrivalled customer service to our customers.
Group Chief Executive 25 February 2021
"I am delighted to be a 'Dare to Believe' ambassador and I'm thrilled that Team Ireland sponsor, FBD Insurance, has come on board to support this brilliant programme. When I was young, it was always my dream to be an Olympian and I trained and worked extremely hard to try and make that a reality. I am honoured to be part of a programme that aims to inspire the next generation of Olympic athletes. I look forward to telling them my story, passing on all of the skills I have learned from sport and trying to leave a positive impact on these pupils."
Diver & 'Dare to Believe' ambassador
We off er clear solutions to customer's insurance needs through out 34 branches nationwide, on the phone, online or through our partner and broker networks.
FBD empowers our people to deliver for customers and shareholders alike
The expertise, experience and local knowledge of our 900 employees provides our customers with tailored service based on in-depth awareness of their requirements
FBD seeks to maintain a resilient and stable balance sheet that is well reserved with a low risk investment portfolio
FBD is a responsible member of local communities throughout Ireland and works hard to provide signifi cant support to farm, business and community groups
FBD's reinsurance program reduces our exposure to adverse weather and climate change while maximizing the protection that we off er our communities
Founded by farmers for farmers, FBD has an unrivalled knowledge of farm enterprises through over 50 years of protection and close relationships with farming organisations. Today FBD has expertise in Farm, SME and Consumer segments
FBD has evolved with changing customer needs for over 50 years. FBD will continue to change and adapt our customer proposition to off er unrivalled service and protection in the digital era
FBD creates value through our customer centric focus, our broad distribution network and our expertise in three main customer segments; Farm, SME and Consumer
Through our 34 offi ces located across the country and a multi-channel distribution strategy, we are never too far away and always ready to support our customers
At FBD we understand the Irish farm, SME and consumer customer. We measure and model risk eff ectively which enables us to price accurately, competitively and fairly
FBD maintains its customer centric focus throughout the customer journey. We are focused on paying honest claims quickly and effi ciently Financial Advisory Services
FBD has a prudent approach to reserving, supported by strong governance including extensive peer reviews and regular external reviews
FBD follows a conservative investment policy. We manage our assets and claims liabilities to ensure we meet our obligations to our policyholders
FBD off ers products that meet our customers needs,no matter the channel we deliver a strong service proposition
FBD protects our customers through our range of Farm; SME and consumer products
We meet the customer where they choose to shop. FBD off ers great service through our 34 branches, on the phone, online and through our broker and our partner network Manage claims
FBD Life & Pensions provides advice to personal and corporate customers, through our team of fi nancial planning advisors
Position FBD for the future, deliver for our customers and all other stakeholders
We protect our customers by delivering products that meet their needs and deliver sustainable returns for our shareholders
We invest in our people, helping them grow their skills and expertise so that they can excel in their careers. We provide market competitive rewards and benefi ts linked to individual and Group performance
We invest in the communities in which we operate through corporate sponsorship (reference Corporate Social Responsibility section) and by partnering with charities, trusts and local events
We invest in broadening our distribution network and leveraging technology to deliver for our customers that in turn delivers profi table growth
Our mission is to be the Irish insurer of choice. We aim to be truly customer centric; delivering the best customer experience, no matter the way the customer chooses to shop with us.
Delivering the best customer experience, no matter the way the customer chooses to shop with us.
Our Values Respect Belief Innovation Community Ownership Communication
2020 was a challenging year, where pre-existing trends accelerated. Our business has been adapting to the "new normal", and we are demonstrating this by:
We must now evolve further to position FBD for the future.
In this new environment, FBD's customer centric strategy is even more relevant.
Our focus in 2021 is the evolution of our business to appeal to a new generation of customers and with the changing behaviours of our existing customers, while steering a path through the uncertainty and exceptional e ects of external factors.
Our customers
are at the heart of who we are and what we do
Some of the socially distanced activities that kept us going in 2020
20
Risk taking is inherent in the provision of fi nancial services and FBD assumes a variety of risks in undertaking its business activities. FBD defi nes risk as any event that could impact the core earnings capacity of the Group; increase earnings or cash-fl ow volatility; reduce capital; threaten business reputation or viability; and/or breach regulatory or legal obligations.
The Group has adopted an Enterprise Risk Management approach to identifying, assessing and managing risks. This approach is incorporated in the Risk Management Framework which is approved by the Board and subject to annual update and review. The key components of the Risk Management Framework include Risk Appetite; Risk Governance; Risk Process and People.
Risk appetite is a measure of the amount and type of risks the Group is willing to accept or not accept over a defi ned period of time in 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 over-arching desire to protect its solvency at all times. Through the proactive management of risk, it ensures that it does not take on an individual risk or combination of risks that could threaten its solvency. This ensures that it has and will have in the future suffi cient capital to pay its policyholders and all other creditors in full as liabilities fall due.
The Board set the business strategy and have ultimate responsibility for the governance of all risk taking activity in FBD. Risk is governed through business standards, risk policies and Oversight Committees with clear roles, responsibilities and delegated authorities.
FBD uses a 'three lines of defence' framework in the delineation of accountabilities for risk governance:
Risk, including emerging risk, is identified and assessed through a combination of top-down and bottom-up risk assessment processes. Top-down processes focus on broad risk types and common risk drivers rather than specific individual risk events, and adopt a forward-looking view of perceived threats over the planning horizon. Bottom-up risk assessment processes are more granular, focusing on risk events that have been identified through specific qualitative or quantitative measurement tools. Top-down and bottom-up views of risk come together through a process of upward reporting of, and management response to, identified and emerging risks. This ensures that the view of risk remains sensitive to emerging trends and common themes. FBD measures risk on the basis of economic capital and other bases (where appropriate) to determine materiality, potential impact and appropriate management. Risks are recorded on the Group Risk Register.
We regularly monitor our risk exposures against risk appetite, risk tolerances and limits and monitor the effectiveness of controls in place to manage risk. Reporting to the Risk Committees is dynamic and includes material risks, emerging risks, risk appetite monitoring, changes in risk profile, risk mitigation programmes, reportable errors, breaches of risk policies (if any) and results of independent assessments performed by the Risk Function.
Risk Management is embedded in the Group through leadership, governance, decision making and competency. The Risk Management Framework establishes the roles and responsibilities of risk resources. A risk training programme is in place to ensure all risk resources have the knowledge and competency to perform their roles effectively.
In accordance with Group policy, business unit management has primary responsibility for the effective identification, management, monitoring and reporting of risks. There is an annual review by the Risk Committee of all major risks and emerging risks, to ensure all risks are identified and evaluated. Each risk is assessed by considering the potential impact and the probability of the event occurring. Impact assessments are made against financial, operational, regulatory, reputational and customer impact criteria.
All individual risks recorded on the Group Risk Register are assigned to key risk categories which are reviewed regularly by the Risk Committees. FBD's key risk categories and mitigants are provided in the table below. Escalation parameters for key risks that are outside of tolerance / appetite and a 'three lines of defence' system, complemented with external reviews are in place. The Board is satisfied that FBD maintains a robust and effective risk management framework.
The Covid-19 outbreak and its associated risk impact was closely monitored by the Board and Risk Committees throughout 2020. The impact of Covid-19 on FBD's key risk categories and mitigants is detailed further in the table below.
Additionally the impact from Brexit was subject to ongoing monitoring throughout 2020. Further detail on the impact of Brexit on the Group's risk profile is provided in Section C below.
| Risk | Key Mitigants |
|---|---|
| Capital Management Risk The risk that the Group fails to maintain an adequate regulatory solvency position. |
n The Group has an Investment Committee, a Pricing & Underwriting Committee, a Capital Management Forum, an Audit Committee, a Reserving Committee and Board and Executive Risk Committees, all of which assist the Board in the identifi cation and management of exposures and capital. n The annual Own Risk and Solvency Assessment 'ORSA' provides a comprehensive view and understanding of the risks to which the Group is exposed or could face in the future and how they translate into capital needs or alternatively require mitigation actions. |
| n An experienced Actuarial team is in place with policies and procedures to ensure that Technical Provisions are calculated in an appropriate manner and represent a best estimate. |
|
| n Technical Provisions are internally peer reviewed every quarter, audited once a year and subject to external peer review every two years. |
|
| n An approved reinsurance programme is in place to minimise the solvency impact of Catastrophe events to the Group. |
|
| n The Chief Financial Offi cer (CFO) is responsible for consideration of the implications for capital position as part of the strategic planning process and key strategic decision-making and for ensuring appropriate action is taken as approved by the Board/CEO/relevant committee. |
|
| n On at least an annual basis, thresholds for Solvency Capital Requirements (SCR) Ratio, developed as part of the annual planning/ budgeting process, are approved by the Board as part of the Risk Appetite Statements in the Risk Appetite Framework. |
|
| n The Group also devotes considerable resources to managing its relationships with the providers of capital within the capital markets, for example, existing and potential shareholders, fi nancial institutions, stockbrokers and corporate fi nance houses. |
|
| Covid-19 impact and FBD Response | |
| n During 2020 the Board increased its Solvency Capital Ratio Risk Appetite from a range of 120% to 140% up to 150% to 170%. The solvency of the Group remains robust at 197% (unaudited) at 31 December 2020 (31 December 2019: 209% before accruing proposed dividend). There is more than normal uncertainty surrounding the calculation of the Solvency Capital Ratio pending fi nal determination of the net cost of Covid-19 pandemic related business interruption claims. |
This is the risk that underwritten business is less profi table than planned due to insuffi cient pricing and setting of claims case reserves as a result of higher than expected claims frequency, higher average cost per claim and catastrophic claims.
The Group manages this risk through its underwriting strategy, proactive claims handling and its reinsurance arrangements.
n The Group purchases reinsurance protection to limit its exposure to single claims and the aggregation of claims from catastrophic events. The Group's reinsurance programme is approved by the Board on an annual basis. FBD has purchased a reinsurance programme which has been developed to meet the local domestic risk profi le and tailored to FBD's risk appetite. The programme protects Motor, Liability, Property and other classes against both individual large losses and events.
This is the risk that underwritten business is less profi table than planned due to insuffi cient pricing and setting of claims case reserves as a result of higher than expected claims frequency, higher average cost per claim and catastrophic claims.
n We have experienced some 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 fi nancially stressed customers will result in increased claims costs. Court closures and diffi culties in obtaining medical reports are impacting our ability to settle injury claims. We are continuously monitoring claims patterns as the situation unfolds.
Market Risk
The risk that the value of the Group's investments may fl uctuate as a result of changes in market prices, changes in market interest rates or changes in the foreign exchange rates of the currency in which the investments are denominated.
n The early days of the pandemic saw signifi cant unrealised losses in both our risk asset and fi xed interest portfolios. Markets rebounded strongly following these early days thanks to the unprecedented stimulus provided by central banks and governments of developed countries. Asset valuations remain high and the prospect of an economic downturn when the impact of the Covid-19 restrictions become clearer and the impact of stimulus measures recede, mean that market risk will remain high for the foreseeable future. Future fi nancial market movements and their impact on balance sheet valuations, pension surplus and investment income are unknown and will be closely monitored by the Group.
This is the risk of loss in the value of fi nancial assets due to counterparties failing to meet all or part of their obligations and/or over allocation to a single entity that may default or fall in value resulting in adverse fi nancial impact.
| Risk | Key Mitigants |
|---|---|
| Liquidity Risk This is the risk of insuffi cient liquidity to pay claims and other liabilities due to inappropriate monitoring and |
n The Group manages liquidity risk by continuously monitoring forecast and actual cash fl ows and ensuring that the maturity profi le of its fi nancial assets is well matched to the maturity profi le of its liabilities and maintaining a minimum amount available on term deposit at all times. |
| management of liquidity levels or | Covid-19 impact and FBD Response |
| inadequate Asset Liability Management. |
n The Group continues to manage liquidity risk eff ectively in line with its defi ned processes and controls. |
| n The business continues to be capital accretive and has adequate cash resources available to support business requirements as well as business interruption claims as they fall due. |
|
| n The Group has a highly liquid portfolio with over 60% of the portfolio invested in high quality corporate and sovereign bonds. |
Strategy
Risk
The risk that the strategy adopted by the Board is incorrect or not implemented appropriately resulting in sub-optimal performance and impact on profi tability.
n The Group has a strategic planning cycle which commences with a fundamental review of strategy at least every 5 years (normally every 3 years). Further supporting this is an annual review of the strategy by the Board to determine the continuing relevance. To ensure the strategy is implemented eff ectively, the Group engages in a robust business planning and review process that results in an annual plan including key initiatives and budget.
The risk of reputational or brand damage arising from inadequate or failed processes and systems or badly executed strategy/poorly executed communication.
Adverse operational impacts could arise as a result of inadequately controlled internal processes or systems, human error or from external events.
This defi nition is intended to include all risks to which the Group is exposed and that are not considered elsewhere. Hence, operational risks include for example, information technology, information security, human resources, project management, outsourcing, taxation, legal, fraud and regulatory risks.
n Sound information technology controls are in place across the Group, including a dedicated IT security team with overall responsibility for managing information technology security standards, which together with on-going employee training and regular cyber-risk reviews are used to mitigate such information technology risks.
n The Group has taken signifi cant steps to minimise the impact of business interruption that could result from a major external event. Formal Business Continuity and Disaster Recovery plans are in place for both workspace recovery and retrieval of communications, IT systems and data. If a major event occurs, these plans will enable the Group to either move the aff ected operations amongst its various sites or invoke remote working from home. The Business Continuity and Disaster Recovery plans are tested regularly.
n The success of the Group depends upon its ability to retain, attract, motivate and develop talent. FBD are committed to providing employees at all levels with appropriate training, development and education relevant to their role. Training needs are identifi ed through performance management and operational planning. A Talent Management and Succession Plan is in place and reviewed regularly. This ensures that FBD develops and retains key talent and is best placed to replace key roles in a seamless manner should they arise.
Adverse operational impacts could arise as a result of inadequately controlled internal processes or systems, human error or from external events.
This defi nition is intended to include all risks to which the Group is exposed and that are not considered elsewhere. Hence, operational risks include for example, information technology, information security, human resources, project management, outsourcing, taxation, legal, fraud and regulatory risks.
The UK legally left the EU on the 31 January 2020 with the Transition period ending in December 2020 when the EU-UK Trade and Cooperation agreement was finalised. At the heart of the deal is tariff-free, quota-free access to each other's market for goods. The deal includes the introduction of trusted trader schemes and self-verification systems to reduce the impact of the hard customs and regulatory border that apply to all parts of the United Kingdom except Northern Ireland. The agreement also requires a level playing field in employment rights, environmental standards and state aid to ensure open and fair competition. However there are checks and increased bureaucracy which will make trade costlier and more cumbersome for indigenous Irish businesses, including the Group's core customers in farming and other small businesses. Future trade deals of the UK with other countries could also affect competition for Irish businesses offering products and services there. We continue to monitor and support the needs of our customers impacted by Brexit.
The impact of Brexit risk on FBD is low and mitigated by our exclusive focus on the Republic of Ireland for insurance business. Operationally, Brexit has not posed an issue with our UK service providers. Market risk is mitigated from a Brexit perspective due to the low level of exposure to sterling assets in our investment portfolio. FBD's fixed interest assets are all denominated in Euro and match its liability profile which are similarly almost entirely Euro denominated.
An Emerging Risk is a risk which may or may not develop, is difficult to quantify, may have a high loss potential and is marked by a high degree of uncertainty. We have a defined process in place for the identification of and response to emerging risks, which is informed through the use of subject matter experts, workshops, Risk and Control Self Assessments and consulting a range of external documentation. Key emerging risks are monitored regularly by the Board and Risk Committees to assess whether they might become significant for the business and require specified action to be taken.
We believe farms, businesses, consumers and wider society feel real economic and social benefi ts as a result of our business activities. As an organisation that plans for the future, we are mindful of our impact on Society, the Environment, and the Communities in which we operate. FBD has aligned its CSR initiatives to the UN 17 point Sustainable Development Goal (SDG) Charter to assist it focus and infl uence on improving the lives of our customers and wider society.
FBD's initiatives in supporting Irish communities has Quality Education (SDG 4); Decent Work and Economic Growth (SDG 8); Industry, Innovation and Infrastructure (SDG 9) and Partnerships for the Goals (SDG 17) at their core. We display our commitment to strong partnerships and cooperation by supporting communities and providing insurance cover to diff erent sectors which are crucial to the economic and social fabric of the communities we serve.
FBD Trust is the philanthropic arm of FBD Group. The Trust was established as a means to give back to our loyal customers by providing support to advance the interests of Irish farm families and the communities where they live and work. The FBD Trust supports research and educational scholarships for training and development, while also supporting groups and organisations that advocate for Irish farmers and their communities.
The annual FBD Student of the Year awards are presented to the highest achieving graduates from the previous year, from Teagasc agricultural colleges across the country. A bursary, sponsored by FBD, is presented to the overall winner and fi rst and second runners up. Nominees for these awards are the next generation of farm leaders and innovators. Enda Farrell from County Longford, was named the Teagasc/FBD Student of the Year at an online virtual awards ceremony.
FBD sponsors the Nuffi eld Farming Scholarship Programme. This programme provides agri-scholars the opportunity to achieve a global perspective and exposure to new methods and ideas. Scholars regularly go on to become infl uencers of sustainable change and improvement within their sector. FBD supports Nuffi eld scholarships to promote excellence by developing and supporting these individuals. Gareth Lamberton from Donegal was awarded the FBD Trust sponsored Nuffi eld Scholarship for 2020.
The Agricultural Science Association is the professional body for graduates in agricultural, horticultural, forestry, environmental and food science. It is the voice of the Agricultural profession in Ireland. FBD has been the ASA conference partner for many years. Due to Covid-19, the conference was held virtually this year with panel discussions online and addresses from the Taoiseach Michéal Martin and Minister Simon Coveney.
FBD's 'Supplier Charter' outlines the standards that we expect to see throughout our supply chain. We set high standards for ourselves and our suppliers. We insist that all of our business activities are conducted lawfully, sustainably and above all ethically. Our charter sets out FBD's zero tolerance approach to modern slavery in all its forms in our own business and in our supply chain. This means not using forced or compulsory labour, and/or labour held under slavery or servitude. We also understand how important prompt payment is to our suppliers. Our standard payment terms are net 30 days and we work hard to make sure we meet this. FBD expects that all of our suppliers pay employees at least the minimum wage, and provides each employee with all legally mandated benefi ts.
FBD collects and retains information from and about our customers and third parties. This is a vital and necessary part of providing insurance products. Keeping information secure is a top priority for us. We continue to implement appropriate technical and organisational measures to protect data from unlawful or unauthorised processing and against accidental loss, destruction, damage, alteration or disclosure.
We understand that some insurance terminology can be complex and diffi cult to understand. We aim to write all our customer documents in plain language to ensure that we are more readily understood. Our documents are approved by the National Adult Literacy Agency before they are published.
The FBD 'Young Farmer of the Year' is a national competition held in conjunction with Macra na Feirme. It recognises and rewards top-performing young farmers. It promotes knowledge-sharing, networking opportunities, a platform to showcase and highlight Irish agriculture and the fantastic work being done by young farmers. Adjudication is based on a number of criteria including business initiative and innovation on the farm. The judges also consider farm effi ciency levels, enterprise quality, farm safety, environmental protection awareness, agricultural knowledge and community involvement.
The CellCheck Milking for Quality Awards is an initiative held in conjunction with Animal Health Ireland (AHI) to recognise and reward excellence on Irish dairy farms. Since the inception of the Awards in 2014, FBD has sponsored the 'Best 500' Award for the 500 milk suppliers nationally with the lowest weighted annual average somatic cell count.
A founding member of Agri Aware, FBD was one of a number of agri-businesses that recognised the need for an independent body to provide the general public with information and education on the importance of agriculture and the food industry to the Irish economy. FBD's support assists Agri Aware in continuing its programme of educational and public awareness initiatives among the non-farming community. Topics include modern agriculture, the rural environment, animal welfare, food quality and safety.
FBD is a proud member of the Guaranteed Irish programme. As Ireland's only indigenous insurance company, FBD has a proud heritage of supporting local communities. The Guaranteed Irish symbol is awarded to companies that create quality jobs, contribute to local communities and are committed to Irish provenance.
With 34 branches located around Ireland, FBD is a committed member of many local Chambers of Commerce. Working collaboratively with local businesses, Chambers of Commerce provide a forum to promote initiatives, knowledge sharing and to assist local business in communities across Ireland.
FBD employees are active in supporting a wide range of local and national charity based organisations. At a Group level, FBD employees chose to appoint the MAKE-A-WISH foundation and Our Lady's Hospital, Crumlin as charity partners for 2020 and a range of fund raising events took place. FBD employees based in Dublin, donated 1,600 hampers worth over €40,000 to The People's Foodbank in Bluebell in late 2020. The Foodbank delivers food and creates a human connection with those in receipt of food in a friendly and assuring way.
hooves 4 hospice is a major project to raise funds needed to build a hospice to serve the Midlands regions of Laois, Off aly, Longford and Westmeath, which is the only area in the country without its own dedicated hospice. FBD Trust are making a donation to purchase animals to be reared by host farmers and sold after a period of 12 to 24 months. The proceeds of the sales will be donated to help fund the building of the hospice.
FBD launched an initiative in 2020, supported by IFA and Farm Relief Service (FRS), to fi nancially assist farm customers aff ected by a Covid-19 diagnosis. Upon diagnosis and if a farmer is unable to work, an FRS voucher will be provided to assist in keeping farms operational.
Pat Lalor (Chairperson, h4h), David Connor (Host farmer), Amanda Dunne (Branch Manager, FBD Tullamore).
Farming is a unique way of life and many positive aspects are associated with the occupation. However, by its nature, it is also a hazardous occupation. The continually high number of farm accidents is cause for great concern to us. FBD's mission is to support initiatives which will make the farm a safer place for all. This embodies SDG 3 – Good Health and Well-Being. In addition we have dedicated employees who work directly with farms and businesses to help improve safety standards and awareness in the workplace. Ciaran Roche, FBD Risk Manager, represented FBD on the National Farm Safety Partnership in 2020.
FBD's Farm Protect campaign aims to encourage farmers to make small but meaningful changes to their working behaviour. While farmers' attitudes to health and safety are generally positive, simple changes can make a big diff erence. We focus on promoting awareness of the critical behavioural changes required through press and online adverts, social media and through distributing safety materials and farm safety signs at events and through our network of branches.
FBD works closely with Livestock Marts to provide a safe and suitable environment for all patrons. Free Risk Assessments are carried out by qualifi ed health and safety professionals from a third party professional risk manager Farm Relief Services (FRS). These Risk Assessments are intended to help mart managers to identify hazards within the mart and advise on best practice to mitigate these risks. This service complements the signifi cant FBD eff orts made in improving Livestock Mart risks including; Safety Training Videos and the development of a Mart Lockdown Code of Practice. This service is currently suspended due to the Covid-19 pandemic.
Over the last eight years, FBD has led "Champions for Safety" seminars across Agricultural Colleges around the country. Speakers include staff from FBD, Teagasc, the HSA, ESB Networks and farm accident survivor testimonials who raise awareness of the importance of safety for the students' on-farm work experience.
This is the fi fth year that FBD Trust has sponsored the farm safety and health lecturer position in the School of Agriculture, University College Dublin. This position has a central role in educating the emerging generation of farming experts at Ireland's largest university.
FBD supports the Farm Relief Services (FRS) tractor training skills course for young people over the age of 14, to ensure that safe driving practises are adopted early.
FBD are currently working with Teagasc to produce an updated suite of high quality farm safety videos. The videos will cover all key farm safety hazards including; tractors, ATVs, machinery, livestock, slurry, work at height, chemicals, etc.
FBD run regular farm safety communications in the media. During 2020, FBD ran monthly farm safety adverts and advertorials in the Irish Farmers Journal and in the Irish Farmers Monthly. These focused on timely, seasonal hazards, their associated risks and appropriate safety controls and messages. FBD's Risk Manager, Ciaran Roche, was a regular contributor on the topic of farm safety to the Irish Farmers Journal 'Farm Tech Talks' series of webinars.
FBD is committed to providing a safe place of work and conducting all aspects of its business activities in such a way as to achieve the best possible standards of Health and Safety and Welfare for its employees. The FBD Safety Statement is the cornerstone of our safety management system. The Safety Statement clearly outlines FBD's commitment to health and safety, identifi es persons with safety responsibilities, outlines the company safety policies and includes site risk assessments.
Consistent with SDG 5 – Gender Equality, FBD's Diversity & Inclusion strategy underpins the importance of creating an environment where everyone can do their best work, have fair and equal access to opportunities and resources, and can contribute fully to FBD's success.
FBD are proud members and supporters of the '30% Club'. This International organisation was established with a goal of achieving a better gender balance on boards and in executive leadership. 20 per cent of the Board of Directors of FBD Holdings plc is female. 25 per cent of executive level and 41 per cent of manager/specialists level in FBD are female. 60 per cent of FBD's overall employees are female.
FBD joined Age Friendly Ireland in 2020. This Programme is a government initiative to prepare for the rapid ageing of our population. It aims to create an inclusive, equitable society in which older people can live full, active valued and healthy lives. Age Friendly Ireland supports businesses to implement low cost changes which signal a strong welcome for older people. Extensive staff training has taken place to support our staff in contributing to this Programme.
Women are key decision makers on farms, in businesses and in rural communities. These awards, run by the Irish Farmers Journal and sponsored by FBD, provide welcome recognition for the important contribution of women to Ireland's agricultural sector. The winners of the Women and Agriculture Awards 2020 were announced at a virtual award ceremony on 21 October 2020. Catherine O'Grady Powers of Glen Keen Farm & Visitor Centre, Co. Mayo, took home the top spot in the Innovation on Farm Category and Norma Dinneen of Bó Rua Farm, Co. Cork, was named the runner-up. Anne Marie Feighery of Feighery Farm Beetroot Juice won the Innovation in Agriculture & Food Category. Mary Fogarty of the Cottage Loughmore, Co. Tipperary was the runner-up in this category.
Catherine O'Grady Powers of Glen Keen Farm & Visitor Centre, Co. Mayo, took home the top spot in the Innovation on Farm Category.
RESPONSIBLE CONSUMPTION
AND PRODUCTION
As an organisation that plans for the future and in keeping with SDG 12 - Responsible Consumption and Production and SDG 13 – Climate Action we are working to become a leader in sustainable business practices in our industry. FBD actively measures, manages and mitigates our carbon footprint and aims to minimise our environmental impact. Adopting smarter business practices is the right thing to do and it is something the organisation is embracing and playing a part in realising. Group wide initiatives raise awareness amongst internal stakeholders and employees on how simple, eff ective and relevant activities can contribute to a healthier planet. Our sustainability projects include a commitment to being more effi cient in our energy usage. Our investment department are integrating Environmental, Social and Governance (ESG) factors into our investment portfolio.
In 2020, FBD once again engaged with Vita Ireland to purchase voluntary carbon credits to off set the tonnes of carbon created by our business kilometres, using carbon credits from Vita's innovative Green Impact Fund. Vita is an Irish overseas development agency working in Africa fi ghting hunger and the impacts of climate change. FBD's longer term goal is to build the business case for achieving Carbon Neutral status, aided by Vita Ireland this goal helps support SDG 2 – Zero Hunger.
In 2020, FBD began to transition customers from paper based printing to digital document management. This will continue in 2021.
Our commitment to sustainable business practices began in our branch network and encompasses all areas of our business. In 2020, at our head offi ce we continued the rollout of LED lighting to open plan offi ce areas and a new employee facility called "The Tree House". These projects have resulted in less power consumption and enabled innovative use of effi cient lighting to create an attractive shared space for employees. This provided a signifi cant fi nancial saving and also generates 25% more light. LED is a more energy effi cient and environmentally friendly light source employee facility called "The Tree House". These projects have resulted in less power consumption and enabled innovative use of effi cient lighting to create an attractive shared space for employees. This provided a signifi cant fi nancial saving and also generates 25% more light. LED is a more energy effi cient and environmentally friendly light source.
FBD has sponsored the 'Grass10' programme a multi-year campaign launched by Teagasc since 2017. The aim of the programme is to increase grass utilisation on Irish livestock farms. Achieving 'Grass10' targets will require changes in farm practices associated with both grass production and utilisation, delivering best practice, and promoting sustainable agricultural methods.
FBD has proactively engaged with the Carbon Disclosure Project to better understand and mitigate our environmental impact. CDP is a non-profi t charity which supports the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. CDP takes independently verifi ed information supplied by FBD, and scores our progress on climate action on a scale from A to F.
FBD's 2020 score improved to A-; which signifi es the 'Leadership' band – we are implementing current best practices on climate issues higher than the Europe regional average of C and higher than the fi nancial services sector average of B.
FBD, directly and through its external investment managers, actively integrates Environmental, Social and Governance (ESG) considerations into its investment processes across its book of more than €1bn assets. We continue to monitor closely the ESG characteristics, risks and opportunities of our portfolio and the actions we can take to invest in a more sustainable future.
PricewaterhouseCoopers D24 AK82 Chartered Accountants and Statutory Audit Firm Ireland One Spencer Dock North Wall Quay Dublin 1 D01 X9R7 Ireland
FBD House Allied Irish Banks plc Bluebell Bank of Ireland Dublin 12 Ulster Bank D12 Y0HE Barclays Bank plc Ireland BNP Paribas Close Brothers International Stockbrokers Credit Suisse (Luxembourg) S.A.
D04 YW83 33 Sir John Rogerson's Quay D02 XK09
Liverpool L2 7RB Computershare Investor Services (Ireland) Limited Citywest Business Campus
I choose FBD because they have an excellent structure of relationship managers who are local and they know agriculture. They understand the line of work we are in and that is so important. Their advice has been invaluable. You can't trade
without insurance; I consider FBD an essential part of my business, more like a partnership in a way. I can trade with confi dence – I know they have me covered.
Managing Director, Biogold Agri
Biographical details of the Directors in offi ce on the date of this Report are as follows:
Liam Herlihy Chairman
Tomás Ó'Midheach Group Chief Executive
Walter Bogaerts Independent Non-Executive Director Mary Brennan Independent Non-Executive Director
Tim Cullinan Independent Non-Executive Director
Liam Herlihy is a farmer and was appointed Chairman in May 2017. He was appointed Chairman of the Teagasc Authority in September 2018 and was, until May of 2015, Group Chairman of Glanbia plc, a leading Irish based performance nutrition and ingredients group, having served in that role for 7 years during which he presided over a period of signifi cant structural change and unprecedented growth for Glanbia plc. Mr Herlihy completed the Institute of Directors Development Programme and holds a certifi cate of merit in Corporate Governance from University College Dublin. He brings to the Board a wealth of commercial experience and some deep insights into the farming and general agricultural industries in Ireland which, together, comprise the Group's core customer base. (Aged 69)
Appointed 4 January 2021
Tomás Ó'Midheach has 25 years' experience in the fi nancial services industry spanning many diverse areas including fi nance, data, customer analytics, direct channels and digital. He spent 11 years with Citibank in the UK, Spain and Dublin where he held several senior positions in Finance ultimately assuming the position of CFO at Citibank Ireland. He joined AIB in June 2006 and held a number of senior executive positions including Head of Direct Channels & Analytics, Chief Digital Offi cer and Chief Operating Offi cer. Prior to joining FBD, Mr Ó'Midheach held the position Deputy CEO and was an Executive Board Member of AIB. (Aged 51)
Walter Bogaerts was General Manager of the Corporate Insurances Division of KBC Insurance based in Belgium prior to his retirement in 2013. He joined KBC Group (previously ABB Insurances) in 1979 and has gained extensive experience throughout his career with KBC in underwriting, reinsurance, audit, risk management and sales. He was general manager in charge of KBC Group's Central-European insurance businesses until appointed to his most recent role in 2012. In that role he was a member of the Supervisory Boards, Audit and Risk Committees of KBC's insurance subsidiaries in Czech Republic, Slovakia, Hungary, Poland and Bulgaria. He holds a Commercial Engineering degree from the Economic University of Brussels. (Aged 63)
Mary Brennan is a Chartered Director, Certifi ed Investment Fund Director and a Fellow of Chartered Accountants Ireland. In a career spanning over 30 years, Ms Brennan has worked internationally in audit in KPMG and in a number of publicly listed companies, including Elan plc and Occidental Petroleum Corp. She is a highly experienced Non-Executive Director and currently holds the position of Chair of the Board, Chair of the Audit Committee and Chair of the Risk Committee in her portfolio of fi nancially regulated directorships. Ms Brennan previously served on the Boards of BNP Paribas Ireland, Atradius Reinsurance Dac, the Social Finance Foundation and Microfi nance Ireland. (Aged 55)
Tim Cullinan is from Toomevara, Co. Tipperary, where he runs a pig enterprise alongside a feed mill operation. Mr Cullinan was elected the 16th President of the Irish Farmers' Association in December 2019. He has been heavily involved in the Irish Farmers' Association over the past 15 years holding various positions including National Pigs Committee Chairman and County Chairman and most recently the position of National Treasurer. He is a Board Member of Bord Bia – the Irish Food Board which is an Irish semi state Agency whose remit is to market and promote Ireland's food, drink and horticulture industry in Ireland and abroad. Mr Cullinan is Vice President of COPA (Committee of Professional Agricultural Organisations) and represents Irish farmers at EU level on COPA, which is the offi cial umbrella representative body for European farmers. Mr Cullinan established world fi rst DNA traceability for Irish pig meat and previously held the position Pig Expert to the Copa Cogeca. (Aged 60)
Sylvia Cronin Independent Non-Executive Director
David O'Connor Senior Independent Non-Executive Director
Richard Pike Independent Non-Executive Director
John O'Grady Group Finance Director
Padraig Walshe Non-Executive Director
Sylvia Cronin was Director of Insurance Supervision in the Central Bank of Ireland until October 2019 and was a Member of the European Insurance and Occupational Pensions Authority ("EIOPA") Board of Supervisors. Before joining the Central Bank, Ms Cronin spent the majority of her career working in the insurance industry, most recently as Chief Executive of Augura Life Ireland Ltd. Previously, Ms Cronin was the Chief Executive of MGM International Assurance Ltd. and spent several years with the AXA Group where she was head of Business Development, Services and Marketing in Ireland. Ms Cronin started her insurance career with the Fortis Group where her focus was on IT Management. Ms Cronin holds a Masters in Business Administration, was admitted as a Chartered Director to the Institute of Directors in London and is a CEDR Certifi ed Mediator. (Aged 58)
David O'Connor is a Fellow of the Society of Actuaries in Ireland. He commenced his career in New Ireland Assurance before joining Allianz Ireland in 1988 to set up its non-life actuarial function. He was a member of Allianz Executive Management Board and held a number of senior management positions there prior to joining Willis Towers Watson in 2003 to set up its Property and Casualty consultancy unit in Dublin, where he worked until June 2016. (Aged 63)
Richard Pike has extensive experience of working with fi nancial institutions throughout the world, assisting companies in managing enterprise risk more effi ciently while addressing local regulatory guidelines and standards. As well as being the founder and CEO of Governor Software, Richard is currently Chairman of Citadel Securities (Ireland) Ltd and an Independent Non-Executive Director of National Cyber Security Society, Starling International and Citadel Securities Europe. Prior to Governor Software, Richard has worked in various senior banking, insurance, credit and market risk roles at Wolters Kluwer Financial Services, ABN AMRO, Bain, COMIT Gruppe and Quay Financial Software. Richard lectures on Risk Management and Governance at the Institute of Banking and the Smurfi t Business School and was a contributing author to two books on risk management. Richard has also received the designation of 'Certifi ed Bank Director' by the Institute of Banking. (Aged 53)
Appointed 1 July 2016
John O'Grady is a Chartered Accountant and an experienced insurance executive. He joined FBD from Liberty Insurance Limited where he held the role of Finance Director. Prior to his role in Liberty, Mr O'Grady worked for Aviva and its predecessor companies in Ireland in various roles between 1989 and 2012, including Finance Director, Claims Director and Operations Director. (Aged 59)
Padraig Walshe is Chairman of Farmer Business Developments plc, the Company's largest shareholder, and a dairy farmer. He is a past President of COPA, the European Farmers' Organisation and of the Irish Farmers' Association. Mr Walshe previously served on the Board of FBD between 2006 and 2010, and rejoined the Board in December 2011. Mr Walshe's extensive leadership experience at national and international level and his deep understanding of Ireland's farming community and the Irish food sector are of immense benefi t to the Board. (Aged 63)
The Directors present their report and the audited financial statements for the financial year 2020.
FBD is one of Ireland's largest property and casualty insurers looking after the insurance needs of farmers, private individuals and business owners through its principal subsidiary, FBD Insurance plc. The Group also has financial services operations including a successful life and pensions intermediary. The Company is a holding company incorporated in Ireland.
The review of the performance of the Group, including an analysis of financial information and the outlook for its future development, is contained in the Chairman's Statement on pages 4 to 6 and in the Group Chief Executive's Review of Operations on pages 7 to 15. Information in respect of events since the financial year end and a review of the key performance indicators are also included in these sections. The key performance indicators include gross premium written, earnings per share, loss ratio, expense ratio, combined operating ratio, profit for the year, net asset value per share and return on equity.
The results for the year are shown in the Consolidated Income Statement on page 92.
The Group makes routine use of financial instruments in the carry-on of its activities. The use of financial instruments is material to an assessment of the financial statements. Detail on the Group's financial risk management objectives and policies are included in the Risks and Uncertainties Report on pages 22 to 33. The Group's exposure to liquidity, market, foreign currency, credit and concentration risk are included in note 37 of the financial statements.
Please refer to note 31 for further details.
The Irish Commercial Court judgement in respect of Covid-19 related business interruption cover for public house policies was issued on 5 February 2021 and FBD were deemed liable to cover the claims cost when the public houses were closed by Government. FBD accept this judgement and will pay interim claim payments to our affected customers in a timely manner with final payments to follow once all required information is received and processed. Post year end extensions to the period of Level 5 Covid-19 restrictions initially imposed on 24 December 2020 impacted the valuation of 2020 Covid-19 related business interruption claims. The continuation of the Covid-19
restrictions will continue to impact on the business in 2021. Please refer to note 39 for further details.
A description of the risks and uncertainties facing the Group are set out in the Risks and Uncertainties Report on pages 22 to 33.
The Company's principal subsidiaries, as at 31 December 2020, are listed in note 32.
The present Directors of the Company, together with a biography on each, are set out on pages 44 to 45. The Board has decided that all Directors continuing in office will submit themselves for re-election at each Annual General Meeting (AGM).
The Directors who served at any time during 2020 were as follows:
| Liam Herlihy | Chairman |
|---|---|
| Walter Bogaerts | Independent Non-Executive Director |
| Mary Brennan | Independent Non-Executive Director |
| Sylvia Cronin | Independent Non-Executive Director |
| Tim Cullinan | Independent Non-Executive Director (Appointed 31 December 2020) |
| Paul D'Alton | Interim Chief Executive Officer and Executive Director (Appointed 3 April 2020, Resigned 4 January 2021) |
| Joe Healy | Independent Non-Executive Director (Resigned 31 July 2020) |
| Fiona Muldoon | Group Chief Executive (Resigned 15 May 2020) |
| David O'Connor | Senior Independent Non-Executive Director |
| John O'Grady | Group Chief Financial Officer |
| Richard Pike | Independent Non-Executive Director |
| Padraig Walshe | Non-Executive Director |
Tomás Ó'Midheach took up the role as Chief Executive Officer and Executive Director on 4 January 2021.
The AGM is scheduled to be held on Wednesday, 12 May 2021. The notice of the AGM of the Company will be sent to shareholders giving 21 clear days' notice.
The interests of the Directors and Company Secretary (together with their respective family interests) in the share capital of the Company, at 31 December 2020 and 1 January 2020 were as follows:
| Substantial Shareholdings | ||
|---|---|---|
| --------------------------- | -- | -- |
As at 31 December 2020 the Company has been notified of the following interests of 3% or more in its share capital (there were no subsequent notifications of changes to these interests up until 31 January 2021):
| Number of ordinary shares of €0.60 each |
||
|---|---|---|
| Beneficial | 31 December 2020 |
1 January 2020 |
| Liam Herlihy | 8,000 | 8,000 |
| Walter Bogaerts | 0 | 0 |
| Mary Brennan | 0 | 0 |
| Sylvia Cronin | 0 | 0 |
| Tim Cullinan | 0 | 0 |
| Paul D'Alton | 0 | 0 |
| David O'Connor | 1,500 | 1,500 |
| John O'Grady | 10,743 | 0 |
| Richard Pike | 2,500 | 0 |
| Padraig Walshe | 1,100 | 1,100 |
| Company Secretary |
There has been no change in the interests of the Directors and Company Secretary (together with their respective family interests) in the share capital of the Company up to the date of this report.
Derek Hall 12,724 7,383
The interests of the Directors and the Company Secretary in conditional awards over the share capital of the Company under the shareholder approved Performance Share Plans are detailed in the Report on Directors' Remuneration on pages 66 to 78.
For the purposes of Regulation 21 of the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006, the information on the Board of Directors on pages 44 to 45, the Performance Share Plans in note 35 and the Report on Directors' Remuneration on pages 66 to 78 are deemed to be incorporated in this part of the Report of the Directors.
| Ordinary shares of €0.60 each | No. | % of Class |
|---|---|---|
| Farmer Business Development Plc | 8,531,948 | 24.3% |
| FBD Trust Company Limited | 2,984,737 | 8.5% |
| M&G Investment Management Ltd. | 2,585,349 | 7.4% |
| INVESCO Asset Management Ltd. | 1,968,535 | 5.6% |
| Highclere International Investors LLP | 1,903,864 | 5.4% |
| Fidelity Management & Research Company |
1,820,734 | 5.2% |
| Black Creek Investment Management Inc. 1,533,926 | 4.4% |
| 14% Non-cumulative preference shares of €0.60 each |
No. | % of Class |
|---|---|---|
| Farmer Business Developments plc | 1,340,000 | 100% |
| 8% Non-cumulative preference shares of €0.60 each |
No. | % of Class |
| FBD Trust Company Limited | 2,062,000 | 58.38% |
The Group had four classes of shares in issue at the end of the year. These classes and the percentage of the total issued share capital represented by each are as follows:
| Voting shares | Number in issue |
% of Total |
|---|---|---|
| Ordinary shares of €0.60 each | 35,052,462* | 87.8% |
| 14% Non-cumulative preference shares of €0.60 each |
1,340,000 | 3.4% |
| 8% Non-cumulative preference shares of €0.60 each |
3,532,292 | 8.8% |
| 39,924,754 | 100.0% |
*excluding 408,744 shares held in treasury
The Company's ordinary shares of €0.60 each are listed on the Main Securities Market of Euronext Dublin and have a premium listing on the London Stock Exchange. They are traded on both Euronext Dublin and the London Stock Exchange. Neither class of preference share is traded on a regulated market.
Each of the above classes of share enjoys the same rights to receive notice of, attend and vote at meetings of the Company.
| Non-voting shares | Number in issue |
|---|---|
| 'A' ordinary shares of €0.01 each | 13,169,428 |
The rights attaching to the 'A' ordinary shares are clearly set out in the Articles of Association of the Company. They are not 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.
Under the EU Non-Financial Disclosure Regulations (Directive 2014/95/EU) FBD Holdings plc must provide a brief description of the Group's Business Model and disclose information in relation to:
Any risk relating to the above matters are identified, assessed, managed and reported in line with the risk management framework as out lined on page 22.
FBD's business model is outlined on pages 16 and 17. Customers and our communities are at the heart of our business model. We offer our customers clear solutions to their insurance needs using extensive distribution networks which deliver the best customer experience. FBD invests in its people, empowering them to deliver for customers and shareholders alike.
FBD started measuring our use of energy ten years ago through an engagement with the Carbon Disclosure Project (CDP). Please see further information in Corporate Social Responsibility Statement on pages 34 to 40.
Initially, this initiative was about understanding how the use of energy is measured and in turn managing FBD's own use of energy. In 2016, a decision was made to undertake third party validation of the energy consumption data and in 2018 a further step was taken on the journey to look beyond "Energy Management" to the consideration of Climate Change and the Environment. These decisions were driven by the growth of concern regarding climate change and the environment from shareholders, employees, the management team and the wider community.
In 2020, in recognition of FBD's environmental responsibilities and the Global Community, FBD once again purchased voluntary carbon credits to offset our business kilometres with Vita Ireland. Please refer to our Corporate Social Responsibility Statement on pages 34 to 40 for further details on this initiative.
| Scope 1 | Scope 2 – Location Based | Scope 2 – Market Based | |
|---|---|---|---|
| Scope descriptions | Includes CO2 emissions generated from gas and heating oil |
Includes emissions from the purchase of electricity by location. Individual FBD property consumption approach. |
Includes emissions based on FBD's purchasing decisions. From July 2020, FBD are purchasing 100% renewable electricity (Green contracts) for all our sites. |
| 2020 Consumption | 122 tCO2e | 754 tCO2e | 281 tCO2e |
| 2019 Consumption | 89 tCO2e | 978 tCO2e | 636 tCO2e |
| Progress in 2020 | Scope 1 emissions are up by 33 tCO2e, the increase is up 37% on the previous year and arises from Covid-19 ventilation requirements. Actions have been taken to reduce this increase in 2021. |
Scope 2 location based emissions are down 23% on the previous year, due to a reduction in consumption associated with lower workplace occupancy and more efficient lighting. |
Scope 2 market based emissions are down 56% on the previous year, due to a reduction in consumption associated with lower workplace occupancy, more efficient lighting and the purchase of renewable electricity. |
FBD, directly and through its external investment managers, actively integrates Environmental, Social and Governance (ESG) considerations into its investment processes across its book of more than €1bn in assets. This FBD ESG framework incorporates the following aspects:
Asset Manager Selection: FBD's external asset manager due diligence reviews and selection and retention processes place a strong emphasis on the manager's ESG capabilities and credentials. All our external managers are signatories of the UN's Principles for Responsible Investment (PRI) and are required to provide Sustainability Policies/Reports detailing how they promote ESG factors both within their own corporate structures and through active stewardship of the underlying companies which they manage for FBD.
Corporate Bond Portfolio: FBD's corporate bond manager rates all its securities, using its proprietary scoring system, on a scale from A-F (A being the best in class from an ESG perspective, F being the worst offenders or ESG laggards). In determining these ratings the manager utilises data from a number of the leading ESG specialist companies in the marketplace. FBD has committed to holding a 0% allocation in those securities rated F on this scale and a maximum of 5% in E rated securities and 20% in D rated securities.
FBD has a range of policies in place to ensure full compliance with legislation and with our commitment to providing a safe and supportive working environment for our employees. Fundamental to these policies and the embedded culture, is a regard for the individual, their rights and the mutual advantage of fostering our employees' potential and supporting their career development.
These policies are communicated to all staff joining FBD as part of the on-boarding process. They provide information, guidelines and rules where appropriate in relation to every stage of employment including recruitment and selection; equality and diversity; probation; learning and development; all types of leave; benefits; remuneration; disciplinary and grievance.
These policies are reviewed regularly and updates are notified to employees. Additional policies are introduced from time to time to support the organisation's focus on enhancing the working environment and ensuring full compliance with legislative requirements.
Our employees and their welfare was a key priority following the outbreak of Covid-19 in March. As a company we mobilised immediately and developed protocols for the organisation in line with Government guidelines with over 90% of employees working at home from March. A small number of employees continued to attend the workplace to ensure we were meeting our operational obligations. A Covid-19 risk manager was
appointed in April to support implementation and ongoing monitoring of our plan to ensure we continued to adhere to all Government guidelines as we moved through the levels 1 - 5.
Under FBD's Equal Opportunities, Diversity and Inclusion Policy, all employees who work in FBD, and those who use services provided by FBD, are treated with dignity and respect, receive equality of opportunity and are not subject to discrimination. FBD seeks to ensure that respect for diversity, equality and inclusion are embedded in all the services we provide and the work we do. To this end, FBD's Supplier Charter details how FBD supports the Universal Declaration of Human Rights and will work to enforce these rights within our supply chain.
FBD requires all employees at all times to act honestly and with integrity and to safeguard the resources for which they are responsible. Our Code of Conduct Policy sets out the professional and responsible behaviour expected to ensure that we are appropriately focused on delivering the right outcomes for shareholders and customers, meeting our legal and regulatory requirements and appropriately managing and mitigating risks.
This is further underpinned by our:
PricewaterhouseCoopers, Chartered Accountants and Statutory Audit Firm, were appointed by the Directors in 2016 to audit the financial statements for the financial year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement is five years, covering the financial years ended 31 December 2016 to 31 December 2020. PricewaterhouseCoopers have signified their willingness to continue in office in accordance with the provisions of Section 383(2) of the Companies Act 2014.
Regarding disclosure of information to the Auditors, the Directors confirm that:
As far as they are aware, there is no relevant audit information of which the Group's statutory auditors are unaware; and they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's statutory auditors are aware of that information.
Governance
The Directors have taken appropriate measures to ensure compliance with Sections 281 to 285 of the Companies Act, 2014 – the requirement to keep proper accounting records – through the employment of suitably qualified accounting personnel and the maintenance of appropriate accounting systems. The accounting records are located at FBD House, Bluebell, Dublin 12, Ireland.
The Directors of the Company acknowledge that they are responsible for securing the Company's compliance with its relevant obligations (as defined in the Companies Act 2014 (the "2014 Act")) and, as required by section 225 of the 2014 Act, the Directors confirm that:
The Corporate Governance Report on pages 52 to 62 forms part of this report and in this the Board has set out how it has applied the principles set out in the UK Corporate Governance Code 2018, which was adopted by both Euronext Dublin and the UK Listing Authority, the Irish Corporate Governance Annex, and the Central Bank of Ireland Corporate Governance Code requirements for Insurance Undertakings 2015.
The Board has established four Committees to assist it in the execution of its responsibilities. These are:
The Group did not make any political donations during 2020.
The Directors have assessed the prospects of the Group and its ability to meet its liabilities as they fall due in the medium term. The Directors selected a three year timeframe which they consider appropriate as this corresponds with the Board's strategic planning process. The objectives of the strategic planning process are to consider the key strategic choices facing the Group and to incorporate these into a financial model with various scenarios. This assessment has been made with reference to the Group's current position and prospects, the Group's strategy, the Board's risk appetite and the principal risks and uncertainties facing the Group, as outlined in the Risks and Uncertainties Report on pages 22 to 33. The impact of Covid-19 on the business has been considered in detail for each principal risk identified along with its associated risk impact.
The Directors review and renew the Group's three year plan at least annually. Progress against the strategic plan is reviewed regularly by the Board and senior management. Associated risks are considered within the Board's risk management framework.
The strategic plan has been tested for a number of scenarios which assess the potential impact of some of the strategic and commercial risks facing the Group. The Group performs an ORSA at least annually which subjects FBD's solvency capital levels to a number of extreme stress scenarios and Covid-19 had been considered as part of this. This was last performed in December 2020. Based on the results of these tests the Directors confirm that they have performed a robust assessment of the principal risks facing the Group, including those that would threaten its business model, its future performance and solvency and that they can have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of the assessment.
The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Chairman's Statement and the Review of Operations, as is the financial position of the Group. In addition, the Risks and Uncertainties Report on pages 22 to 33 and note 37 of the financial statements include the Group's policies and processes for financial risk management.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future being a period of at least twelve months from the date of this report.
In making this assessment the Directors considered the continuing impact of the Covid-19 pandemic on the Group's business. This included reviewing projections reflecting the Covid-19 pandemic potential impacts on future years. The scenarios included a range of estimates based on the length of time the economy takes to recover as well as the impact from the business interruption claims the company is liable for following the recent judgement. In addition the ORSA process monitors current and future solvency needs. The scenarios were projected as part of the ORSA process as well as a number of more extreme stress events. In all scenarios the Group's capital ratio remained in excess of the Solvency Capital Requirement.
On the basis of the scenarios projected by the Group and the additional ORSA scenarios carried out, the Directors are satisfied that there are no material uncertainties which cast significant doubt on the ability of the Group or Company to continue as a going concern over the period of assessment being not less than 12 months from the date of this report. Thus the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The financial statements were approved by the Board on 25 February 2021.
Signed on behalf of the Board
Liam Herlihy Chairman
Tomás Ó'Midheach Group Chief Executive
Your Board of Directors is committed to the highest standards of corporate governance. Good governance stems from a positive culture and well embedded values. FBD's core values of respect, belief, innovation, community, ownership and communication are central to how the Board conducts its business and discharges its responsibilities. Equally, however, these values are as relevant to every employee working throughout the Group in their interactions with each other, and with our customers, shareholders and other stakeholders.
The UK Corporate Governance Code 2018 ("the Code") and the Irish Corporate Governance Annex ("the Annex") codify the governance arrangements which apply to listed companies such as FBD. Combined, these represent corporate governance standards of the highest international level.
Throughout 2020 and to the date of this report, we applied the principles of the Code and except where otherwise expressly stated complied with the provisions of both the Code and the Annex.
This section of the Annual Report sets out the governance arrangements in place in FBD Holdings plc.
| Listing Rule | Information to be included: |
|---|---|
| 6.1.77 (4) | Refer to Report on Director's Remuneration on pages 66 to 78 |
No information is required to be disclosed in respect of Listing Rules 6.1.77 (1), (2), (3), (5), (6), (7), (8), (9), (10), (11), (12), (13), (14).
The Group is managed by the Board of Directors.
The primary role of the Board is to provide leadership and strategic direction while maintaining effective control over the activities of the Group.
The Board has approved a Corporate Governance Framework setting out its role and responsibilities. This is reviewed annually as part of the Board's evaluation of its performance and governance arrangements. The Framework includes a formal schedule of matters reserved to the Board for its consideration and decision, which includes:
n the approval of the Group's objectives and strategy;
This schedule ensures that the skills, expertise and experience of the Directors are harnessed to best effect and ensures that any major opportunities or challenges for the Group come before the Board for consideration and decision. The schedule was last reviewed in February 2021.
Other specific responsibilities of the Board are delegated to Board appointed Committees, details of which are given later in this report.
At 31 December 2020 the Board comprised two Executive Directors and eight Non-Executive Directors, including the Chairman. This structure was deemed appropriate by the Board.
The Board deemed it appropriate that it should have between 8 and 12 members and that this size is appropriate, being of sufficient breadth and diversity to ensure that there is healthy debate and input.
Six of the Non-Executive Directors in office at the end of 2020 were considered to meet all of the criteria indicating independence set out in the Code.
| Date first elected by shareholders |
Years from first election to 2021 AGM |
Considered to be independent |
|
|---|---|---|---|
| Mary Brennan | 31 Aug 2016 | 4.70 | Yes |
| Walter Bogaerts | 29 Apr 2016 | 5.1 | Yes |
| Sylvia Cronin | 31 July 2020 | 0.79 | Yes |
| Tim Cullinan | Awaiting Election |
Awaiting Election |
Yes |
| David O'Connor | 31 Aug 2016 | 4.70 | Yes |
| Richard Pike | 31 July 2020 | 0.79 | Yes |
Padraig Walshe, who is chairman of the Group's largest shareholder, Farmer Business Developments plc, is not considered to be independent.
The role of the Chairman is set out in writing in the Corporate Governance Framework. He is responsible, inter alia, for:
The role of the Group Chief Executive is set out in writing in the Corporate Governance Framework. He is responsible, inter alia, for:
The Senior Independent Director is responsible for:
The Company Secretary acts as Secretary to the Board and to its Committees. In so doing, he:
n assists the Chairman in ensuring that the Directors have access, in a timely fashion, to the papers and information necessary to enable them to discharge their duties;
Board effectiveness is reviewed annually as part of the Board's performance evaluation process. The Chairman is responsible for ensuring that each Director receives an induction on joining the Board and that he or she receives any additional training he or she requires. The induction itself is organised and delivered by the Company Secretary and other members of the management team.
Every year the Board evaluates its performance and that of its Committees. Directors are expected to take responsibility for identifying their own training needs and to take steps to ensure that they are adequately informed about the Group and about their responsibilities as a Director. The Board is confident that all of its members have the requisite knowledge and experience and support from within the Group to perform their role as a Director of the Group.
Towards the end of 2019, the Board had its evaluation process externally facilitated by Independent Audit, an independent consultancy which has no other connections with the Group. FBD is committed to ensuring that it has a high-performing Board, which is equipped to anticipate, meet and overcome future challenges and to ensure alignment with the Group's long-term strategy. The Board welcomed the constructive and enhancing recommendations from this external evaluation and a plan to implement the suggested actions was developed and progressed during 2020.
Further details of the 2020 Board Effectiveness and Performance Evaluation are set out in the Report of the Nomination and Governance Committee on pages 63 to 65.
The Board has, since 2011, adopted the practice that all Directors will submit themselves for re-election at each AGM regardless of length of service or the provisions of the Company's Articles of Association.
All members of the Board have access to the advice and the services of the Company Secretary who is responsible for ensuring that Board procedures are followed and that applicable rules, regulations and other obligations are complied with.
In addition members of the Board may take independent professional advice at the Company's expense if deemed necessary in the furtherance of their duties.
If a Director is unable for any reason to attend a Board or Committee meeting, he or she will receive Board/Committee papers in advance of the meeting and is given an opportunity to communicate any views on or input into the business to come before the Board/Committee to the Board/Committee Chairman.
Each of the committees has written terms of reference which were approved by the Board and set out the Committees' powers, responsibilities and obligations. The terms of reference are reviewed at least annually by the Board. These are available on the Group's website www.fbdgroup.com.
The Company Secretary acts as secretary to the committees. Minutes of all of the Committees' meetings are available to the Board.
Each of these Committees has provided a report in the sections following.
| Nomination and | |||||
|---|---|---|---|---|---|
| Board | Audit | Governance | Remuneration | Risk | |
| W Bogaerts | 25/25 | 9/9 | 6/6 | 10/11 | 6/6 |
| M Brennan | 25/25 | 9/9 | |||
| T Cullinan | 0/0 | ||||
| S Cronin | 25/25 | 5/5 | 10/10 | 5/5 | |
| P D'Alton | 20/20 | ||||
| J Healy | 16/16 | ||||
| L Herlihy | 25/25 | 6/6 | 5/6 | ||
| F Muldoon | 4/7 | ||||
| D O'Connor | 24/25 | 6/9 | 1/1 | 10/11 | 1/1 |
| J O'Grady | 23/25 | ||||
| R Pike | 24/25 | 5/5 | |||
| P Walshe | 25/25 |
Mary Brennan Committee Chairperson
| Length of time served on committee |
||
|---|---|---|
| M Brennan | Committee Chairperson, Independent Non-Executive Director |
4.33 years |
| W Bogaerts | Independent Non-Executive Director |
4.83 years |
| D O'Connor | Independent Non-Executive Director, Senior Independent Director |
1.58 years |
The Committee members have been selected to ensure that the Committee has available to it the range of skills and experience necessary to discharge its responsibilities.
The Board agrees that all Members are considered to have recent and relevant fi nancial experience and qualifi cations. The Committee as a whole has the competence relevant to the General Insurance sector.
To assist the Board of the Group in fulfi lling its oversight responsibilities for such matters as fi nancial reporting, the system of internal control and management of fi nancial risks, the audit process and the Group's process for monitoring compliance with laws and regulations.
The Committee met on nine occasions during 2020. Attendance at the scheduled meetings held during 2020 is outlined on page 54. Meetings are attended by Committee members. The Chief Financial Offi cer, the Statutory Auditor, the Head of Group Internal Audit, the Head of Actuarial Function and the Chief Risk Offi cer are invited to attend all scheduled meetings of the Committee. The Committee regularly meets separately with the Statutory Auditor and with the Head of Group Internal Audit, without members of management present.
The minutes of Committee meetings are circulated routinely to the Board. The Committee chairperson also provides a verbal report to the Board after each Committee meeting. The Committee reports formally to the Board annually on the overall work undertaken and the degree to which it discharged the responsibilities delegated to it.
The principal activities undertaken by the Committee during 2020 include:
In 2020 the Committee considered the independence of the Auditors and acknowledged the independence and quality control safeguards operated within PricewaterhouseCoopers. The External Audit Partner is due to rotate in 2021 having served as Audit Partner for a five year period.
Additionally, the Board has approved a Non-Audit Services Policy which is in place to mitigate any risks threatening, or appearing to threaten, the external audit firm's independence and objectivity arising through the provision of non-audit services. No non-audit services were provided by PricewaterhouseCoopers other than the audit of those elements of the Solvency and Financial Condition Report that PricewaterhouseCoopers are required to audit and the provision of certificates of premium amounts to the Motor Insurers Bureau of Ireland.
As part of its responsibilities the Committee reviews the External Audit Plan, the audit approach and objectives and Audit Findings and has concluded that the external audit process has remained effective.
PricewaterhouseCoopers were reappointed as Auditors of the Group in respect of the financial year ended 31 December 2020. The audit was last put out to tender in 2015 and PricewaterhouseCoopers was appointed as Auditors from 2016. PricewaterhouseCoopers have been auditors to the Group for five years.
The significant issues, critical judgements and estimates used in the formulation of the financial statements are set out in note 3. All are considered by the Committee, with particular focus on the following in 2020:
| Key Issue | Committee conclusion |
|---|---|
| Valuation of claims provisions |
The Committee reviewed the best estimate, claims handling provision and margin for uncertainty, as well as the actuarial methodologies and key assumptions. The Committee separately reviewed the business interruption claims provisions given the complexity and judgements involved in the calculations. The Committee was satisfied with the measurement and valuation of all claims provisions. |
| Valuation of reinsurance asset |
The Committee reviewed the assumptions in respect of the estimated recoveries under the Group reinsurance programme for the Covid-19 business interruption claims. Given the uncertainty, judgement was applied in the calculation of the estimated recoveries including a probability weighted assessment. The Committee concluded following the review that the valuation prepared by management was reasonable. |
| Key Issue | Committee conclusion |
|---|---|
| Impairment testing |
The Committee reviewed management's documentation of the impairment assessment of the Group, given the current economic conditions as a result of the Covid-19 pandemic and the market capitalisation being below net assets. The Committee was satisfied that no impairment of the assets was required. |
| Non-standard adjustments to premium revenue (rebates) |
The Committee reviewed the accounting treatment, classification and measurement of premium rebates. The Committee was satisfied with the methodology and assumptions used in calculating the premium rebates paid and the provision included in the financial statements at 31 December 2020. |
| Going concern | The Committee reviewed management's documentation of the going concern assessment. The Committee was satisfied that there were no material uncertainties which cast significant doubt on the ability of the Group or Company to continue as a going concern over the period of assessment being not less than 12 months from the date of this report. |
The Committee formally advises the Board on whether the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable, in accordance with Provision 27 of the UK Corporate Governance Code 2018. The Committee must ensure that the Annual Report and financial statements also provide the information necessary for Shareholders to assess the performance of the Group, along with its business model and strategy and the Committee is satisfied that the above requirements have been met.
The Committee has reviewed the activities which it performed and its overall effectiveness and has concluded that it has operated effectively in providing the Board with the assurances needed to discharge its responsibilities.
On behalf of the Audit Committee
Walter Bogaerts Committee Chairman
| Length of time served on committee |
||
|---|---|---|
| W Bogaerts | Committee Chairman, Independent Non Executive Director |
4.00 years |
| S Cronin (appointed 26 February 2020) |
Independent Non Executive Director |
1.00 years |
| L Herlihy | Independent Non Executive Director and Board Chairman |
4.00 years |
| R Pike (appointed 26 February 2020) |
Independent Non Executive Director |
1.00 years |
| D O'Connor (stepped down on 26 February 2020) |
Senior Independent Director |
3.00 years |
Following new Board appointments towards the end of 2019, the composition of the Committee was reviewed in February 2020. Mr O'Connor was replaced by Ms Cronin as a Member of the Committee and Mr Pike was appointed as a Member of the Committee.
The Committee members have been selected to ensure that the Committee has available to it the range of skills and experience necessary to discharge its responsibilities.
The Board Risk Committee is the forum for risk governance within FBD. It is responsible for providing oversight and advice to the Board in relation to current and potential future risk exposures of the Group and future risk strategy. This advice includes recommending a risk management framework incorporating strategies, policies, risk appetites and risk indicators to the Board for approval. The Risk Committee oversees the risk management function, which is managed on a daily basis by the Chief Risk Offi cer.
n promote a risk awareness culture within the Group;
The Committee met on six occasions during 2020. Meetings are attended by Committee members. The Chief Risk Offi cer, the Chief Executive Offi cer, the Chief Financial Offi cer, the Chief Underwriting Offi cer, the Head of Actuarial Function, the Head of Compliance and the Head of Internal Audit are invited to attend all scheduled meetings of the Committee.
The minutes of Committee meetings are circulated routinely to the Board. The Committee chairman also provides a verbal report to the Board after each Committee meeting. The Committee reports formally to the Board annually on the overall work undertaken and the degree to which it discharged the responsibilities delegated to it.
The principal activities undertaken by the Committee during 2020 include:
The Committee has reviewed the activities which it performed and its overall effectiveness and has concluded that it has operated effectively in providing the Board with the assurances needed to discharge its responsibilities.
On behalf of the Risk Committee
Liam Herlihy Committee Chairman
| Length of time served on committee |
||
|---|---|---|
| L Herlihy | Committee Chairman, Non-Executive Director, Board Chairman |
4.58 years |
| W Bogaerts | Independent Non Executive Director |
1.58 years |
| S Cronin (appointed 26 February 2020) |
Independent Non Executive Director |
1.00 years |
| D O'Connor (stepped down on 26 February 2020) |
Senior Independent Non-Executive Director |
2.66 years |
Following new Board appointments towards the end of 2019, the composition of the Committee was reviewed in February 2020. Mr O'Connor was replaced by Ms Cronin as a Member of the Committee.
To ensure that the Board and its Committees are made up of individuals with the necessary skills, knowledge and experience to ensure that the Board is eff ective in discharging its responsibilities.
The Committee met six times during 2020. The Group Chief Executive may attend meetings of the Committee but only by invitation and not at a time when their succession arrangements are discussed.
The minutes of Committee meetings are circulated routinely to the Board. The Committee chairman also provides a verbal report to the Board after each Committee meeting. The Committee reports formally to the Board annually on the overall work undertaken and the degree to which it discharged the responsibilities delegated to it.
Further details of their activities are laid out in on the Nomination and Governance report on pages 63 to 65.
The Committee has reviewed the activities which it performed and its overall eff ectiveness and has concluded that it has operated eff ectively in providing the Board with the assurances needed to discharge its responsibilities.
On behalf of the Nomination and Governance Committee
David O'Connor Committee Chairman
| Length of time served on committee |
||
|---|---|---|
| D O'Connor | Committee Chairman, Senior Independent Non-Executive Director |
3.66 years |
| W Bogaerts | Independent Non-Executive Director |
4.66 years |
| S Cronin (appointed 26 February 2020) |
Independent Non-Executive Director |
1.00 years |
Following new Board appointments in 2019 the composition of the Committee was reviewed in February 2020. Ms Cronin was appointed as a Member of the Committee.
To assist the Board of the Group in ensuring that the level of remuneration in the Group and the split between fi xed and variable remuneration are suffi cient to attract, retain and motivate Executive Directors and senior management of the quality required to run the Group in a manner which is fair and in line with market norms, while not exposing the Group to unnecessary levels of risk.
n ensure that remuneration schemes promote long-term shareholdings by Executive Directors that support alignment with long-term shareholder interests;
n review the on-going appropriateness and relevance of the Remuneration Policy;
The Committee met eleven times during 2020. The Group Chief Executive may attend meetings of the Committee but only by invitation and not at a time when individual remuneration arrangements are discussed.
The minutes of Committee meetings are circulated routinely to the Board. The Committee chairman also provides a verbal report to the Board after each Committee meeting. The Committee reports formally to the Board annually on the overall work undertaken and the degree to which it discharged the responsibilities delegated to it.
The principal activities undertaken by the Committee during 2020 include:
Full details of Directors' Remuneration are set in the Report on Directors Remuneration on pages 66 to 78.
The Committee has reviewed the activities which it performed and its overall eff ectiveness and has concluded that it has operated eff ectively in providing the Board with the assurances needed to discharge its responsibilities.
On behalf of the Remuneration Committee
FBD has identified the following as its key stakeholders:
The Board is committed to ensuring that excellent lines of communication exist and are fostered between the Group and its stakeholders. Initiatives undertaken are outlined in the Corporate Social Responsibility Statement report on pages 34 to 40.
A planned programme of investor relations activities is undertaken throughout the year which includes:
Should a significant proportion of votes be cast against a resolution at any general meeting, the Board will endeavour to identify the shareholders concerned and will initiate contact with them with the view to understanding the reasons for the adverse vote. In 2020 no resolution had 20% or more votes cast against it.
The Board receives reporting on shareholder engagement which includes details of meetings held, feedback received and issues either of interest or of concern raised. Any issues arising are addressed at Board meetings.
FBD has numerous channels through which it can engage with customers. FBD has 34 branches in its network making face to face contact easily accessible for customers. In addition FBD is present at a significant number of events throughout the country. 2020 has been a challenging year and as a result of a number of Government restrictions, our branches were temporarily closed at certain times. FBD is committed to supporting and maintaining service to our customers during the closure of our branches. Staff continue to be available while working remotely to discuss customer requirements. We have a number of supports in place to help our Car and Home Customers, Farm Customers and Business Customers. In addition a number of events that FBD support and are heavily involved in were held in a virtual capacity.
Through regular meetings with Board members and senior management, the Group has an engaging relationship with the Central Bank of Ireland, its regulator. Through attendance at Oireachtas meetings on insurance related matters the Group engages with Government bodies.
Sylvia Cronin is the appointed Director for Workforce Engagement for FBD. Her key role ensures the views and concerns of the workforce are heard and understood, shared with the Board and taken into account in the decision making of the Board.
Throughout 2020 Sylvia took the time to understand the views and concerns of the workforce by spending time with a number of employees as well as initiating an employee survey to hear the views of the wider workforce. The importance of employee engagement particularly during Covid-19 was a key area of focus for Sylvia as well as the mental health and well-being of all employees.
Regular updates took place throughout 2020 in respect of all areas of importance to the working lives of employees to ensure that Sylvia had a clear understanding of what really matters and any areas of concern.
In addition FBD spokespeople on Insurance, Farm Safety and the Claims Environment participate in and contribute to societal debate on topical issues.
The Company's AGM is held each year in Dublin. The 2021 meeting will be held on 12 May 2021.
n the Group Chief Executive makes a presentation on the results and performance to the meeting prior to the Chairman dealing with the formal business of the meeting itself; and
n all shareholders present, either in person or by proxy can question the Chairman, the Committee Chairpersons and the rest of the Board during the meeting and afterwards.
All formal resolutions are dealt with on a show of hands. Once the vote is declared by the Chairman, the votes lodged with the Company in advance of the meeting are displayed prominently in the venue for those present to see. Immediately after the meeting is concluded the results are published on the Group's website www.fbdgroup.com and also via the Euronext Dublin and London Stock Exchange.
The notice of the AGM is issued to shareholders at least 20 working days in advance of the meeting. Details will be available in due course in respect to the holding of the AGM considering the Covid-19 pandemic. The 2020 AGM and recent EGM were held under restricted circumstances.
The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.
In accordance with the revised Financial Reporting Council (FRC) guidance for directors on internal control published in September 2014, "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting", the Board confirms that there is an ongoing process for identifying, evaluating and managing any significant risks faced by the Group, that it has been in place for the year under review and up to the date of approval of the financial statements and that this process is regularly reviewed by the Board.
The key risk management and internal control procedures which cover all material controls include:
n a Risk Committee of the Board and a Risk Management Framework comprising a risk function headed by a Chief Risk Officer, a clearly stated risk appetite and risk strategy supported by approved risk management policies and processes;
n an Executive Risk Committee comprising senior management whose main role includes reviewing and challenging key risk information and to assist the Board Risk Committee, described earlier, in the discharge of its duties between meetings;
The Annual Budget, Half-Yearly Report and Annual Report are reviewed and approved by the Board. Financial results with comparisons against budget are reported to Executive Directors on a monthly basis and are reported to the Board quarterly.
The risk management, internal control, reporting and forecasting processes are important to the Board in the exercise of its Governance and Oversight role. The Board constantly strives to further improve their quality.
The Group has established a 'Speak Up' Policy for employees the purpose of which is to reassure employees that it is safe and appropriate to raise any concern that they may have about malpractice and to enable them to raise such concerns safely and properly. This policy is reviewed annually and circulated thereafter to all Group employees.
The Board confirms that it has reviewed the effectiveness of the Group's Systems of Internal Control for the year ended 31 December 2020. The 2020 internal control assessment provides reasonable assurance that the Group's controls are effective, and that where control weaknesses are identified, they are subject to management oversight and action plans.
Dear Shareholder,
On behalf of the Nomination and Governance Committee, I am pleased to set out a summary of its activities during 2020.
As notified to the Board in October 2019, Ms Muldoon left her position as Executive Director and CEO in 2020. Mr D'Alton was appointed as Interim CEO and Executive Director in April 2020 while the Nomination and Governance Committee completed its search for a permanent successor.
The Committee engaged an independent external executive search specialist firm, Odgers Berndtson, to assist it in its search. Following a thorough search process against specific and defined criteria, Tomás Ó'Midheach was appointed as Group Chief Executive Officer and Executive Director and commenced this role on 4 January 2021.
On behalf of the Committee I would like to thank Ms Muldoon for her hard work and effective contribution to FBD over the last five years.
Mr Healy did not go forward for re-election at the 2020 AGM having reached the end of his term as 15th President of the Irish Farmers Association. The Committee recommended the appointment of Mr Cullinan, elected 16th President of the IFA, as Independent Non-Executive Director and he joined the Board at the end of 2020.
We welcome Tomás and Tim to our Board and look forward to working with them in 2021 and beyond.
At FBD, our commitment to working towards a consciously inclusive workplace is key to creating an environment that fosters innovation, employee engagement, creativity and the collaboration required to be the insurance employer of choice. Diversity and Inclusion (D&I) continues to be an area of focus and development for FBD. In 2020, we formed a D&I Committee to lead out on the D&I Strategy. The committee is made up of employees from all areas of the business and at all levels within the business.
Our Corporate Governance Framework and Recruitment policy reflects our continued commitment to promote a diverse and inclusive culture, valuing diversity of thought, skills, experience, knowledge and expertise including of educational and professional backgrounds, alongside diversity criteria such as gender, ethnicity and age. As set out in the Policy all Executive appointments and succession plans are made on merit and objective criteria, in the context of the skills and experience that are needed for the Board to be effective and to promote 'diverse thinking'.
FBD partnered with the Irish Centre for Diversity and underwent a review of a number of our policies to ensure they were inclusive of all people regardless of any of the nine grounds for discrimination. We were awarded a Bronze rating under the Irish Centre for Diversity Investors in Diversity Framework. We are committed to this partnership and will continue to work with the Irish Centre for Diversity in 2021.
During 2020 we also partnered with DCU's Centre of Diversity and began to develop our plan for the implementation of Inclusio, an application that will enable us to measure and report on D&I in FBD. This application will launch in 2021.
As part of FBD's D&I Strategy, Board members and some members of the Executive Management Team participated in Inclusive Leadership and Unconscious Bias training in 2020.
FBD recognises the importance of diverse talent and are a trusted partner of the Department of Enterprise, Trade and Employment so that international hires are supported in the best way possible.
FBD also continues to partner with the Trinity Centre for People with Intellectual Disabilities and plans are in place to have work placements in FBD for graduates of this programme commencing in 2021.
The Board has an objective to ensure the appropriate balance is achieved in the composition of the Board.
The Board values the major contribution which a mix of backgrounds, skills and experience brings to the Group and sees merit in increasing diversity at Board level in achieving the Group's strategic objectives. Differences in background, skills, experience and other qualities, including gender, are always considered and formally discussed at the Nomination and Governance Committee in determining the optimal composition of the Board, the principal aim being to achieve an appropriate balance between them.
While all appointments to the Board will have due regard to diversity, they will be made on merit, ensuring that the skills, experience and traits noted by the Board as being of particular relevance at any time are present on the Board and included in any planned recruitment.
The Board continues to comprise of a mix in backgrounds, experience and gender in line with the policy. As at the date of this report, the Board was comprised as follows:
| 0 – 2 years | 20% |
|---|---|
| Female 3 – 6 years Male |
70% |
| 7 – 9 years | 0% |
| 80% Over 9 years |
10% |
| Non-Executive | 80% |
|---|---|
| Executive 41% |
20% |
59% 41% Female Male The skills and experience identified by the Board as critical to its composition and that of its Committees at this time included expertise in insurance or other financial services, actuarial, general and farming/agri industry experience, corporate finance, accounting and auditing, corporate governance, compliance, executive reward, risk and technology. 75% Male
The percentage of the Board having the requisite skills and experience were as follows:
The gender balance of those in the senior management and their direct reports.
Executive Reward Compliance Corporate Governance Accounting and Auditing Corporate Finance 75% 25% Female Male Our culture starts with our people guided by our company values. In 2019 we launched our Values and Behaviours and throughout 2020 we have continued to embed these values into the organisation, in order to achieve more innovation as well as enhancing customer value. Diversity and Inclusion are fundamental to our culture and core values, fostering an innovative, collaborative and high-energy work environment. At FBD, we constantly strive to promote health and well-being among our employees as well as investing in their continuous development.
0% 20% 40% 60% 80% 100% Tech Board Skills Insurance or Financial Services The Board is committed to ensuring that the culture programme is embedded into the organisation and is actively engaged in the business of shaping, overseeing and monitoring culture. The Board is committed to having a clear understanding of the culture and ensuring that the purpose of the company is aligned to the company values, strategy and the overall business model.
The Committee is responsible for reviewing the Talent Management and Succession Plan. The Succession Plan was last reviewed in December 2020 and as part of this process FBD had documented succession plans for the Board and senior roles with a view to ensuring that FBD develops and retains talent and is best placed to replace key roles in as seamless a manner as possible should they arise.
As a follow on to our comprehensive Senior Management Development Plan in 2019 we have embarked in 2020 with a High Performance Leadership programme to ensure we have an impactful leadership team who can mobilise change and collaborate with their peers to ensure we embed our culture. This is to ensure our employees and customers are placed together at the forefront of our business to support the continuous enhancement of our customer service. We also have a number of specific innovation projects to support long term retention and development of key pipeline talent.
The continued investment in Learning and Development has supported FBD to attract and retain top talent as well as enabling us to achieve standards of excellence through the services we provide to our customers. In order to achieve and sustain these standards of excellence we are committed to providing employees at all levels with appropriate training, development and education.
Employee development is a continuous process, working with employees to improve, enhance, refine and hone existing skills as well as developing new ones in order to support the organisations mission and goals as well as meeting the employees own development needs. We provide a comprehensive internal training and development programme to employees of the organisation at all levels, and to supplement this where necessary or appropriate with external development and education.
The training needs of employees are identified through performance management and operational planning in line with best practice and legislative guidelines. Additionally, FBD supports further educational and professional development of its employees.
Every year the Board evaluates its performance and that of its Committees. The evaluation of the Board for 2020 involved the following:
The Senior Independent Director is responsible for leading the evaluation of the performance of the Chairman and this was carried out through a meeting with the Directors in the absence of the Chairman. Feedback is provided to the Chairman through the Senior Independent Director.
Recommendations from this review were addressed and progressed in line with an agreed action plan.
On behalf of the Nomination and Governance Committee
Dear Shareholder,
On behalf of the Remuneration Committee and the Board, I am pleased to set out in the section following, the details of the Directors' Remuneration for the year ended 31 December 2020.
The Remuneration Committee ensures that as a Group, we comply with all relevant remuneration and legislative requirements.
The Committee ensures alignment with the long term interests of the Group's key stakeholders by aligning remuneration metrics with the Group's business model and strategic objectives and by ensuring sufficient stretch in the performance targets.
Willis Towers Watson (WTW) continued to provide advice in respect of FBD's Remuneration Policy in 2020. As part of our procurement policy this was put for tender in 2020 to ensure we continued to receive appropriate advice. Following a competitive selection process Willis Tower Watson were appointed to continue as our advisors.
Section 1110N of Companies Act 2014 (EU Shareholder Rights Directive), requires a vote on the Report on Directors' Remuneration at the AGM on an advisory basis. At the 2020 AGM, this report received 99.7% support from shareholders.
The Committee requests shareholders to consider and approve the annual remuneration report set out on the pages following at the 2021 AGM.
Chairperson of the Remuneration Committee
Responsibility for determining the levels of remuneration of the Executive Directors has been delegated by the Board to the Remuneration Committee whose membership is set out in the Corporate Governance Report.
In framing remuneration strategy, frameworks and policies, the Committee gives full consideration to the principles and provisions of the Corporate Governance Requirements for Insurance Undertakings 2015 and UK Corporate Governance Code 2018 as well as the update to the shareholders rights directive in 2020. It also takes into account the long term interests of shareholders, investors and other stakeholders of the Group.
The duties of the Remuneration Committee are to determine Directors Remuneration Policy and practices by reviewing performance structures, performance metrics, target setting and application of discretion.
The Remuneration Committee also reviews overall workforce remuneration and related policies and alignment of incentives and rewards with culture and takes these factors into account when setting the policy for Executive Director remuneration.
The Committee considers and reviews the Remuneration Policy and are in agreement that it is operating as intended in respect of Group performance quantum.
In determining outcomes under the bonus and the LTIP, the Remuneration Committee considers performance achieved during the year and satisfies themselves that the incentive outcomes were appropriately aligned with the extent to which the Group met its strategic goals and the shareholder experience.
The following section sets out the Remuneration Policy for Executive and Non-Executive Directors, which will be put for shareholder approval on an advisory basis at the Group's 2021 AGM. It is intended that the below Remuneration Policy will apply for a four year period or until an amended Remuneration Policy is put to shareholders for approval in line with the European Union (Shareholders Rights) Regulations 2020.
Remuneration arrangements are determined throughout the Group based on the same principle – reward should be sufficient in order to attract, retain and motivate high performing individuals who are critical to the future development of the Group. The fair distribution of our Group's profits is an integral part of our corporate culture as we wish to reward our employees' contribution to the success of the Group.
The performance measures ensure everyone is focussed on delivering the same business priorities and that employees share in the success if the business strategy is delivered.
It is the policy of the Group to provide all members of executive management, middle management and employees of the Group with appropriate remuneration and incentives that reward performance. The aim is to ensure reward aligns to Group objectives in terms of profitability built on good customer outcomes together with balanced and responsible assumption of risk. This is done by ensuring that the principles of sound and prudent risk management are fully reflected and that excessive risk taking is neither encouraged nor rewarded. The appropriateness is assessed with reference to internal and external sources.
The Committee has aimed to build simplicity and transparency into the design and delivery of our Remuneration Policy which was revised and updated in 2020 to ensure it was in line with any recent updates in legislation. The remuneration structure is simple to understand for both participants and shareholders and is aligned to the strategic priorities of the business. We aim for our disclosures to clearly explain the design of our arrangements and the way that they have been operated so that they can be fully understood by all stakeholders.
When determining executive director remuneration policy and practices, all of the following are addressed:
The Committee has the discretion to override formulaic outcomes and enable recovery and withholding of bonus where appropriate.
The Policy includes a number of points in its design, the aim of which is to mitigate potential risk:
We aim for our disclosure to be clear to allow Shareholders to understand the range of potential values which may be earned under the remuneration arrangements. All incentive arrangements have defined and disclosed limits on pay out/award levels.
A significant proportion of executive director remuneration arrangements is share-based and we also require significant holding of shares which ensures that remuneration outcomes are closely aligned to shareholder returns for example, the CEO is required to build and maintain a shareholding equivalent to two times annual salary.
It is also the policy of the Group to provide a remuneration framework that attracts, motivates and rewards executives of the highest calibre who bring experience to the strategic direction and management of the Group and who will perform in the long term interests of the Group and its shareholders.
As part of our annual remuneration cycle a comprehensive analysis is completed in respect of comparison of changes to salary, benefits and annual bonus for executive directors, senior management and all employees. A gender pay gap comparison and gap analysis is also completed in respect of both pay and bonus around total workforce remuneration.
We are committed to ongoing and constructive engagement with our employees and use a number of channels to support our engagement process in order to incorporate their views into our business activities.
Among our key stakeholders is Farmers Business Development plc and as FBD's largest shareholder have a seat on the Board which benefits the Group as they share knowledge in respect of our largest customer base.
FBD is committed to being open and transparent in respect of its remuneration arrangements for all employees and as part of this transparency table the Report on Directors' Remuneration at the AGM each year for an advisory vote. The FBD Performance Share LTIP Plan (LTIP) was approved by Shareholders at AGM on 5th May, 2018. FBD engaged individually with a number of shareholders prior to the AGM in respect of the Long Term Investment Plan.
As part of the annual pay cycle, a communication is issued to all employees explaining how their bonus aligns to the Group Strategy and the steps taken to ensure fairness of distribution for all employees. Regular engagement takes place with employer representative bodies to discuss remuneration and other matters.
FBD also have a programme of Investor Relation Activities where we engage with all Shareholders in order to enhance bi-lateral communication by fostering objective orientated dialogue with Shareholders.
The following table sets out the key elements of the Remuneration Policy for Executive Directors and Senior Executives, their purpose and how they link to strategic rational.
| Element and link to strategy |
Policy and operation | Changes to policy |
|---|---|---|
| Base Salary (fixed remuneration) | ||
| To help recruit and retain senior |
Base salaries are reviewed annually with effect typically from 1 April taking the following factors into account: |
No change to policy |
| experienced Executives |
The individual's role and experience n |
|
| Group performance n |
||
| Personal performance n |
||
| Market practice and benchmarking n |
||
| Although salaries are reviewed annually there is no automatic right of any Executive to receive a salary increase. |
||
| Benefits (fixed remuneration) | ||
| To provide market competitive benefits |
Benefits provided include motor allowance and an agreed percentage contribution to health and other insurance costs. |
No change to policy |
| Pension Provision (fixed remuneration) | ||
| To provide market competitive benefits and reward performance over a long period, enabling Executives to save for retirement |
Executive Directors receive defined contribution pension benefits (or equivalent cash in lieu), in line with existing scheme arrangements available to the wider workforce. The Remuneration Committee have determined that the level of pension contribution for any newly appointed Executive Director will be set in line with levels in operation for the majority of the workforce. |
No change to policy |
To reward achievement of Group targets, personal performance and contribution
Annual bonus is based on stretching performance conditions set by the Remuneration Committee at the start of the year. The maximum opportunity level under the Policy for the CEO is 120% of base salary and 100% of base salary for other Executive Directors. In a given year, the Committee may determine that a maximum opportunity level below the above Policy levels will be operated.
Annual bonus outcomes will be determined based on performance against company financial targets and the achievement of defined individual strategic objectives. The Remuneration Committee will determine the performance measures, their weightings and the calibration of targets each year and will clearly disclose these in the Remuneration report.
Financial targets will determine the majority of the bonus. Financial targets will be set in a manner which will encourage enhanced performance in the best interests of the Group and its Shareholders and will be approved by the Remuneration Committee.
In addition, if annual Group profit after tax does not reach a minimum level, to be determined annually by the Remuneration Committee after the budget has been approved, then the bonus may be revised downwards potentially to zero, the ultimate discretion over which rests with the Remuneration Committee following consultation with the Chief Executive.
Individual performance will be assessed against agreed performance objectives, which will include a risk objective to ensure that all employees identify, evaluate and mitigate and control risks as part of our overall objectives to meet the organisation's strategic goals.
The Remuneration Committee has the discretion to override formulaic outcomes in circumstances where it judges it would be appropriate to do so. Any such discretion would be fully disclosed in the relevant annual report.
Any bonus payments are subject to the potential for the Remuneration Committee to apply provisions to withhold, reduce or require the repayment of awards for up to two years after payment if there is found to have been (a) material misstatement of the Group's financial results or (b) gross misconduct on the part of the individual.
50% of any executive bonus will be deferred into FBD shares for a period of three years. This practice will allow the committee to have flexibility to apply clawback if circumstances warranted.
The policy and operation of annual performance bonuses has been updated to include bonus deferral.
To align the financial interests of Executives with those of Shareholders
The Group Performance Share Plan (LTIP) was approved by shareholders in 2018. Under the LTIP, the Remuneration Committee may, at its sole discretion, make conditional awards of shares to Executives.
Conditional awards of shares under the LTIP are limited to 10% in aggregate with any other employee share plan of the Company's issue ordinary shares of €0.60 each over a rolling 10 year period. The market value of shares which are the subject of a conditional award to an individual may not, in any financial year, normally exceed 150% of the participants base salary as at the date of the grant.
The Remuneration Committee set performance conditions each year, selecting appropriate metrics based on key strategic priorities. The period over which the performance conditions applying to a conditional award under the LTIP are measured may not be less than three years. The extent to which a conditional award may vest in the future will be determined by the Remuneration Committee by reference to the performance conditions set at the time of the reward.These conditions are designed to ensure alignment between the economic interest of the plan participants and those of shareholders. Different conditions, or the same conditions in different proportions, can be used by the Remuneration Committee in different years under the LTIP rules, provided that the Committee is satisfied that they are challenging targets and that they are aligned with the interest of the Group's shareholders.
The LTIP rules allow the Remuneration Committee (at its sole discretion) to make awards which may be subject to an additional post vesting holding period. Awards will vest after three years once applicable performance conditions have been achieved and the vested shares (net of tax) may be required to be held for a further two year period to provide continued alignment with shareholders. The Remuneration Committee has the discretion to override formulaic outcomes in circumstances where it judges it would be appropriate to do so and any such discretion will be fully disclosed in the relevant annual report.
The LTIP includes provisions that allows the Remuneration Committee to withhold, reduce or require the repayment of rewards for up to two years after vesting (i.e. up to five years after grant) if there is found to have been (a) material misstatements of the Group's financial results (b) gross misconduct on the part of the award holder.
The Group incentivises its Executive Directors and Senior Executives with equity based awards under the Group's shareholder approved share schemes. Central to the philosophy underlying awards is the goal of aligning the economic interests of those individuals with those of shareholders.
Executives are expected to maintain a significant long-term equity interest in the Group. The requirement, which is set out in a policy document by the Remuneration Committee, approved and reviewed annually, is to build and retain a valuable shareholding relative to base salary, at a minimum, as noted hereunder.
| Executive | Share ownership requirement |
|---|---|
| Group Chief Executive | 2 times annual salary |
| Other Executive Directors | 1.5 times annual salary |
| Other Senior Executives | 1 times annual salary |
Until such times as the requirement has been met Executive Directors are precluded from disposing of any shares issued to them under the group share schemes.
Executive Directors have a post employment shareholding requirement for at least two years at a level equal to the lower of the shareholding requirement immediately prior to departure or the actual shareholding on departure.
When recruiting new Executive Directors, the policy is to pay what is necessary to attract individuals with the skills and experience appropriate to the role being filled, taking into account remuneration across the Group, including other senior executives as well as benchmarking against the financial services industry.
Base salary levels will be set in consideration of the skills, experience and expected contribution to the new role, the current salaries of other Executive Directors in the Group and current market levels for the role.
The Remuneration Committee have determined that the level of pension contribution for any newly appointed Executive Director, will be set in line with levels in operation for the majority of the workforce, as is the case with all employees.
Other fixed benefits will be considered in light of relevant market practice for the role and the provisions in place for Executive Directors.
In exceptional circumstances or where the Remuneration Committee determines that it is necessary for the recruitment of key executives, the Remuneration Committee reserves the right to offer additional cash and/or share based payments. Such payments may take into account remuneration relinquished when leaving the former employer and would reflect the nature, time horizons and performance requirements attached to the remuneration. The Remuneration Committee may also grant share awards on hiring an external candidate to buy out awards which will be forfeited on leaving previous employer.
For an internal appointment, the Remuneration Committee reserves the right to offer additional cash and/or share based payments on an internal promotion when it considers this to be in the best interests of the Group and its shareholders.
The service contract for the Group Chief Executive and the Group Financial Officer provide for the following periods of notice of termination of employment;
| Executive | From Company | From CEO/CFO |
|---|---|---|
| Tomás Ó'Midheach CEO | 12 Months | 6 Months |
| John O'Grady CFO | 6 Months | 6 Months |
Termination payments will be related to performance achieved over the whole period of activity and designed in a way that does not reward failure.
Bonus awards will generally be pro-rated to reflect the performance period which was worked and the performance outcomes achieved, although the Remuneration Committee retains discretion to dis-apply such pro-ration where it would be appropriate in the circumstances.
In the event of an Executive Director leaving before an LTIP award vests for reasons other than death, redundancy, injury, ill health or disability retirement with the agreement of the Remuneration Committee or any other reason approved by the Remuneration Committee the awards of the Executive Director's will lapse, except that the Remuneration Committee may at any time prior to vesting, in its absolute discretion revoke any determination to permit awards to vest where an Executive Director breaches a protective covenant.
The remuneration of the Non-Executive Directors is determined by the Board, and reflects the time commitment and responsibilities of their role. In setting this level, the Board has regard to the fees payable to the Non-Executive Directors of the other Irish publicly listed companies and also to the developments and policy for the remuneration of the employees in the wider Group.
Non-Executive Directors receive a basic fee. Additional fees are paid for acting as Senior Independent Director, being a member of and/or chairing Board Committees. These fees are reflective of their added responsibilities and time commitment.
Non-Executive Directors are not members of the Group's pension schemes and are not eligible for participation in the Group's long-term incentive schemes.
The Remuneration Committee intends that remuneration arrangements will operate in accordance with the above Remuneration Policy for a four year period or until an amended Remuneration Policy is put to shareholders for approval. The European Union (Shareholders' Rights) Regulations 2020 allow for the potential for a temporary derogation from the Remuneration Policy where doing so is necessary in exceptional circumstances, to serve the long-term interests and sustainability of the traded plc as a whole or to assure its viability.
By definition, it is not possible to fully list all such exceptional circumstances, but the Remuneration Committee would only use such ability to apply a derogation after careful consideration and where the Remuneration Committee considers the circumstances were truly exceptional and the consequences for the Company and shareholders of not doing so would be significantly detrimental. Where time allowed shareholders would be consulted prior to applying such a change, or at minimum where this was not possible, the full details of the derogation would be communicated as soon as practical (e.g., by market announcement/on the Company's website) and disclosed in detail in the next Remuneration Report. Under the potential derogation, the Remuneration Committee would have the ability to vary the elements of the remuneration described in the above table, including levels of performance conditions applicable to incentive arrangements.
The information below on pages 74 to 78 of the Report on Directors' Remuneration identified as audited forms an integral part of the audited financial statements as described in the basis of preparation on page 101. All other information in the report on Directors Remuneration is additional information and does not form part of the audited financial statements.
The following table sets out in detail the remuneration payable by the Group in respect of any Director who held office for any part of the financial year:
| Fees1 | Salary2 | Benefits3 | Pension Contribution4 |
2020 Total |
|
|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | |
| Executive Directors: | |||||
| Fiona Muldoon | – | 700 | 35 | 79 | 814 |
| John O'Grady | – | 308 | 18 | 46 | 372 |
| Paul D'Alton | 790 | – | – | – | 790 |
| Non-Executive Directors: | |||||
| Liam Herlihy (Chairman) | 134 | – | – | – | 134 |
| Walter Bogaerts | 77 | – | – | – | 77 |
| Mary Brennan | 74 | – | – | – | 74 |
| Sylvia Cronin | 64 | – | – | – | 64 |
| Tim Cullinan | – | – | – | – | – |
| Joe Healy | 30 | – | – | – | 30 |
| David O'Connor | 88 | – | – | – | 88 |
| Richard Pike | 59 | – | – | – | 59 |
| Padraig Walshe | 55 | – | – | – | 55 |
| 1,371 | 1,008 | 53 | 125 | 2,557 |
Fees were paid to Non-Executive Directors and to the Interim CEO. Fees of €790,000 were paid to Mr D'Alton in line with his contract.
The following table sets out the detail for the previous financial year (2019):
| Other | Pension | 2019 | ||||
|---|---|---|---|---|---|---|
| Fees1 | Salary2 | Payments3 | Benefits4 | Contribution5 | Total | |
| €000s | €000s | €000s | €000s | €000s | €000s | |
| Executive Directors: | ||||||
| Fiona Muldoon | – | 450 | 414 | 39 | 90 | 993 |
| John O'Grady | – | 280 | 112 | 18 | 52 | 462 |
| Non-Executive Directors: | ||||||
| Liam Herlihy (Chairman) | 119 | – | – | – | – | 119 |
| Walter Bogaerts | 71 | – | – | – | – | 71 |
| Mary Brennan | 62 | – | – | – | – | 62 |
| Dermot Browne | 31 | – | – | – | – | 31 |
| Sylvia Cronin | 5 | – | – | – | – | 5 |
| Joe Healy | 50 | – | – | – | – | 50 |
| Orlagh Hunt | 22 | – | – | – | – | 22 |
| David O'Connor | 70 | – | – | – | – | 70 |
| Richard Pike | 14 | – | – | – | – | 14 |
| Padraig Walshe | 50 | – | – | – | – | 50 |
| 494 | 730 | 526 | 57 | 142 | 1,949 |
As previously noted, the overall Annual Performance Bonus arrangements, the targets and their achievement are approved by the Remuneration Committee each year. Specifically the Remuneration Committee approve the merit pay and bonus arrangements for the Executive Directors in line with FBD's Remuneration Policy.
In 2020 the Remuneration Committee introduced a profit threshold that had to be reached in order to qualify for bonus. This threshold was not met therefore there is no bonus payable in respect of 2020 for all employees.
In the case of Mr O'Grady for 2020 there is no bonus payable as the profit threshold was not met.
During 2020 one Conditional Award of shares was made under the Performance Share Plan. This was made in March 2020 to Executive Directors and senior management.
The conditions attached to the award, which reflect the Board's strategic plans, were based 66.6% on the compound annual growth rate (CAGR) of Net Asset Value (NAV) per share, relative to the 1 January 2020 NAV for the three years ending 31 December 2022. The NAV has been chosen because the Committee considers it is the controllable measure most closely correlated to share price and ultimately to shareholder return. 33.4% of the award was based on Policy Count Growth which was chosen to reflect the ambition of the Board to grow the business over the strategic time period.
Governance
Vesting levels range between a threshold level of 25% to a maximum of 125% for out performance. The CAGR target for NAV is up to mid single digits percentages. The actual percentages are not disclosed due to commercial competitor sensitivity and because to do so would also constitute forward looking guidance.
The Committee will publish details regarding targets and vesting levels at the end of the performance period (2023).
The Committee has decided not to include relative performance to market targets as there is no relevant comparator in the Irish market.
The maximum and threshold for vesting for the performance conditions are as follows:
| Weighting | Threshold Level |
Proportion vesting |
Upper Level |
Proportion vesting |
|
|---|---|---|---|---|---|
| NAV CAGR | 66.6% | >1.4% | 25% | Mid Single Digits | 125% |
| In force policy count CAGR | 33.4% | >2.1% | 25% | Mid Single Digits | 125% |
The Committee considered the extent to which the performance conditions underpinning this award were met in the three financial years 2017 to 2019 (the 'Performance Period'). The Committee concluded that 100% of NAV was met and 100% of COR was met however the result for In-Force Policy Count Target was 0%. Therefore in respect of the conditional awards granted in March 2017 90% vested. The performance conditions for the 2017 LTIP were previously amended to reflect the impact on Net Asset Value (NAV) of the repurchase and cancellation of the Fairfax convertible bond in October 2018. This was approved by the Remuneration Committee in February 2019.
Details of the conditional share awards to the Executive Directors who held office for any part of the financial year and to the Company Secretary made under the 2007 and 2018 LTIP plans are given in the table below. In respect of the 2018 and 2019 and 2020 awards the number of shares could increase to a maximum of 125% of the number of shares outlined below (which is 100%) if the performance conditions previously described are met at stretch target level.
| At 1 January 2020 |
Granted during year |
Dividends | Lapsed during year |
Vested during year |
Forfeited during year |
At 31 December 2020 |
Performance Period |
Earliest vesting date |
Market price on award € |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Executive Directors (who held office for any part of the financial year) | ||||||||||
| Fiona Muldoon | 45,283 | – | 5,026 | (4,528) | (45,781) | – | – | 2017-2019 | Mar-20 | 7.95 |
| 33,256 | – | – | – | – | (1,848) | 31,408 | 2018-2020 | Aug-21 | 10.83 | |
| 40,955 | – | – | – | – | (15,927) | 25,028 | 2019-2021 | Mar-22 | 8.79 | |
| – | 58,824 | – | – | – | (42,484) | 16,340 | 2020-2022 | Apr-23 | 6.12 | |
| Total | 119,494 | 58,824 | 5,026 | (4,528) (45,781) | (60,259) | 72,776 | ||||
| John O'Grady | 22,138 | – | 2,457 | (2,214) | (22,381) | – | – | 2017-2019 | Mar-20 | 7.95 |
| 17,737 | – | – | – | – | – | 17,737 | 2018-2020 | Aug-21 | 10.83 | |
| 15,927 | – | – | – | – | – | 15,927 | 2019-2021 | Mar-22 | 8.79 | |
| – | 22,876 | – | – | – | – | 22,876 | 2020-2022 | Apr-23 | 6.12 | |
| Total | 55,802 | 22,876 | 2,457 | (2,214) (22,381) | – | 56,540 | ||||
| Company Secretary | ||||||||||
| Derek Hall | 11,006 | – | 1,222 | (1,101) | (11,127) | – | – | 2017-2019 | Mar-20 | 7.95 |
| 11,316 | – | – | – | – | – | 11,316 | 2018-2020 | Aug-21 | 10.83 | |
| 12,969 | – | – | – | – | – | 12,969 | 2019-2021 | Mar-22 | 8.79 | |
| – | 15,931 | – | – | – | – | 15,931 | 2020-2022 | Apr-23 | 6.12 |
Total 35,291 15,931 1,222 (1,101) (11,127) – 40,216
The total number of shares subject to conditional awards outstanding under the 2007 and 2018 LTIP Schemes amount to 777,660 being 2.2% of the Company's ordinary share capital (excluding treasury shares) at 31 December 2020 (2019: 658,704 shares and 1.9% of ordinary share capital).
The aggregate limit of the number of shares over which conditional awards are permitted under the 2007 and 2018 LTIP scheme rules is 10% of the Company's issued share capital over a rolling 10 year period. Since 2010, there have been 10 conditional awards with an aggregate of 2,108,638 shares or 6.0% of the Company's ordinary share capital (excluding treasury shares).
The remuneration of the Non-Executive Directors is determined by the Board, and reflects the time commitment and responsibilities of their role. In setting this level, the Board has regard to the fees payable to the Non-Executive Directors of the other Irish publicly listed companies and also to the developments and policy for the remuneration of the employees in the wider Group.
The basic Non-Executive Director fee is €60,000 and this was reviewed in July 2020 following a benchmarking exercise carried out by WTW to ensure our Non-Executive remuneration was in line with the market rate. The previous review of Non-Executive Directors remuneration had taken place in 2016. Directors receive additional fees for being members of and/or chairing Board Committees as outlined within the Corporate Governance Report on pages 52 to 62. These fees are reflective of their added responsibilities.
European Union (Shareholders' Rights) Regulations 2020 came into force in Ireland on 30 March 2020 when they were transposed into Section 1110N of Companies Act 2014. The annual Non-Executive Director Remuneration over the last five years of those in office in 2020 is set out below:
| Total Remuneration | 2016 €000s |
2017 €000s |
2018 €000s |
2019 €000s |
2020 €000s |
|
|---|---|---|---|---|---|---|
| Liam Herlihy (Chairman) | Total Remuneration | 47 | 102 | 119 | 119 | 134 |
| % change in year1 | – | 116% | 16% | – | 13% | |
| Walter Bogaerts | Total Remuneration | 66 | 68 | 70 | 71 | 77 |
| % change in year1 | – | 4% | 2% | 2% | 8% | |
| Mary Brennan | Total Remuneration | 18 | 57 | 58 | 62 | 74 |
| % change in year1 | – | 6% | 1% | 8% | 20% | |
| Sylvia Cronin | Total Remuneration | – | – | – | 5 | 64 |
| % change in year1 | – | – | – | – | 17% | |
| Joe Healy | Total Remuneration | – | 25 | 50 | 50 | 30 |
| % change in year1 | – | – | – | – | – | |
| David O'Connor | Total Remuneration | 28 | 59 | 60 | 70 | 88 |
| % change in year1 | – | 5% | 2% | 17% | 25% | |
| Richard Pike | Total Remuneration | – | – | – | 14 | 59 |
| % change in year1 | – | – | – | – | 4% | |
| Padraig Walshe | Total Remuneration | 45 | 50 | 50 | 50 | 55 |
| % change in year1 | – | 12% | – | – | 10% |
1 % change shows the increase in remuneration and does not include a percentage change if related to the first full year in office.
The Chairman, Liam Herlihy received fees of €133,500 during the year (2019: €118,500) inclusive of the basic Non-Executive Director fee. David O'Connor, received fees of €88,000 during the year as he holds the position of Senior Independent Director (2019: €70,455) inclusive of the basic Non-Executive Director fee, and reflecting his additional responsibilities as Chairman of the Remuneration Committee.
The basic fee for Non-Executive Director is €60,000 with additional fees payable in respect of additional responsibility undertaken as member or chair of committees.
Non-Executive Directors are not members of the Group's pension schemes and are not eligible for participation in the Group's long-term incentive schemes.
In recognition of the benefits to both the Group and to our Executive Directors serving as Non-Executive Directors of other companies, our Executive Directors are, subject to advance agreement in each case, permitted to take on an external Non-Executive appointment and to retain any related fees paid to them. At present no current Executive Director holds such an appointment.
European Union (Shareholders' Rights) Regulations 2020 came into force in Ireland on 30 March 2020 when they were transposed into Section 1110N of Companies Act 2014.
The annual change over the last five years is set out below for CEO remuneration and remuneration of all other Group employees:
| 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Chief Executive Officer Remuneration % change year on year |
-14% | 17% | -11% | 6% | -18%1 |
| All Group Employees Remuneration % change year on year |
-13% | 9% | 1% | 2% | 2% |
1 In addition Mr D'Alton was paid consultancy fees of €790,000 and overlapped for part of 2020
The Group Net Asset Value (NAV) per share for the last five years is set out below:
| 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Performance of the Group NAV per share |
651 | 784 | 818 | 1,068 | 1,095 |
The Directors are responsible for preparing the Annual Report and financial statements, in accordance with the Companies Act 2014 and the applicable regulations.
Irish company law requires the Directors to prepare financial statements for each financial year. Under the law, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("relevant financial reporting framework"). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Company as at the financial year end date and of the profit or loss of the Company for the financial year and otherwise comply with the Companies Act 2014.
In preparing each of the Company and Group financial statements, the Directors are required to:
The Directors are responsible for ensuring that the Company and the Group keeps or causes to be kept adequate accounting records which correctly explain and record the transactions of the Company and the Group, enable at any time the assets, liabilities, financial position and profit or loss of the Company and the Group to be determined with reasonable accuracy, enable them to ensure that the Annual Report and financial statements comply with the Companies Act 2014 and the Listing Rules of the Euronext Dublin and enable the financial statements to be audited.
They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also required by the Transparency (Directive 2004/109/EC) Regulations 2007 (Transparency (Directive 2004/109/EC) (Amendment) (No. 2) Regulations 2015) to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Group.
Under applicable law and the requirements of the Listing Rules issued by the Euronext Dublin, the Directors are also responsible for preparing a Directors' Report and reports relating to Directors' remuneration and corporate governance that comply with that law and those Rules. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that, to the best of their knowledge and belief:
On behalf of the Board
Chairman
Group Chief Executive
Our local FBD branch is only 15 minutes away. If we have a question we know we can easily call in or that we can phone and speak directly to a person who knows us. That personal relationship is a great comfort. In addition, our relationship manager visits the premises to review the cover we have. This gives us huge confi dence, FBD knows our company and they have given us
excellent advice about the options for cover that we need to consider – this was especially helpful when setting up our crisp business.
SANDRA BURNS Joe's Farm Crisps
to the members of FBD Holdings plc
In our opinion, FBD Holdings plc's group financial statements and company financial statements (the "financial statements"):
We have audited the financial statements, included within the Annual Report, which comprise:
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
Our opinion is consistent with our reporting to the Audit Committee.
We conducted our audit in accordance with International Standards on Auditing (Ireland) ("ISAs (Ireland)") and applicable law. Our responsibilities under ISAs (Ireland) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Ireland, which includes IAASA's Ethical Standard as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by IAASA's Ethical Standard were not provided to the group or the company.
Other than those disclosed in note 7 to the financial statements, we have provided no non-audit services to the group or the company in the period from 1 January 2020 to 31 December 2020.
Materiality
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Refer to page 56 (Report of the Audit Committee), page 105 (Summary of significant accounting policies), page 113 (Critical accounting estimates and judgements in applying accounting policies) and pages 137 to 139 (note 25 (a) to (c) to the group financial statements).
The provision for claims outstanding is the group's largest liability and its valuation involves considerable judgement.
The booked amount comprises:
As set out in note 25, the actuarial best estimate of claims incurred includes €149 million gross of reinsurance in respect of Government COVID-19 restriction related business interruption claims incurred during the year, primarily under the group's public house commercial policies.
For claims excluding Government COVID-19 restriction related business interruption claims, the actuarial best estimate is determined using complex actuarial calculations and requires the consideration of detailed methodologies, multiple assumptions and significant judgements. Methodologies and assumptions vary by class of business. The key items underlying the calculations are past claims development patterns and assumptions in respect of expected loss ratios and the expected frequency, severity and duration of claims.
The valuation is also dependent on the completeness and accuracy of the data used in the actuarial modelling, in particular data relating to amounts of claims paid and incurred in the current and prior years and exposures such as sums insured and earned premiums.
We performed procedures to understand the claims and actuarial reserving processing cycles as they relate to financial reporting.
We tested the design and operating effectiveness of the controls over claims processing and payment, and the valuation of claims outstanding.
Based on the results of our risk assessment and materiality, we selected certain classes of business for independent valuation by actuarial specialists. This represented over 74% of the actuarial best estimate. The results of our independent valuation were compared to the group's valuation to assess the reasonability of the estimate.
In respect of the remaining classes of business we assessed the reasonability of the group's valuation with the assistance of our actuarial specialists. This involved:
We tested the determination of the best estimate provision in respect of Government COVID-19 restriction related business interruption claims incurred during the year under the group's public house commercial policies. This involved:
For COVID-19 business interruption claims, the interpretation of the business interruption clause within the policy wording, as it relates to Government closure orders resulting from the pandemic, was subject to a Commercial Court test case during the year. The Commercial Court judged on 5 February 2021 that the group is liable under the policy. However the basis of the calculation of quantum has yet to be determined. Given that this type of claim has not been experienced previously, the group has performed a separate best estimate calculation in respect of the cost of these claims and the calculation applies assumptions concerning the level of lost gross profit to be claimed and the level of expense savings expected to be deductible from this amount under the policy terms. The length of ongoing Government imposed closures of public houses also impacts on the best estimate calculation. As a result of the unique circumstance of the claims there are no past claims development patterns available.
The unique circumstances of these claims also result in significant judgement being required in respect of the valuation of the reinsurers' share of these claims as set out under the "Valuation of reinsurers' share of claims outstanding" below.
The overall provision includes a margin over actuarial best estimate to provide for the risk of adverse claims development, to cater for known events not in the underlying data and to address the risks in respect of the valuation of the reinsurers' share of claims outstanding.
As a result of the judgements and level of estimation detailed above, the valuation of claims outstanding was determined to be a key audit matter.
We tested the calculation of the margin over actuarial best estimate and discussed the rationale for the level of this element of the provision with management with particular focus on the consideration of the appropriateness of the provision in the context of the COVID-19 business interruption claims and other underlying uncertainties within the portfolio.
We tested the reconciliation of the data used in the actuarial models to the underlying systems and reconciled the actuarial valuation outputs to the financial statements. For the COVID-19 business interruption claims, the data points are more limited and we tested these by reference to the underlying data of the sums insured.
Based on the results of these procedures we concluded that the valuation of claims outstanding included in the group's financial statements is reasonable.
We also assessed the appropriateness of the disclosures in the financial statements.
Refer to page 56 (Report of the Audit Committee), page 105 (Summary of significant accounting policies), pages 113 to 114 (Critical accounting estimates and judgements in applying accounting policies) and pages 137 to 139 (note 25 (a) to (c) to the group financial statements).
As set out in note 25 the reinsurers' share of claims outstanding asset includes an amount of €95 million (excluding reinstatement premiums) relating to estimated recoveries under the group's reinsurance programme on the gross best estimate provision of €149 million in respect of Government COVID-19 restriction related business interruption claims incurred during the year under the group's public house commercial policies.
The calculation of this amount incorporates significant judgements as there is no established practice in relation to the response of the group's reinsurance to a peril of the nature which underlies the business interruption claims and the formal views of the group's reinsurers in respect of its reinsurance claim are uncertain. This has been considered in determining the overall level of margin for uncertainty attributed to the exposures in respect of these claims.
As a result of these judgements and the associated inherent level of uncertainty, the valuation of the reinsurers' share of claims outstanding asset was determined to be a key audit matter.
We performed procedures to understand the calculation scenarios applied by the group in arriving at the reinsurers' share of Government COVID-19 restriction related business interruption claims outstanding.
We obtained and reviewed:
We assessed the appropriateness of the reinsurance scenarios modelled by the group and the probabilities assigned by the group to scenarios modelled and carried out our own stress tests.
We tested the accuracy of the application of the assumptions as to how the reinsurance contract terms operate under the scenarios modelled.
Based on the results of these procedures we concluded that, taking into account the margin for uncertainty, the valuation of the reinsurers' share of claims outstanding asset included in the group's financial statements is reasonable.
We also assessed the appropriateness of the disclosures in the financial statements.
Refer to page 56 (Report of the Audit Committee), pages 111 to 112 (Summary of significant accounting policies), page 114 (Critical accounting estimates and judgements in applying accounting policies) and page 127 (note 14 to the group financial statements).
As set out in note 14, the net book value of the policy administration system is €36.7 million and internal development costs of €4.8 million were capitalised during the year.
Management considered whether impairment indicators were present at the reporting date. The fact that COVID-19 impacts led to significant market and economic changes with adverse effects on the group and that the group's market capitalisation was below the value of its net assets at the reporting date were both considered to be impairment indicators and an impairment test was carried out.
This impairment test incorporates a number of estimates and judgements, with the primary assumption being the future cash flows and the discount rate applied to the cash flows.
As a result of these judgements the valuation of the policy administration system is determined to be a key audit matter.
We assessed the impairment assessment carried out and management's conclusion that there was no requirement to impair the value of the policy administration system.
The recoverable amount was assessed through a value in use ("VIU") calculation. VIU is calculated based on the present value of future cash flows.
In particular, we:
Based on the results of these procedures we concluded that the valuation of the policy administration system included in the group's financial statements is reasonable.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group operates.
The group consists of the holding company, FBD Insurance plc, an insurance provider, 5 other entities (4 of which are non-trading) and a group shared services entity, FBD Corporate Services Limited. All group entities are managed and reported on from a single head office. The group financial statements are a consolidation of these individual entities.
On the basis of the group structure all audit procedures were performed by a single group audit team. We performed a full scope audit of the complete financial information of FBD Insurance plc and the holding company. Specific audit procedures on certain balances and transactions were performed in respect of FBD Corporate Services Limited. We also tested the consolidation process. This gave us the desired level of audit evidence for our opinion on the group financial statements as a whole.
This gave us coverage in excess of 95% of group revenues, 85% of group profit before taxation and 95% of the group's total assets.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Group financial statements | Company financial statements | |
|---|---|---|
| Overall materiality | €4.0 million (2019: €4.0 million). | €0.96 million (2019: €0.96 million). |
| How we determined it | circa 1% of revenue. | circa 1% of equity attributable to equity holders of the parent. |
| Rationale for benchmark applied |
We have applied this benchmark as it provides a more stable measure as the group's result has fluctuated significantly in recent years. |
We have applied this benchmark as it is considered appropriate given the company's activity as a holding company. |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €200,000 (group audit) (2019: €200,000) and €48,000 (company audit) (2019: €48,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Our evaluation of the directors' assessment of the group and company's ability to continue to adopt the going concern basis of accounting included:
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's or the company's ability to continue as a going concern for a period of at least twelve months from the date on which the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's or the company's ability to continue as a going concern.
In relation to the company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
We are required to report if the directors' statement relating to going concern in accordance with Rule 6.1.82 (3) (a) of the Listing Rules for Euronext Dublin and Rule 9.8.6R(3) of the Listing Rules of the UK Financial Conduct Authority is materially inconsistent with our knowledge obtained in the audit. We have nothing to report in respect of this responsibility.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Report of the Directors, we also considered whether the disclosures required by the Companies Act 2014 (excluding the information included in the "Non Financial Statement" as defined by that Act on which we are not required to report) have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (Ireland), the Companies Act 2014 (CA14) and the Listing Rules applicable to the company (Listing Rules) require us to also report certain opinions and matters as described below (required by ISAs (Ireland) unless otherwise stated).
included in the Corporate Governance Statement and the Report of the Directors, is consistent with the financial statements and has been prepared in accordance with section 1373(2) of the Companies Act 2014. (CA14)
We have nothing material to add or to draw attention to regarding:
We have nothing to report having performed a review of the directors' statement that they have carried out a robust assessment of the principal risks facing the group and the directors' statement in relation to the longer-term viability of the group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the "Code"); and considering whether the statements are consistent with the knowledge and understanding of the group and the company and their environment obtained in the course of the audit. (Listing Rules)
We have nothing to report in respect of our responsibility to report when:
As explained more fully in the Directors' Responsibilities Statement set out on page 79, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's and the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the IAASA website at:
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf
This description forms part of our auditors' report.
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with section 391 of the Companies Act 2014 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of directors' remuneration and transactions specified by sections 305 to 312 of that Act have not been made. We have no exceptions to report arising from this responsibility.
We are required by the Listing Rules to review the six specified elements of disclosures in the report to shareholders by the Board on directors' remuneration. We have no exceptions to report arising from this responsibility.
We are required to report if the company has not provided the information required by Regulation 5(2) to 5(7) of the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 in respect of the prior financial year. We have nothing to report arising from this responsibility.
We were appointed by the directors on 10 August 2016 to audit the financial statements for the year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement is 5 years, covering the years ended 31 December 2016 to 31 December 2020.
for and on behalf of PricewaterhouseCoopers Chartered Accountants and Statutory Audit Firm Dublin 26 February 2021
For the financial year ended 31 December 2020
| Note | 2020 €000s |
2019 €000s |
|
|---|---|---|---|
| Revenue | 4(a) | 380,999 | 394,639 |
| Income | |||
| Gross premium written | 4(c) | 358,230 | 370,063 |
| Reinsurance premiums | 4(c) | (43,034) | (31,836) |
| Net premium written | 4(c) | 315,196 | 338,227 |
| Change in net provision for unearned premiums | 4(c) | 36 | (674) |
| Net premium earned | 4(c) | 315,232 | 337,553 |
| Net investment return | 5 | 10,388 | 17,892 |
| Financial services income – Revenue from contracts with customers | 4(a) | 4,211 | 4,268 |
| – Other financial services income | 4(a) | 5,172 | 5,557 |
| Total income | 335,003 | 365,270 | |
| Expenses | |||
| Net claims and benefits | 4(c) | (221,403) | (148,679) |
| Other underwriting expenses | 4(c) | (88,527) | (87,259) |
| Movement in other provisions | 4(c) | (9,681) | (7,946) |
| Financial services and other costs | 4(e) | (7,276) | (6,081) |
| Impairment of property, plant and equipment | 13 | (734) | (246) |
| Finance costs | 27 | (2,580) | (2,579) |
| Profit before taxation | 6 | 4,802 (412) |
112,480 |
| Income taxation charge Profit for the financial year |
10 | 4,390 | (14,255) 98,225 |
| Attributable to: | |||
| Equity holders of the parent | 4,390 | 98,225 | |
| Earnings per share | 2020 Cent |
2019 Cent |
|
| Basic | 12 | 13 | 281 |
| Diluted | 12 | 121 | 2761 |
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 accompanying notes form an integral part of the financial statements.
The financial statements were approved by the Board and authorised for issue on 25 February 2021.
For the financial year ended 31 December 2020
| 2020 | 2019 | ||
|---|---|---|---|
| Note | €000s | €000s | |
| Profit for the financial year | 4,390 | 98,225 | |
| Items that will or may be reclassified to profit or loss in subsequent periods: | |||
| Net gain on available for sale financial assets during the year | 4,491 | 11,356 | |
| Loss/(gain) transferred to the Consolidated Income Statement on disposal during the year |
14 | (432) | |
| Taxation charge relating to items that will or may be reclassified to profit or loss in subsequent periods |
(563) | (1,366) | |
| Items that will not be reclassified to profit or loss in subsequent periods: | |||
| Actuarial gain/(loss) on retirement benefit obligations | 28(d) | 2,326 | (4,236) |
| Property held for own use revaluation loss | (419) | – | |
| Taxation (charge)/credit relating to items not to be reclassified in subsequent periods | (431) | 530 | |
| Other comprehensive income after taxation | 5,418 | 5,852 | |
| Total comprehensive income for the financial year | 9,808 | 104,077 | |
| Attributable to: | |||
| Equity holders of the parent | 9,808 | 104,077 |
At 31 December 2020
| ____ | |||
|---|---|---|---|
| ASSETS | 2020 | 2019 | |
|---|---|---|---|
| Note | €000s | €000s | |
| Property, plant and equipment | 13 | 25,085 | 28,114 |
| Policy administration system | 14 | 36,721 | 38,603 |
| Intangible assets | 15 | 5,100 | 2,155 |
| Investment property | 16 | 17,051 | 18,693 |
| Right of use assets | 9 | 5,635 | 6,115 |
| Loans | 601 | 611 | |
| Deferred taxation asset | 17 | 1,294 | 1,222 |
| Financial assets | |||
| Available for sale investments | 18(a) | 863,880 | 811,986 |
| Investments held for trading | 18(a) | 116,930 | 111,399 |
| Deposits with banks | 18(a) | 40,000 | 60,000 |
| 1,020,810 | 983,385 | ||
| Reinsurance assets | |||
| Provision for unearned premiums | 25(e) | 1,033 | 1 |
| Claims outstanding | 25(e) | 122,760 | 66,349 |
| 123,793 | 66,350 | ||
| Retirement benefit surplus | 28(f) | 10,849 | 8,723 |
| Current taxation asset | 7,510 | 3,949 | |
| Deferred acquisition costs | 19 | 34,079 | 33,182 |
| Other receivables | 20 | 65,402 | 63,866 |
| Cash and cash equivalents | 21 | 129,535 | 94,982 |
| Total assets | 1,483,465 | 1,349,950 |
At 31 December 2020
| EQUITY AND LIABILITIES | 2020 | 2019 | |
|---|---|---|---|
| Note | €000s | €000s | |
| Equity | |||
| Called up share capital presented as equity | 22 | 21,409 | 21,409 |
| Capital reserves | 23(a) | 24,756 | 22,811 |
| Revaluation reserve | 978 | – | |
| Retained earnings | 336,838 | 328,008 | |
| Equity attributable to ordinary equity holders of the parent | 383,981 | 372,228 | |
| Preference share capital | 24 | 2,923 | 2,923 |
| Total equity | 386,904 | 375,151 | |
| Liabilities | |||
| Insurance contract liabilities | |||
| Provision for unearned premiums | 25(d) | 184,541 | 183,545 |
| Claims outstanding | 25(c) | 794,416 | 683,332 |
| 978,957 | 866,877 | ||
| Other provisions | 26 | 12,067 | 8,417 |
| Subordinated debt | 27 | 49,544 | 49,485 |
| Lease liabilities | 9 | 5,843 | 6,222 |
| Deferred taxation liability | 29 | 5,421 | 4,905 |
| Current taxation liability | – | 3,128 | |
| Payables | 30(a) | 44,729 | 35,765 |
| Total liabilities | 1,096,561 | 974,799 | |
| Total equity and liabilities | 1,483,465 | 1,349,950 |
The accompanying notes form an integral part of the financial statements.
The financial statements were approved by the Board and authorised for issue on 25 February 2021.
They were signed on its behalf by:
Liam Herlihy Tomás Ó'Midheach Chairman Group Chief Executive
For the financial year ended 31 December 2020
| 2020 | 2019 | ||
|---|---|---|---|
| Note | €000s | €000s | |
| Cash flows from operating activities | |||
| Profit before taxation | 4,802 | 112,480 | |
| Adjustments for: | |||
| Profit on investments held for trading | (5,356) | (10,741) | |
| Loss on investments available for sale | 3,531 | 4,025 | |
| Interest and dividend income | (9,481) | (11,102) | |
| Depreciation/amortisation of property, plant and equipment and intangible assets | 13,14 & 15 | 11,041 | 10,503 |
| Depreciation on right of use assets | 9 | 821 | 771 |
| Share-based payment expense | 35 | 1,945 | 2,381 |
| Fair value loss/(gain) on investment property | 16 | 1,569 | (290) |
| Impairment of property, plant and equipment | 13 | 734 | 246 |
| Increase/(decrease) in insurance contract liabilities | 54,638 | (39,448) | |
| Increase in other provisions | 26 | 3,650 | 679 |
| Operating cash flows before movement in working capital | 67,894 | 69,504 | |
| Increase in receivables and deferred acquisition costs | (3,154) | (2,839) | |
| Increase in payables | 10,680 | 5,082 | |
| Interest on lease liabilities | 9 | 263 | 278 |
| Purchase of investments held for trading | (54,008) | (29,689) | |
| Sale of investments held for trading | 53,835 | 7,807 | |
| Cash generated from operations | 75,510 | 50,143 | |
| Interest and dividend income received | 10,204 | 11,717 | |
| Income taxes paid | (6,611) | (14,129) | |
| Net cash generated from operating activities | 79,103 | 47,731 | |
| Cash flows from investing activities | |||
| Purchase of available for sale investments | (217,013) | (152,656) | |
| Sale of available for sale investments | 166,093 | 143,289 | |
| Purchase of property, plant and equipment | 13 | (1,839) | (4,518) |
| Additions to policy administration system | 14 | (4,796) | (4,414) |
| Purchase of intangible assets | 15 | (3,593) | (1,935) |
| Refurbishment of investment property | 16 | (1,922) | – |
| Sale of investment property | 16 | 1,994 | – |
| Decrease in loans and advances | 10 | 4 | |
| Maturities of deposits invested with banks | 18(a) | 40,000 | 50,998 |
| Additional deposits invested with banks | 18(a) | (20,000) | (40,000) |
| Net cash used in investing activities | (41,066) | (9,232) | |
| Cash flows from financing activities | |||
| Ordinary and preference dividends paid | 31 | – | (17,714) |
| Interest payments on subordinated debt | 27 | (2,500) | (2,500) |
| Principal elements of lease payments | 9 | (984) | (942) |
| Net cash used in financing activities | (3,484) | (21,156) | |
| Net increase in cash and cash equivalents | 34,553 | 17,343 | |
| Cash and cash equivalents at the beginning of the year | 21 | 94,982 | 77,639 |
| Cash and cash equivalents at the end of the financial year | 21 | 129,535 | 94,982 |
The accompanying notes form an integral part of the financial statements.
For the financial year ended 31 December 2020
| Called up share capital presented as equity |
Capital reserves | Revaluation reserve | Retained earnings | Attributable to ordinary shareholders |
Preference share capital |
Total equity | |
|---|---|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | €000s | €000s | |
| Balance at 1 January 2019 | 21,409 | 20,430 | – | 241,645 | 283,484 | 2,923 | 286,407 |
| Profit after taxation | – | – | – | 98,225 | 98,225 | – | 98,225 |
| Other comprehensive income after taxation | – | – | – | 5,852 | 5,852 | – | 5,852 |
| 21,409 | 20,430 | – | 345,722 | 387,561 | 2,923 | 390,484 | |
| Dividends paid and approved on ordinary and preference shares |
– | – | – | (17,714) | (17,714) | – | (17,714) |
| Recognition of share based payments | – | 2,381 | – | – | 2,381 | – | 2,381 |
| Balance at 31 December 2019 | 21,409 | 22,811 | – | 328,008 | 372,228 | 2,923 | 375,151 |
| Reclassification to revaluation reserve1 | – | – | 1,345 | (1,345) | – | – | – |
| Profit after taxation | – | – | – | 4,390 | 4,390 | – | 4,390 |
| Other comprehensive income after taxation | – | – | (367) | 5,785 | 5,418 | – | 5,418 |
| 21,409 | 22,811 | 978 | 336,838 | 382,036 | 2,923 | 384,959 | |
| Recognition of share based payments | – | 1,945 | – | – | 1,945 | – | 1,945 |
| Balance at 31 December 2020 | 21,409 | 24,756 | 978 | 336,838 | 383,981 | 2,923 | 386,904 |
1During the year the Group reclassified the reserve for revaluation gains on property held for own use previously included in retained earnings into a separate revaluation reserve.
At 31 December 2020
| 2020 | 2019 | |
|---|---|---|
| Note | €000s | €000s |
| Assets | ||
| Investments | ||
| Investment in subsidiaries 32 |
91,831 | 91,831 |
| Financial assets | 1 | 1 |
| 91,832 | 91,832 | |
| Cash and cash equivalents | 880 | 734 |
| Retirement benefit surplus | 2,367 | 1,946 |
| Deferred taxation asset | 351 | 351 |
| Other receivables | 3,864 | 4,101 |
| Total assets | 99,294 | 98,964 |
| Equity and liabilities | ||
| Equity | ||
| Called up share capital presented as equity 22 |
21,409 | 21,409 |
| Capital reserves 23(b) |
24,756 | 22,811 |
| Retained earnings | 47,353 | 48,930 |
| Shareholders' funds – equity interests | 93,518 | 93,150 |
| Preference share capital 24 |
2,923 | 2,923 |
| Equity attributable to equity holders of the parent | 96,441 | 96,073 |
| Deferred taxation liability | 298 | 243 |
| Payables 30(b) |
2,555 | 2,648 |
| Total equity and liabilities | 99,294 | 98,964 |
The Company's movement in retained earnings is total comprehensive expense for the financial year of €1,577,000 and dividend paid of €nil (2019: total comprehensive income of €19,997,000 and dividend paid of €17,714,000).
The accompanying notes form an integral part of the financial statements.
The financial statements were approved by the Board and authorised for issue on 25 February 2021.
They were signed on its behalf by:
Liam Herlihy Tomás Ó'Midheach Chairman Group Chief Executive
For the financial year ended 31 December 2020
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Cash flows from operating activities | ||
| (Loss)/profit before taxation | (2,420) | 20,960 |
| Adjustments for: | ||
| Share-based payment expense | 1,945 | 2,381 |
| Operating cash flows before movement in working capital | (475) | 23,341 |
| Decrease/(increase) in receivables | 695 | (3,293) |
| Decrease in payables | (74) | (1,659) |
| Net cash generated from operating activities | 146 | 18,389 |
| Net cash generated from investing activities | – | – |
| Cash flows from financing activities | ||
| Ordinary and preference dividends paid | – | (17,714) |
| Net cash used in financing activities | – | (17,714) |
| Net increase in cash and cash equivalents | 146 | 675 |
| Cash and cash equivalents at the beginning of the financial year | 734 | 59 |
| Cash and cash equivalents at the end of the financial year | 880 | 734 |
The accompanying notes form an integral part of the financial statements.
For the financial year ended 31 December 2020
| Called up share capital presented as equity |
Capital reserves | Retained earnings | Attributable to ordinary shareholders |
Preference share capital | Total equity | |
|---|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | €000s | |
| Balance at 1 January 2019 | 21,409 | 20,430 | 46,647 | 88,486 | 2,923 | 91,409 |
| Profit after taxation | – | – | 20,962 | 20,962 | – | 20,962 |
| Other comprehensive expense after taxation | – | – | (965) | (965) | – | (965) |
| 21,409 | 20,430 | 66,644 | 108,483 | 2,923 | 111,406 | |
| Dividends paid and approved on ordinary and preference shares |
– | – | (17,714) | (17,714) | – | (17,714) |
| Recognition of share based payments | – | 2,381 | – | 2,381 | – | 2,381 |
| Balance at 31 December 2019 | 21,409 | 22,811 | 48,930 | 93,150 | 2,923 | 96,073 |
| Loss after taxation | – | – | (1,963) | (1,963) | – | (1,963) |
| Other comprehensive income after taxation | – | – | 386 | 386 | – | 386 |
| 21,409 | 22,811 | 47,353 | 91,573 | 2,923 | 94,496 | |
| Recognition of share based payments | – | 1,945 | – | 1,945 | – | 1,945 |
| Balance at 31 December 2020 | 21,409 | 24,756 | 47,353 | 93,518 | 2,923 | 96,441 |
For the financial year ended 31 December 2020
FBD Holdings plc is an Irish registered public limited company. The registration number of the company is 135882. The address of the registered office is FBD House, Bluebell, Dublin 12, Ireland. 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.
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future being a period of not less than 12 months from the date of this report.
In making this assessment the Directors considered the continuing impact of the Covid-19 pandemic on the Group's business. This included reviewing projections reflecting the Covid-19 pandemic potential impacts on 2021 and 2022 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 impact from the business interruption claims the company is liable for following the recent judgement.
The economic environment may impact on premiums including potential reductions in exposures, new business and retention levels. The timing of recovery and the length of the continuing lockdown period may also impact on the claims frequency and severity. Expense assumptions change depending on the level of premiums as discretionary spend and resources are adjusted. A positive and more adverse view of investment markets were considered in arriving at assumptions for future investment returns. In addition the ORSA process monitors current and future solvency needs. The scenarios described above were projected as part of the ORSA process as well as a number of of more extreme stress events. The level of projected capital and liquidity is most sensitive to the ultimate net cost of Covid-19 related public house business interruption claims. In all scenarios the Group's Capital Ratio remained in excess of the Solvency Capital Requirement and in compliance with liquidity policies.
The Directors considered the liquidity requirements of the business to ensure it has cash resources available to pay claims and other expenditure as they fall due, including the impact from the business interruption judgement. The business continues to have adequate cash resources available to support business requirements as well as business interruption claims as they fall due. In addition the Group has a highly liquid investment portfolio with over 60% of the portfolio invested in high quality corporate and sovereign bonds.
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 in line with Government guidelines. No structural changes are required by the business as a result of the Covid-19 pandemic and no changes are expected to capital investment projects planned and in train, as we continue to deliver improvements in IT infrastructure and the customer journey ensuring our customers can do business with us the way they choose.
On the basis of the scenarios projected by the Group and the additional ORSA scenarios carried out, the Directors are satisfied that there are no material uncertainties which cast doubt on the ability of the Group or Company to continue as a going concern over the period of assessment being not less than 12 months from the date of this report. Thus the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The Group and Company financial statements are prepared in compliance with the Companies Acts 2014.
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2020, unless otherwise stated.
The amendments of these standards has not had a material impact on the financial statements of the Group.
| IFRS 17 | Insurance Contracts1 |
|---|---|
| IFRS 9 | Financial Instruments2 |
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. IFRS 17 is a comprehensive new accounting standard for all insurance contracts covering recognition and measurement, presentation and disclosure. The core of IFRS 17 is the general model, supplemented by an optional simplified premium allocation approach which is permitted for the liability for the remaining coverage for short duration contracts. The general model measures insurance contracts using the building blocks of: discounted probability weighted cash flows; an explicit risk adjustment; and a contractual service margin representing the unearned profit of the contract which is recognised as revenue over the coverage period. An IFRS 17 cross functional project team is in place to deliver the required reporting in line with required application timelines. The impact on adoption cannot be reasonably estimated at this time.
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.
The principal accounting policies adopted by the Board are detailed below. All accounting policies are applicable to the consolidated and company financial statements unless stated otherwise.
The consolidated and company financial statements are prepared under the historical cost convention as modified by the revaluation of property, investments held for trading, available for sale investments and investment property, which are measured at fair value.
The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings to 31 December. Control is achieved when the Company:
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over an investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all the relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Changes in the Group's ownership interests in subsidiaries that do not result in a loss of control over the subsidiaries are accounted for as equity transactions. The carrying amount of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any transaction costs incurred are expensed in the period in which they occur. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups), that are classified as held for sale in accordance with IFRS 5, Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs of sale.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the Consolidated Income Statement.
When the Group loses control of a subsidiary, the profit or loss on the sale is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in the Consolidated Statement of Comprehensive Income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, costs on initial recognition of an investment in an associate or jointly controlled entity.
Investments in subsidiaries are accounted for at cost less accumulated impairment losses.
Dividend income from investments in subsidiaries is recognised when the Company's right to receive has been established.
Revenue is measured at the fair value of the consideration received or receivable and represents gross premiums written, broking commissions, fees, other commissions, interest and dividends receivable, rents receivable, net of discounts, levies, VAT and other sales related taxes.
Revenue from insurance contracts is accounted for in accordance with accounting policy (E).
Interest income is accrued on a time basis with reference to the principal outstanding at the effective interest rate applicable.
Broking commission is recognised as the Group satisfies its performance obligations. The Group's performance obligation in relation to broking commissions is satisfied at the point in time when the underlying policy has been contractually agreed between the insured and the provider. The transaction price is the expected commission income receivable by the Group for the satisfaction of this performance obligation. The transaction price includes a variable consideration estimation on the basis that elements of commissions receivable are dependent on the outcome of future events, namely the underlying policies sold remaining in force, and are paid in future periods. Thus an expected level of lapses is applied to policies sold in order to calculate an appropriate commission receivable in relation to the satisfaction of the performance obligation. Variable consideration is only recognised to the extent that it is highly probable that a significant reversal of revenue would not occur.
Fees for liability claims handling are recognised in the year to which they relate.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
Rental income is recognised on a straight-line basis over the period of the lease.
Premiums written relate to contracts entered into during the accounting period, together with any difference between booked premiums for prior years and those previously accrued, and include estimates of premiums due. Premiums written exclude taxes and duties levied on premiums.
Premium rebates relate to elements of premium written returned to policyholders as a result of agreed reductions in risk exposure. The earnings impact of premium rebates is recognised over the period of reduced risk exposure.
Unearned premiums are those portions of premium income written in the year that relate to insurance cover after the year end. Unearned premiums are computed on a 365th of premium written. At 31 December each year, an assessment is made of whether the provision for unearned premiums is adequate as set out in accounting policy E (iv) below.
Governance
Deferred acquisition costs represent the proportion of acquisition costs, net of reinsurance, that are attributable to the unearned premiums. Acquisition costs comprise the direct and indirect costs of obtaining and processing new insurance business. These costs are recognised as a deferred acquisition cost asset and amortised on the same basis as the related premiums are earned, and are tested for impairment at 31 December each year.
At 31 December each year, an assessment is made of whether the provision for unearned premiums is adequate. Provision for unexpired risks is made where the expected claims, related expenses and deferred acquisition costs are expected to exceed unearned premiums, after taking account of future investment income. At each reporting date, the Group reviews its unexpired risks and carries out a liability adequacy test for any overall excess of expected claims and deferred acquisition costs over unearned premiums, using the current estimates of future cash flows under its contracts after taking account of the investment return expected to arise on assets. If these estimates show that the carrying amount of its insurance liabilities (less related deferred acquisition costs) is insufficient in light of the estimated future cash flows, the deficiency is recognised in the Income Statement by setting up a provision in the Statement of Financial Position.
Claims incurred comprise the cost of all insurance claims occurring during the year, whether reported or not, and any adjustments to claims outstanding from previous years.
Full provision, net of reinsurance recoveries, is made at the reporting date for the estimated cost of claims incurred but not settled, including claims incurred but not yet reported and expenses to be incurred after the reporting date in settling those claims. The Group takes all reasonable steps to ensure that it has appropriate information regarding notified claims and uses this information when estimating the cost of those claims. Claims reserves are not discounted.
The Group uses estimation techniques, based on statistical analysis of past experience, to calculate the estimated cost of claims outstanding at the year end. It is assumed that the development pattern of the current claims will be consistent with previous experience. Allowance is made, however, for any changes or uncertainties that may cause the cost of unsettled claims to increase or reduce. These changes or uncertainties may arise from issues such as the effects of inflation, changes in the mix of business or the legal environment.
Receivables arising out of direct insurance operations are measured at initial recognition at fair value and are subsequently measured at amortised cost, after recognising any impairment loss to reflect estimated irrecoverable amounts.
Premiums payable in respect of reinsurance ceded, are recognised in the period in which the reinsurance contract is entered into and include estimates where the amounts are not determined at the reporting date. Premiums are expensed over the period of the reinsurance contract, calculated principally on a daily pro rata basis.
A reinsurance asset (reinsurers' share of claims outstanding and provision for unearned premium) is recognised to reflect the amount estimated to be recoverable under the reinsurance contracts in respect of the outstanding claims reported under insurance liabilities. The amount recoverable from reinsurers is initially valued on the same basis as the underlying claims provision.
The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the contract and the event has a reliably measurable impact on the expected amount that will be recoverable from the reinsurer.
The reinsurers' share of each unexpired risk provision is recognised on the same basis.
Other provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognised for future operating losses.
Provisions are measured at management's best estimate, at the balance sheet date, of the expenditure required to settle the obligation.
Property held for own use in the supply of services or for administrative purposes is stated at revalued amounts, being the fair value at the date of revaluation which is determined by professional valuers, less subsequent depreciation for buildings. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date. Any revaluation increase arising on the revaluation of such property is recognised in other comprehensive income and credited to the revaluation reserve within equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised. A decrease on revaluation is charged as an expense to the Income Statement to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to previous revaluation of that asset.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Income Statement and any associated revaluation surplus is transferred to retained earnings.
Computer equipment and fixtures and fittings are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is provided in respect of computer equipment and fixtures and fittings, and is calculated in order to write off the cost or valuation of the assets over their expected useful lives on a straight line basis over a three to ten year period. Depreciation on assets under development commences when the assets are ready for their intended use.
Buildings are depreciated to their residual value over the useful economic life of the building, on a straight line basis. Land is not depreciated.
The assets' residual values, useful lives and methods of depreciation are reviewed at least each financial year end and adjusted if appropriate.
The estimated useful lives of property, plant and equipment are as follows:
Buildings: 30 years Computer equipment: 3-5 years Fixtures and fittings: 10 years
The Policy Administration System is stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation is provided in respect of the Policy Administration System and is calculated in order to write off the costs incurred to date, over its expected useful life which is determined to be 5.5 years on a straight line basis.
Intangible assets are stated at cost less accumulated amortisation and less any accumulated impairment losses. Intangible assets comprise computer software and these assets are amortised on a straight line basis over a five year period.
Investment property, which is property held to earn rentals and/or for capital appreciation, is recognised initially at cost and stated at fair value at the reporting date being the value determined by qualified independent professional valuers. Gains or losses arising from changes in the fair value are recognised in the Income Statement for the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income Statement for the period in which the property is derecognised.
Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset only when the contractual rights to the cash flows of the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of the ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risk and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability to the extent of its continuing involvement in the financial asset. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.
Investments held for trading are stated at fair value and include quoted shares, quoted debt securities and collective investment schemes. They are recognised on a trade date basis at fair value and are revalued at subsequent reporting dates at fair value, using the closing bid price, with gains and losses being included in the Income Statement in the period in which they arise.
Investments are held for trading if:
Investments other than investments held for trading may be designated at FVTPL (fair value through profit or loss) upon initial recognition if:
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in the Income Statement. The net gain or loss recognised in the Consolidated Income Statement incorporates any dividend or interest earned on the financial asset and is included in the 'net investment return' line item in the Income Statement.
Available for sale investments include quoted debt securities and unquoted investments, and are stated at fair value where fair value can be reliably measured. Fair value is calculated using closing bid prices. They are recognised on a trade date basis at fair value, and are subsequently revalued at each reporting date to fair value, with gains and losses being included directly in the Statement of Comprehensive Income until the investment is disposed of or determined to be impaired, at which time the cumulative gain or loss previously recognised in the Statement of Comprehensive Income, is included in the Income Statement for the year.
Loans are recognised on a trade date basis at fair value plus transaction costs and are subsequently measured at amortised cost using the effective interest rate method. When it is not possible to estimate reliably the cash flows or the expected life of a loan, the projected cash flows over the full term of the loan are used to determine fair value.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount at initial recognition.
Amounts arising out of direct insurance operations and other debtors are measured at initial recognition at fair value and are subsequently measured at amortised cost, after recognising any impairment loss to reflect estimated irrecoverable amounts.
Other debtors are measured at initial recognition at fair value and are subsequently measured at amortised cost less expected credit losses. Expected credit losses is a forward looking measure of impairment calculated on a probability of credit losses basis.
Term deposits with banks comprise cash held for the purpose of investment. Demand deposits with banks are held for operating purposes and included in cash and cash equivalents. Deposits with banks and cash and cash equivalents are valued at amortised cost.
Subordinated debt issued by the Group comprise callable dated deferrable subordinated notes.
The financial liability is initially recognised at fair value of the subordinated notes net of costs. Subsequent to initial recognition, the subordinated debt is measured at amortised cost using the effective interest rate method.
Interest and amortisation relating to the financial liability is recognised in the Income Statement.
The Group applies the temporary exemption from IFRS 9 Financial Instruments, as defined in the amendment "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – IFRS 4 amendments" issued by the IASB in September 2016, in its consolidated financial statements. This amendment allows an entity to defer the implementation of IFRS 9 if its activities are predominantly connected with insurance. As a result, the Group will continue to apply IAS 39, Financial Instruments: Recognition and Measurement in its consolidated financial statements until the reporting period beginning on 1 January 2023.
During 2018 the Group performed an assessment of the amendments and reached the conclusion that its activities were predominantly connected with insurance as at 31 December 2015. The Group's percentage of its gross liabilities from contracts within the scope of IFRS 4 relative to its total liabilities at 31 December 2015 was 94.5% which is in excess of the 90% threshold required by IFRS 4. There has been no significant change to the activities of the Group requiring reassessment of the use of the temporary exemption from IFRS 9 to 31 December 2020.
IFRS 9 financial instruments deferral disclosures, as defined in IFRS 4, are included in note 38.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the operating lease term.
A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'.
To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:
At lease commencement date, the lease liability is measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate. The right of use asset is recognised as an amount equal to the lease liability, adjusted for amount of any prepaid or accrued lease payments relating to the lease.
The Group depreciates the right of use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The Group also assesses the right of use assets for impairment when such indicators exist.
Lease payments included in the measurement of the lease liability are made up of fixed payments, variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
Cash and cash equivalents comprise cash on hand and demand deposits with maturities of 3 months or less held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Deposits with banks and cash and cash equivalents are valued at amortised cost.
Income tax expense or credit represents the sum of income tax currently payable and deferred income tax. Income tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Consolidated Income Statement because it excludes items of income or expense that are taxable or deductible in other years and further excludes items that are not taxable or deductible. The Group's liability for income tax is calculated using rates that have been enacted or substantively enacted at the reporting date. Income tax is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity.
Deferred income tax is provided, using the liability method, on all differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is expected to be realised or the liability to be settled.
Deferred tax assets are recognised for all deductible differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit would be available to allow all or part of the deferred income tax asset to be utilised.
Deferred taxation liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred taxation assets and liabilities are offset when there is a legally enforceable right to set off current taxation assets against current taxation liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle on a net basis.
The Group provides either defined benefit or defined contribution retirement benefit schemes for the majority of its employees.
A full actuarial valuation of the scheme is undertaken every three years and is updated annually to reflect current conditions in the intervening periods for the purposes of preparing the financial statements.
The liability or asset recognised in the Statement of Financial Position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Income Statement.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in retained earnings in the Statement of Changes in Equity and in the Statement of Financial Position.
Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in the Income Statement as past service costs.
Costs arising in respect of the Group's defined contribution retirement benefit schemes are charged to the Income Statement in line with the service received.
For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Euro, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each Statement of Financial Position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.
On consolidation, the assets and liabilities of the Group's non Euro-zone operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly, in which case the exchange rates at the date of transactions are used. Exchange differences that are classified as equity are transferred to the translation reserve. Such translation differences are recognised as income or expense in the period in which the operation is disposed.
The Group operates a long-term incentive plan based on market and non-market vesting conditions. The fair value of the market based awarded shares is determined at the date of grant using either the Black Scholes or Monte Carlo Simulation models. The fair value of the non-market based awarded shares is determined with reference to the share price of the Group at the date of grant. The cost is expensed in the Income Statement over the vesting period at the conclusion of which the employees become unconditionally entitled to the shares once performance conditions are met. The corresponding amount to the expense is credited to a separate reserve in the Statement of Financial position. At each period end, the Group reviews its estimate of the number of shares that it expects to vest and any adjustment relating to current and past vesting periods is brought to the Income Statement. The share awards are all equity settled.
Where any group company purchases the Company's equity share capital, the consideration paid is shown as a deduction from ordinary shareholders' equity. Consideration received on the subsequent sale or issue of treasury shares is credited to ordinary shareholders' equity. Treasury shares are excluded when calculating earnings per share.
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
The recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows attributable to the asset (or cash-generating unit) are discounted to their present value using a pre-taxation discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where a revaluation loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no revaluation loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of a revaluation loss, other than in relation to goodwill, is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the revaluation loss is treated as a revaluation increase.
Financial assets, other than those at FVTPL (fair value through profit or loss), are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investment have been impacted. For listed and unlisted equity investments classified as Available for Sale ("AFS"), a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis.
For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.
The carrying amount of a financial asset is directly reduced by the impairment loss for all financial assets.
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in the Statement of Comprehensive Income are reclassified to the Income Statement in the period.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the Income Statement, to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
In respect of AFS equity securities, impairment losses previously recognised in the Consolidated Income Statement are not reversed through the Income Statement. Any increase in fair value subsequent to an impairment loss is recognised in the Statement of Comprehensive Income.
Other financial services income comprises interest on instalment premiums which is recognised on an effective interest method and other financial services income as detailed in accounting policy (D).
The principal accounting policies adopted by the Group are set out on pages 101 to 112. 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 source of judgement and estimation in the preparation of the financial statements are detailed below. The judgements and estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The judgements and estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting judgements and estimates are recognised in the period in which the judgement or estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the critical judgements and 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 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 year end.
Also included in the estimation of outstanding claims are factors such as the potential for inflation. Provisions for more recent claims make use of techniques that incorporate expected loss ratios and average claims cost (adjusted for inflation) and frequency methods. The average claims cost and frequency methods are particularly relevant when calculating the ultimate cost of claims for the 2020 accident year as historic patterns will have been distorted by Covid-19.
On 5 February 2021 the judgement was issued from the hearing in the Commercial Court between FBD and a number of publican customers claiming cover for business interruption as a consequence of the Covid-19 pandemic public health measures. The judgement confirmed that FBD is liable to cover business interruption cases for publican customers. The Commercial Court judgement has provided more clarity on likely gross claims costs albeit with some aspects of the calculation of quantum yet to be determined.
The calculations are particularly sensitive to the estimation of the ultimate cost of claims for the particular classes of business and the estimation of future claims handling costs. Actual claims experience may differ from the assumptions on which the actuarial best estimate is based and the cost of settling individual claims may exceed that assumed.
Due to the limited data available from the claimants at the current time the business interruption best estimate gross of reinsurance is sensitive to the assumed level of wage and expense savings experienced by the policyholder while the business was closed. In addition there is continued uncertainty as to when the pubs will reopen for business which impacts on the amount of a claim as the losses continue to increase from the last date a pub closed. The anticipated quantum hearing and receipt of the particulars of each claim will reduce this uncertainty as the year progresses.
As a result of the uncertainties noted, the Group sets provisions at a margin above the actuarial best estimate.
Further details are set out in note 25 to the financial statements and sensitivities are set out in note 37.
The Group spends substantial sums to purchase reinsurance protection from third parties and substantial claims recoveries from these reinsurers are included in the Statement of Financial Position at the reporting date. A reinsurance asset (reinsurers' share of claims outstanding and provision for unearned premium) is recognised to reflect the amount estimated to be recoverable under the reinsurance contracts in respect of the outstanding claims reported under insurance liabilities. The amount recoverable from reinsurers is initially valued on the same basis as the underlying claims provision. The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the contract and the event has a reliably measurable impact on the expected amount that will be recoverable from the reinsurer. To minimise default exposure, the Group's policy is that all reinsurers should have a credit rating of A- or better or have provided alternative satisfactory security.
The actual amount recovered from reinsurers is sensitive to the same uncertainties as the underlying large claims. To the extent that the underlying claim settles at a lower or higher amount than that assumed this will have a direct influence on the associated reinsurance asset.
In relation to business interruption claims, given Covid-19 is a novel event with no real precedent in reinsurance the Group has modelled a number of different scenarios and applied judgement in relation to the application of reinsurance cover. In arriving at the best estimate, probabilities have been assigned to reinsurance scenarios based on discussions with reinsurers and our reinsurance broker and specialist legal advice. While more adverse outcomes for the Group are possible, our assessment is that these have a lower probability of occurrence. This process has resulted in a reinsurance asset of approximately €84m after reinstatements. It is acknowledged that there is currently a high degree of uncertainty in arriving at the best estimate of likely costs and the actual effect of reinsurance recoveries will become known with more certainty during 2021 with the potential that the ultimate reinsurance asset being higher or lower than the best estimate. Business interruption as with all uncertainties, is assessed when the Group is considering the margin for uncertainty, being a provision held as an amount over the best estimate of claims liabilities net of expected reinsurance recoveries.
Sensitivities of the reinsurance asset are set out in note 37.
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 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 (excluding Owner Occupied Property which is held at revalued amount), 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, 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 premium, 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 2.5% while a further two-year period is extrapolated using a lower growth rate on average of 0.8%. Future cash flows are discounted using an estimated weighted average cost of capital of 8.4% that is considered a prudent estimate for a market 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 impacts of the continuing pandemic as well as further business interruption impacts.
The scenarios run resulted in headroom ranging from 1.0 to 1.5 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.
Note 37, Financial Risk Management identifies the Group's key sensitivity factors and tests the impact of a change in each one of these factors has on pre-taxation profit and shareholders' equity.
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.
The following is an analysis of the Group's revenue and results by reportable segments.
| Financial | Total | ||
|---|---|---|---|
| Underwriting | Services | ||
| €000s | €000s | €000s | |
| 371,616 | 9,383 | 380,999 | |
| 10,388 | – | 10,388 | |
| (2,580) | – | (2,580) | |
| 2,695 | 2,107 | 4,802 | |
| 91 | (503) | (412) | |
| 2,786 | 1,604 | 4,390 | |
| 8,357 | – | 8,357 | |
| (2,303) | – | (2,303) | |
| 11,041 | – | 11,041 | |
| Segment assets | 1,461,755 | 21,710 | 1,483,465 |
|---|---|---|---|
| Segment liabilities | 1,088,963 | 7,598 | 1,096,561 |
Included above in the current period is a net non-cash impairment charge relating to property held for own use and revaluation loss relating to investment property of €2,303,000 (2019: revaluation of €44,000).
| Financial | |||
|---|---|---|---|
| 2019 | Underwriting | Services | Total |
| €000s | €000s | €000s | |
| Revenue | 384,814 | 9,825 | 394,639 |
| Investment return | 17,892 | – | 17,892 |
| Finance costs | (2,579) | – | (2,579) |
| Profit before taxation | 108,736 | 3,744 | 112,480 |
| Income taxation charge | (13,592) | (663) | (14,255) |
| Profit after taxation | 95,144 | 3,081 | 98,225 |
| Other information | |||
| Capital additions | 9,385 | – | 9,385 |
| (Impairment)/Revaluation of other assets | (1,908) | 1,952 | 44 |
| Depreciation/amortisation | (10,503) | – | (10,503) |
| Statement of Financial Position | |||
| Segment assets | 1,335,431 | 14,519 | 1,349,950 |
| Segment liabilities | 967,810 | 6,989 | 974,799 |
The accounting policies of the reportable segments are the same as the Group accounting policies. Segment profit represents the profit earned by each segment. Central administration costs and Directors' salaries are allocated based on actual activity. Restructuring costs and income taxation are direct costs of each segment.
In monitoring segment performance and allocating resources between segments:
An analysis of the Group's revenue by product is as follows:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Direct insurance – motor | 180,440 | 182,586 |
| Direct insurance – fire and other damage to property | 105,237 | 107,399 |
| Direct insurance – liability | 67,353 | 74,690 |
| Direct insurance – interest and other revenue | 13,386 | 14,751 |
| Direct insurance – other | 5,200 | 5,388 |
| Financial services income - revenue from contracts with customers | 4,211 | 4,268 |
| Financial services income - other financial services revenue | 5,172 | 5,557 |
| Total revenue | 380,999 | 394,639 |
The Group's customer base is diverse and it has no reliance on any major customer. Insurance risk is not concentrated on any one area or on any one line of business.
See below written premiums, earned premiums, incurred claims including claims handling expense, and other underwriting expenses split by product lines within the underwriting segment.
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Gross | Ceded | Net | Gross | Ceded | Net | |
| €000s | €000s | €000s | €000s | €000s | €000s | |
| (i) Written premiums | ||||||
| Motor | 180,440 | (14,567) | 165,873 | 182,586 | (14,787) | 167,799 |
| Fire and other damage to property | 105,237 | (23,109) | 82,128 | 107,399 | (10,872) | 96,527 |
| Liability | 67,353 | (4,990) | 62,363 | 74,690 | (5,767) | 68,923 |
| Miscellaneous | 5,200 | (368) | 4,832 | 5,388 | (410) | 4,978 |
| 358,230 | (43,034) | 315,196 | 370,063 | (31,836) | 338,227 |
Included in the gross premium written balance of €358,230,000 are premium rebates of €11,817,000 relating to reduced insurance exposure as a result of Covid-19 restrictions. The ceded premiums balance of €43,034,000 includes assumed reinsurance reinstatement premium of €11,300,000 in respect of the Covid-19 business interruption claims.
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Gross | Ceded | Net | Gross | Ceded | Net | |
| €000s | €000s | €000s | €000s | €000s | €000s | |
| (ii) Earned premiums | ||||||
| Motor | 178,022 | (14,041) | 163,981 | 180,902 | (14,787) | 166,115 |
| Fire and other damage to property | 105,882 | (22,602) | 83,280 | 109,221 | (10,873) | 98,348 |
| Liability | 68,068 | (4,990) | 63,078 | 73,759 | (5,767) | 67,992 |
| Miscellaneous | 5,262 | (369) | 4,893 | 5,512 | (414) | 5,098 |
| 357,234 | (42,002) | 315,232 | 369,394 | (31,841) | 337,553 |
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Gross | Ceded | Net | Gross | Ceded | Net | |
| €000s | €000s | €000s | €000s | €000s | €000s | |
| (iii) Incurred claims including claims handling expenses |
||||||
| Motor | 55,840 | (537) | 55,303 | 61,321 | 10,789 | 72,110 |
| Fire and other damage to property | 198,125 | (59,660) | 138,465 | 37,658 | (564) | 37,094 |
| Liability | 24,422 | (337) | 24,085 | 35,486 | 829 | 36,315 |
| Miscellaneous | 3,594 | (44) | 3,550 | 3,111 | 49 | 3,160 |
| 281,981 | (60,578) | 221,403 | 137,576 | 11,103 | 148,679 |
Net claims incurred in 2020 was €221,403,000, up 49% on net claims incurred of €148,679,000 in 2019. The majority of the increase relates to Covid-19 business interruption best estimate claims costs of €54,000,000. There was positive prior year reserve development of €23,300,000 as large claims experience was better than projected. This development was driven primarily by better than expected settlements and very low large claims frequency in some recent accident years.
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Gross | Ceded | Net | Gross | Ceded | Net | |
| €000s | €000s | €000s | €000s | €000s | €000s | |
| (iv) Other underwriting expenses | ||||||
| Motor | 46,038 | (1,519) | 44,519 | 44,276 | (1,360) | 42,916 |
| Fire and other damage to property | 26,850 | (844) | 26,006 | 26,044 | (518) | 25,526 |
| Liability | 17,185 | (472) | 16,713 | 18,112 | (559) | 17,553 |
| Miscellaneous | 1,326 | (37) | 1,289 | 1,306 | (42) | 1,264 |
| 91,399 | (2,872) | 88,527 | 89,738 | (2,479) | 87,259 |
Covid-19 related costs of €500,000 are included in other underwriting expenses relating to computer equipment requirements and additional cleaning of local offices and head office.
The Group's operations are located in Ireland.
| 2020 | 2020 | 2019 | 2019 | |
|---|---|---|---|---|
| €000s | €000s | €000s | €000s | |
| Earned premiums, net of reinsurance | ||||
| Gross premium written | 358,230 | 370,063 | ||
| Reinsurance premiums | (43,034) | (31,836) | ||
| Net premium written | 315,196 | 338,227 | ||
| Change in provision for unearned premium | ||||
| Gross amount | (996) | (670) | ||
| Reinsurers' share | 1,032 | (4) | ||
| Change in net provision for unearned premium | 36 | (674) | ||
| Net premium earned | 315,232 | 337,553 | ||
| Claims paid, net of recoveries from reinsurers | ||||
| Claims paid: | ||||
| Gross amount | (160,950) | (182,434) | ||
| Reinsurers' share | 4,167 | 3,467 | ||
| Claims paid, net of recoveries from reinsurers | (156,783) | (178,967) | ||
| Change in provision for claims | ||||
| Gross amount | (111,085) | 54,693 | ||
| Reinsurers' share | 56,411 | (14,570) | ||
| Change in insurance liabilities, net of reinsurance | (54,674) | 40,123 | ||
| Claims handling expenses | (9,946) | (9,835) | ||
| Net claims and benefits | (221,403) | (148,679) | ||
| Motor insurers bureau of Ireland levy and related payments |
(9,681) | (7,946) | ||
| Management expenses | (86,858) | (86,499) | ||
| Deferred acquisition costs | 897 | 1,226 | ||
| Gross management expenses | (85,961) | (85,273) | ||
| Reinsurers share of expenses | 2,872 | 2,479 | ||
| Broker commissions payable | (5,438) | (4,465) | ||
| Net operating expenses | (88,527) | (87,259) | ||
| Underwriting result | (4,379) | 93,669 |
The Group's reinsurance policy dictates that all of the Group's reinsurers must have a credit rating of A- or better, or provide alternative satisfactory security. The impact of buying reinsurance was a credit to the Consolidated Income Statement of €21,409,000 (2019: debit of €40,464,000).
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Employee benefit expense | 47,069 | 47,629 |
| Rent, rates, insurance and maintenance | 6,472 | 6,367 |
| Depreciation/amortisation | 11,041 | 10,503 |
| Other | 22,276 | 22,000 |
| Total underwriting management expenses | 86,858 | 86,499 |
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Employee benefit expense | 4,234 | 3,553 |
| Rent, rates, insurance and maintenance | 434 | 396 |
| Other | 2,608 | 2,132 |
| Total financial services and other costs | 7,276 | 6,081 |
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Actual return | ||
| Interest and similar income | 10,203 | 11,658 |
| Net income from investment properties | 310 | 554 |
| Realised gains/(losses) on investments | 160 | (814) |
| Dividend income | 1 | 59 |
| Revaluation of investment properties | (1,569) | 290 |
| Unrealised gains on financial investments | 1,283 | 6,145 |
| Total investment income | 10,388 | 17,892 |
| By classification of investment | ||
| Deposits with banks | (197) | 10 |
| Investments held for trading | 5,411 | 10,649 |
| Investment properties | (188) | 843 |
| Available for sale investments | 5,362 | 6,390 |
| Total investment income | 10,388 | 17,892 |
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Profit before taxation has been stated after charging: | ||
| Depreciation and amortisation | 11,041 | 10,503 |
The remuneration of the Directors is disclosed in the audited section of the Report on Directors' Remuneration on pages 66 to 78. These disclosures form an integral part of the financial statements.
An analysis of fees payable to the statutory audit firm is as follows:
| 2020 | 2019 | |||
|---|---|---|---|---|
| Company | Group | Company | Group | |
| €000s | €000s | €000s | €000s | |
| Description of service | ||||
| Audit of statutory financial statements | 66 | 303 | 65 | 296 |
| Other assurance services | – | 119 | – | 116 |
| Total auditors remuneration | 66 | 422 | 65 | 412 |
Fees payable by the Company are included with the fees payable by the Group in each category.
In 2020 and 2019, other assurance services relate to Solvency II audit which are prescribed under legislation or regulation.
The average number of persons employed by the Group was as follows:
| 2020 | 2019 | |
|---|---|---|
| No. | No. | |
| Underwriting | 891 | 887 |
| Financial services | 27 | 28 |
| Total | 918 | 915 |
| 2020 | 2019 | |
| The aggregate employee benefit expense was as follows: | €000s | €000s |
| Wages and salaries | 46,700 | 47,505 |
| Social welfare costs | 5,646 | 5,530 |
| Pension costs | 5,016 | 3,867 |
| Share based payments | 1,945 | 2,381 |
| Total employee benefit expense | 59,307 | 59,283 |
Leases held are property leases for office space for the Group's branches and leases for computer equipment. The Group holds a number of property leases with remaining terms ranging from three to thirty-five years. None of the Group's leases have options for extensions or to purchase. There are no contingent rents payable and all lease payments are fixed and at market rates. The additional leases in 2020 relate to computer equipment leases, the remaining term being five years. Additional information on the Group's leases is detailed below:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Balance as at 1 January | 6,115 | 6,886 |
| Additions | 341 | – |
| Depreciation charge for the year | (821) | (771) |
| Balance as at 31 December | 5,635 | 6,115 |
| Lease liabilities | ||
| 2020 | 2019 | |
| Maturity analysis - contractual undiscounted cash flows | €000s | €000s |
| Less than one year | (942) | (917) |
| One to five years | (3,356) | (3,341) |
| More than five years | (2,932) | (3,573) |
| Total undiscounted lease liabilities at 31 December | (7,230) | (7,831) |
| Contractual discounted cash flows | ||
| Current | (969) | (903) |
| Non - current | (4,874) | (5,319) |
| Lease liabilities included in the statement of financial position at 31 December | (5,843) | (6,222) |
| 2020 | 2019 | |
| Amounts recognised in profit or loss | €000s | €000s |
| Depreciation charge on right of use assets (included in Other underwriting expenses) | (821) | (771) |
| Interest on lease liabilities (included in Other underwriting expenses) | (263) | (278) |
| Expenses related to short-term leases (included in Other underwriting expenses) | (25) | (41) |
Income from sub-leasing right of use assets (included in Other financial services income) 64 85
Total cash outflows recognised in the period in relation to leases were €984,000 (2019: €942,000).
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Irish corporation taxation charge | (893) | (13,967) |
| Adjustments in respect of prior financial years | (69) | 30 |
| Current taxation charge | (962) | (13,937) |
| Deferred taxation credit/(charge) | 550 | (318) |
| Income taxation charge | (412) | (14,255) |
The taxation charge in the Consolidated Income Statement is lower (2019: higher) than the standard rate of corporation taxation in Ireland. The differences are explained below:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Profit before taxation | 4,802 | 112,480 |
| Corporation taxation charge at standard rate of 12.5% (2019: 12.5%) | 600 | 14,060 |
| Effects of: | ||
| Non-taxable income/unrealised gains/losses or expenses not deductible for tax purposes |
(6) | (38) |
| Higher rates of taxation on other income | 131 | 263 |
| Adjustments in respect of prior years | (313) | (30) |
| Income taxation charge | 412 | 14,255 |
| Taxation as a percentage of profit before taxation | 8.6% | 12.7% |
In addition to the amount charged to the Consolidated Income Statement, the following taxation amounts have been recognised directly in the Consolidated Statement of Comprehensive Income:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Deferred taxation on: | ||
| Actuarial (gain)/loss on retirement benefit obligations | (291) | 530 |
| Property held for own use revaluation | (140) | – |
| Gain on available for sale investments | (563) | (1,366) |
| Total income taxation charge recognised directly in the Consolidated Statement of Comprehensive Income |
(994) | (836) |
The Company's loss for the financial year determined in accordance with IFRS, as adopted by the European Union, is €1,963,000 (2019 profit: €20,962,000). The Company's other comprehensive income for the financial year is €386,000 (2019 other comprehensive expense: €965,000).
In accordance with section 304 of the Companies Act 2014 the Company is availing of the exemption from presenting its individual Income Statement to the AGM and from filing it with the Registrar of Companies.
The calculation of the basic and diluted earnings per share attributable to the ordinary shareholders is based on the following data:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Earnings | ||
| Profit for the year for the purpose of basic earnings per share | 4,390 | 97,943 |
| Profit for the year for the purpose of diluted earnings per share | 4,390 | 97,943 |
| 2020 | 2019 | |
| Number of shares | No. | No. |
| Weighted average number of ordinary shares for the purpose of basic earnings per share (excludes treasury shares) |
34,992,763 | 34,817,297 |
| Weighted average number of ordinary shares for the purpose of diluted earnings per share (excludes treasury shares) |
35,719,059 | 35,472,380 |
| Cent | Cent | |
| Basic earnings per share | 13 | 281 |
| Diluted earnings per share | 12 | 276 |
The 'A' ordinary shares of €0.01 each that are in issue have no impact on the earnings per share calculation. See note 22 for a description of the 'A' ordinary shares.
The below table reconciles the profit attributable to the parent entity for the year to the amounts used as the numerators in calculating basic and diluted earnings per share for the year and the comparative year including the individual effect of each class of instruments that affects earnings per share:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Profit attributable to the parent entity for the year | 4,390 | 98,225 |
| 2020 dividend of 0 cent (2019: 8.4 cent) per share on 14% non-cumulative preference shares of €0.60 each |
– | (113) |
| 2020 dividend of 0 cent (2019: 4.8 cent) per share on 8% non-cumulative preference shares of €0.60 each |
– | (169) |
| Profit for the year for the purpose of calculating basic and diluted earnings | 4,390 | 97,943 |
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:
| 2020 | 2019 | |
|---|---|---|
| No. | No. | |
| Weighted average number of ordinary shares for the purposes of calculating basic earnings per share |
34,992,763 | 34,817,297 |
| Potential vesting of share based payments | 726,296 | 655,083 |
| Weighted average number of ordinary shares for the purposes of calculating diluted earnings per share |
35,719,059 | 35,472,380 |
| Property held for own use |
Computer Equipment |
Fixtures & Fittings |
Total | |
|---|---|---|---|---|
| €000s | €000s | €000s | €000s | |
| Cost or valuation | ||||
| At 1 January 2019 | 24,354 | 94,940 | 22,730 | 142,024 |
| Additions | – | 1,875 | 1,817 | 3,692 |
| Assets under development | – | 826 | – | 826 |
| Reclassification to investment property | (130) | – | – | (130) |
| At 1 January 2020 | 24,224 | 97,641 | 24,547 | 146,412 |
| Additions | – | 1,341 | 292 | 1,633 |
| Assets under development | – | 206 | – | 206 |
| At 31 December 2020 | 24,224 | 99,188 | 24,839 | 148,251 |
| Comprising: | ||||
| At cost | – | 99,188 | 24,839 | 124,027 |
| At valuation | 24,224 | – | – | 24,224 |
| At 31 December 2020 | 24,224 | 99,188 | 24,839 | 148,251 |
| Property held for own use |
Computer Equipment |
Fixtures & Fittings |
Total | |
|---|---|---|---|---|
| €000s | €000s | €000s | €000s | |
| Accumulated depreciation and revaluation | ||||
| At 1 January 2019 | 7,169 | 87,481 | 19,034 | 113,684 |
| Depreciation charge for the year | – | 3,734 | 671 | 4,405 |
| Reclassification to investment property | (37) | – | – | (37) |
| Impairment through the income statement | 246 | – | – | 246 |
| At 1 January 2020 | 7,378 | 91,215 | 19,705 | 118,298 |
| Depreciation charge for the year | 128 | 2,812 | 775 | 3,715 |
| Impairment through the income statement | 734 | – | – | 734 |
| Impairment through the statement of comprehensive income |
419 | – | – | 419 |
| At 31 December 2020 | 8,659 | 94,027 | 20,480 | 123,166 |
| Carrying amount | ||||
| At 31 December 2020 | 15,565 | 5,161 | 4,359 | 25,085 |
| At 31 December 2019 | 16,846 | 6,426 | 4,842 | 28,114 |
Properties held for own use at 31 December 2020 and 2019 were valued at fair value which is determined by independent external professional surveyors CB Richard Ellis, Valuation Surveyors. CB Richard Ellis confirm that the properties have been valued in accordance with RICS Valuation – Global Standards 2017 (Red Book) incorporating the IVSC International Valuation Standards issued June 2017.
The valuation report states that the valuations have been prepared on the basis of "Market Value" which is defined in the report as "the estimated amount for which an asset or liability should exchange on valuation date between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion". The report also states that the market value "has been primarily derived using comparable recent market transactions on arm's length terms".
The 31 December 2020 valuations of the branch network of retail properties that represent 20% of the property balance at that date are faced with an unprecedented set of circumstances caused by Covid-19 and therefore are reported as being subject to 'material valuation uncertainty' as defined by VPS 3 and VPGA 10 of the RICS Valuation - Global Standards. The valuation in relation to office assets representing 80% of the property balance at that date are not reported as being subject to 'material valuation uncertainty'.
The valuers state that they made various assumptions as to tenure, letting, taxation, town planning and the condition and repair of buildings and sites, including ground and groundwater contamination. They have determined market value using a range of capital values per square metre based on appropriate local evidence. The valuer states that they have not viewed any tenancy agreements and have assumed for the purposes of valuation that the properties are subject to vacant possession.
The Directors believe that the market value, determined by independent professional valuers is not materially different to fair value. The Directors have considered the 'material valuation uncertainty' as a result of Covid-19 on the branch network of retail properties and are satisfied this inclusion does not have a material impact on the valuation.
Had the property been carried at historical cost less accumulated depreciation and accumulated revaluation losses, their carrying amount would have been as follows:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Property held for own use | 14,348 | 15,237 |
Fair value hierarchy disclosures required by IFRS13 Fair Value Measurement have been included in note 18, Financial Instruments and Fair Value Measurement.
The most significant investment by the Group in recent years is in its underwriting policy administration system. The Group's policy administration system, TIA is the principal operating and core technology platform of the business.
| Policy Admin System |
|
|---|---|
| Cost | €000s |
| At 1 January 2019 | 53,377 |
| Additions | 4,414 |
| At 1 January 2020 | 57,791 |
| Additions | 4,796 |
| At 31 December 2020 | 62,587 |
| Accumulated amortisation | €000s |
| At 1 January 2019 | 13,225 |
| Amortisation charge for the year | 5,963 |
| At 1 January 2020 | 19,188 |
| Amortisation charge for the year | 6,678 |
| At 31 December 2020 | 25,866 |
| Carrying amount | |
| At 31 December 2020 | 36,721 |
| At 31 December 2019 | 38,603 |
The additions to the Policy Administration System in 2020 are split 75% internally generated assets and 25% externally generated assets (2019: 75% internally generated assets and 25% externally generated assets).
The amortisation charge for the year is included in 'Other Underwriting Expenses' in the Consolidated Income Statement.
| Computer Software |
|
|---|---|
| Cost: | €000s |
| At 1 January 2019 | 399 |
| Additions | 1,279 |
| Assets under development | 656 |
| At 1 January 2020 | 2,334 |
| Additions | 1,928 |
| Assets under development | 1,665 |
| At 31 December 2020 | 5,927 |
| Accumulated amortisation: | |
| At 1 January 2019 | 44 |
| Amortisation charge for the year | 135 |
| At 1 January 2020 | 179 |
| 648 | |
| At 31 December 2020 | 827 |
| Amortisation charge for the year |
| Carrying amount | ||
|---|---|---|
| At 31 December 2020 | 5,100 | |
| At 31 December 2019 | 2,155 |
The additions during 2020 to Intangible Assets are split 20% internally generated assets and 80% externally generated assets (2019: 10% internally generated assets and 90% externally generated assets).
Assets under development at 31 December 2020 relate to investment in digital and cloud based applications. These assets are expected to be operational in Q1 2021.
The amortisation charge for the year is included in 'Other Underwriting Expenses' in the Consolidated Income Statement.
| 2020 | 2019 | |
|---|---|---|
| Fair value of investment property | €000s | €000s |
| At 1 January | 18,693 | 18,310 |
| Net gains or losses from fair value adjustments | (1,569) | 290 |
| Refurbishment of investment property | 1,922 | – |
| Disposal of investment property | (1,995) | – |
| Reclassification from property, plant & equipment | – | 93 |
| At 31 December | 17,051 | 18,693 |
Investment property includes a commercial rental property in Dublin city centre and an immaterial holding of agricultural land in the United Kingdom. During the year commercial land held in the United Kingdom was sold.
The investment property held for rental in Ireland was valued at fair value at 31 December 2020 and at 31 December 2019 by independent external professional valuers, CB Richard Ellis, Valuation Surveyors. The valuation was prepared in accordance with RICS Valuation – Global Standards 2017 (Red Book) incorporating the IVSC International Valuation Standards issued June 2017. The valuers confirm that they have sufficient current local and national knowledge of the particular property market involved and have the skills and understanding to undertake the valuations competently.
The valuation statement received from the external professional valuers state that the valuations have been prepared on the basis of "Market Value" which they define as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion".
The Directors believe that market value, determined by independent external professional valuers, is not materially different to the fair value.
There was a net decrease in the fair value in 2020 of €1,569,000 (2019 increase: €290,000).
The rental income earned by the Group from its investment properties amounted to €962,000 (2019: €901,000). Direct operating costs associated with investment properties amounted to €652,000 (2019: €343,000).
The historical cost of investment property is as follows:
| 2020 | 2019 |
|---|---|
| €000s | €000s |
| 20,210 | 20,080 |
| – | 130 |
| 1,922 | – |
| (79) | – |
| 22,053 | 20,210 |
| 2019 | |
| €000s | €000s |
| 1,041 | 704 |
| 2,315 | 1,883 |
| 2,894 | 2,357 |
| 6,250 | 4,944 |
| 2020 |
Fair value hierarchy disclosures required by IFRS13 Fair Value Measurement have been included in note 18, Financial Instruments and Fair Value Measurement.
| Accelerated capital |
Insurance | Losses carried |
Other timing |
||
|---|---|---|---|---|---|
| allowances | contracts | forward | differences | Total | |
| €000s | €000s | €000s | €000s | €000s | |
| At 1 January 2019 | 586 | (915) | 1,240 | 170 | 1,081 |
| (Debited)/credited to Consolidated Income Statement |
(351) | 915 | (691) | 268 | 141 |
| At 31 December 2019 | 235 | – | 549 | 438 | 1,222 |
| (Debited)/credited to Consolidated Income Statement |
(235) | – | 278 | 29 | 72 |
| At 31 December 2020 | – | – | 827 | 467 | 1,294 |
A deferred taxation asset of €827,000 (2019: €549,000) has been recognised in respect of losses carried forward. The Directors have considered and are satisfied that the deferred taxation asset will be fully recoverable against future taxable profits.
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Financial Assets | ||
| At Amortised Cost: | ||
| Deposits with banks | 40,000 | 60,000 |
| Cash and cash equivalents | 129,535 | 94,982 |
| Loans | 601 | 611 |
| Other receivables | 65,402 | 63,866 |
| At fair value: | ||
| Available for sale investments | 863,880 | 811,986 |
| Investments held for trading | 116,930 | 111,399 |
| Financial Liabilities | ||
| At Amortised Cost: | ||
| Payables | 44,729 | 35,765 |
| Subordinated debt (note 27) | 49,544 | 49,485 |
| Lease liabilities | 5,843 | 6,222 |
The following table compares the carrying value of financial instruments not held at fair value with the fair value of those assets and liabilities:
| 2020 Fair value |
2020 Carrying value |
|
|---|---|---|
| €000s | €000s | |
| Assets | ||
| Loans | 721 | 601 |
| Liabilities | ||
| Subordinated debt | 53,924 | 49,544 |
| 2019 Fair value |
2019 Carrying value |
|
| €000s | €000s | |
| Assets | ||
| Loans | 733 | 611 |
| Subordinated debt | 53,148 | 49,485 |
|---|---|---|
| ------------------- | -------- | -------- |
The exemption from disclosing the fair value of short term receivables has been availed of.
Certain assets and liabilities are measured in the Statement of Financial Position at fair value using a fair value hierarchy of valuation inputs. The following table provides an analysis of assets and liabilities that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
Level 1 Fair value measurements derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| 2020 | €000s | €000s | €000s | €000s |
| Assets | ||||
| Investment property | – | – | 17,051 | 17,051 |
| Property held for own use | – | – | 15,565 | 15,565 |
| Financial assets | ||||
| Investments held for trading – collective investment schemes |
108,199 | – | 8,731 | 116,930 |
| AFS investments - quoted debt securities | 863,068 | – | – | 863,068 |
| AFS investments - unquoted investments | – | – | 812 | 812 |
| Total assets | 971,267 | – | 42,159 | 1,013,426 |
| Total liabilities | – | – | – | - |
| Level 1 | Level 2 | Level 3 | Total | |
| 2019 | €000s | €000s | €000s | €000s |
| Assets | ||||
| Investment property | – | 18,693 | – | 18,693 |
| Property held for own use | – | 16,846 | – | 16,846 |
| Financial assets | ||||
| Investments held for trading – collective investment schemes |
108,266 | – | 3,133 | 111,399 |
| AFS investments - quoted debt securities | 811,174 | – | – | 811,174 |
| AFS investments - unquoted investments | – | – | 812 | 812 |
| Total assets | 919,440 | 35,539 | 3,945 | 958,924 |
| Total liabilities | – | – | – | – |
A reconciliation of Level 3 fair value measurement of financial assets is shown in the table below:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| At 1 January | 3,945 | 623 |
| Transfers-in | 35,539 | – |
| Additions | 7,754 | 3,436 |
| Disposals | (1,995) | – |
| Impairment | (2,722) | – |
| Unrealised loss recognised in the Consolidated Income Statement | (362) | (114) |
| At 31 December | 42,159 | 3,945 |
The Directors review the inputs to asses fair value measurement at least annually to determine the appropriate level to be disclosed at. A sensitivity analysis of the Level 3 assets is completed in note 37(f).
The movements in deferred acquisition costs during the financial year were:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| At 1 January | 33,182 | 31,956 |
| Additions | 68,621 | 67,347 |
| Recognised in the Consolidated Income Statement | (67,724) | (66,121) |
| At 31 December | 34,079 | 33,182 |
All deferred acquisition costs are expected to be recovered within one year from 31 December 2020.
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Policyholders | 41,358 | 42,703 |
| Intermediaries | 6,187 | 6,853 |
| Other debtors | 11,606 | 7,659 |
| Accrued interest and rent | 34 | 30 |
| Prepayments and accrued income | 6,217 | 6,621 |
| Total other receivables | 65,402 | 63,866 |
The Directors have performed an impairment review of the receivables arising out of direct insurance operations and no objective evidence came to their attention that an impairment exists. There is no significant concentration of risk in receivables arising out of direct insurance operations or any other activities.
The Directors consider that the carrying amount of receivables is approximate to their fair value. All receivables are due within one year and none are past due.
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Short term deposits | 123,501 | 91,177 |
| Cash in hand | 6,034 | 3,805 |
| Total cash and cash equivalents | 129,535 | 94,982 |
| 2020 | 2019 | ||
|---|---|---|---|
| Number | €000s | €000s | |
| Ordinary shares of €0.60 each | |||
| Authorised: | |||
| At the beginning and the end of the year | 51,326,000 | 30,796 | 30,796 |
| Issued and fully paid: | |||
| At the beginning and the end of the year | 35,461,206 | 21,277 | 21,277 |
| 'A' Ordinary shares of €0.01 each | |||
| Authorised: | |||
| At the beginning and the end of the year | 120,000,000 | 1,200 | 1,200 |
| Issued and fully paid: | |||
| At the beginning and the end of the year | 13,169,428 | 132 | 132 |
| Total – issued and fully paid | 21,409 | 21,409 |
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 holders of the two classes of non-cumulative preference shares rank ahead of the two classes of ordinary shares in the event of a winding up (see note 24). Before any dividend can be declared on the ordinary shares of €0.60 each, the dividend on the non-cumulative preference shares must firstly be declared or paid.
The number of ordinary shares of €0.60 each held as treasury shares at the beginning of the year (and the maximum number held during the year) was 598,742 (2019: 795,005). 189,998 ordinary shares were re-issued from treasury shares during the year under the FBD Performance Plan. The number of ordinary shares of €0.60 each held as treasury shares at the end of the year was 408,744 (2019: 598,742). This represented 1.2% (2019: 1.7%) of the shares of this class in issue and had a nominal value of €245,246 (2019: €359,245). There were no ordinary shares of €0.60 each purchased by the Company during the year.
The weighted average number of ordinary shares of €0.60 each in the earnings per share calculation has been reduced by the number of such shares held in treasury.
All issued shares have been fully paid.
| Share premium |
Capital conversion reserve |
Capital redemption reserve |
Share-based payment reserve |
Total | |
|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | |
| Balance at 1 January 2019 | 5,540 | 1,627 | 4,426 | 8,837 | 20,430 |
| Recognition of share-based payments | – | – | – | 2,381 | 2,381 |
| Balance at 31 December 2019 | 5,540 | 1,627 | 4,426 | 11,218 | 22,811 |
| Recognition of share-based payments | – | – | – | 1,945 | 1,945 |
| Balance at 31 December 2020 | 5,540 | 1,627 | 4,426 | 13,163 | 24,756 |
| Share premium |
Capital conversion reserve |
Capital redemption reserve |
Share-based payment reserve |
Total | |
|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | |
| Balance at 1 January 2019 | 5,540 | 1,627 | 4,426 | 8,837 | 20,430 |
| Recognition of share-based payments | – | – | – | 2,381 | 2,381 |
| Balance at 31 December 2019 | 5,540 | 1,627 | 4,426 | 11,218 | 22,811 |
| Recognition of share-based payments | – | – | – | 1,945 | 1,945 |
| Balance at 31 December 2020 | 5,540 | 1,627 | 4,426 | 13,163 | 24,756 |
The capital conversion reserve arose on the redenomination of Company's ordinary shares, 14% non-cumulative preference shares and 8% non-cumulative preference shares of IR£0.50 each into ordinary shares, 14% non-cumulative preference shares and 8% non-cumulative preference shares of 63.4869 cent. Each such share was then renominalised to an ordinary or a non-cumulative preference share of €0.60, an amount equal to the reduction in the issued share capital being transferred to the capital conversion reserve fund.
Capital redemption reserve arose on the buyback and cancellation of issued share capital.
Share-based payment reserve arose on the recognition of share-based payments.
| 2020 | 2019 | ||
|---|---|---|---|
| Number | €000s | €000s | |
| Authorised: | |||
| At the beginning and the end of the year | |||
| 14% Non-cumulative preference shares of €0.60 each | 1,340,000 | 804 | 804 |
| 8% Non-cumulative preference shares of €0.60 each | 12,750,000 | 7,650 | 7,650 |
| 8,454 | 8,454 | ||
| Issued and fully paid: | |||
| At the beginning and the end of the year | |||
| 14% Non-cumulative preference shares of €0.60 each | 1,340,000 | 804 | 804 |
| 8% Non-cumulative preference shares of €0.60 each | 3,532,292 | 2,119 | 2,119 |
| 2,923 | 2,923 |
The rights attaching to each class of share capital are set out in the Company's Articles of Association. In the event of the Company being wound up, the holders of the 14% non-cumulative preference shares rank ahead of the holders of the 8% non-cumulative preference shares, who in turn, rank ahead of the holders of both the 'A' ordinary shares of €0.01 each and the holders of the ordinary shares of €0.60 each.
| MS OUTSTANDING | |
|---|---|
| CLAI | |
| 25 | |
(a) Gross claims outstanding 2020
Prior
| years | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | |
| Estimate of cumulative claims: | ||||||||||||
| At end of underwriting year | 243,158 | 232,311 | 245,007 | 307,517 | 302,581 | 253,962 | 247,145 | 252,435 | 219,244 | 371,639 | ||
| One year later | 216,308 | 215,445 | 236,839 | 342,422 | 304,108 | 235,972 | 223,322 | 235,902 | 198,195 | – | ||
| Two years later | 225,300 | 224,720 | 266,183 | 344,123 | 326,052 | 220,376 | 205,505 | 212,647 | – | – | ||
| Three years later | 230,001 | 235,965 | 260,580 | 333,544 | 318,467 | 206,578 | 196,235 | – | – | – | ||
| Four years later | 234,204 | 233,434 | 257,859 | 326,714 | 288,395 | 192,022 | – | – | – | – | ||
| Five years later | 227,755 | 231,159 | 244,922 | 318,944 | 275,014 | – | – | – | – | – | ||
| Six years later | 226,348 | 229,271 | 243,163 | 312,800 | – | – | – | – | – | – | ||
| Seven years later | 224,753 | 228,677 | 237,930 | – | – | – | – | – | – | – | ||
| Eight years later | 224,264 | 225,397 | – | – | – | – | – | – | – | – | ||
| Nine years later | 222,963 | – | – | – | – | – | – | – | – | – | ||
| Ten years later | – | – | – | – | – | – | – | – | – | – | ||
| Estimate of cumulative claims | 222,963 | 225,397 | 237,930 | 312,800 | 275,014 | 192,022 | 196,235 | 212,647 | 198,195 | 371,639 | ||
| Cumulative payments | (216,912) (212,307) (222,351) (272,410) (208,870) (145,772) (125,902) (117,293) | (80,768) | (67,877) | |||||||||
| Claims outstanding at 31 December 2020: |
20,036 | 6,051 | 13,090 | 15,579 | 40,390 | 66,144 | 46,250 | 70,333 | 95,354 | 117,427 | 303,762 | 794,416 |
| Claims outstanding at 31 December 2019: |
24,821 | 8,622 | 17,976 | 27,639 | 52,766 | 93,287 | 72,113 | 90,546 | 132,594 | 162,968 | – | 683,332 |
| Movement during year | (4,785) | (2,571) | (4,886) | (12,060) | (12,376) | (27,143) | (25,863) | (20,213) | (37,240) | (45,541) | 303,762 | 111,084 |
Governance
| MS OUTSTANDING (continued) CLAI |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ms outstanding 2020 Net clai |
||||||||||||
| Prior years |
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |
| €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | €000s | |
| Estimate of cumulative claims: | ||||||||||||
| At end of underwriting year | 214,923 | 214,793 | 228,819 | 256,663 | 270,279 | 228,107 | 212,750 | 228,501 | 206,343 | 265,748 | ||
| One year later | 192,904 | 201,171 | 217,098 | 292,223 | 274,000 | 219,905 | 199,086 | 216,210 | 192,984 | – | ||
| Two years later | 201,181 | 210,422 | 243,373 | 295,223 | 284,636 | 205,320 | 186,058 | 203,584 | – | – | ||
| Three years later | 205,434 | 221,438 | 237,733 | 290,243 | 275,909 | 190,732 | 180,938 | – | – | – | ||
| Four years later | 209,533 | 218,979 | 233,750 | 283,929 | 262,801 | 184,554 | – | – | – | – | ||
| Five years later | 205,131 | 217,104 | 226,331 | 275,559 | 256,358 | – | – | – | – | – | ||
| Six years later | 204,140 | 215,179 | 224,386 | 271,945 | – | – | – | – | – | – | ||
| Seven years later | 202,480 | 214,396 | 221,848 | – | – | – | – | – | – | – | ||
| Eight years later | 201,897 | 212,037 | – | – | – | – | – | – | – | – | ||
| Nine years later | 201,025 | – | – | – | – | – | – | – | – | – | ||
| Ten years later | ||||||||||||
| Estimate of cumulative claims | 201,025 | 212,037 | 221,848 | 271,945 | 256,358 | 184,554 | 180,938 | 203,584 | 192,984 | 265,748 | ||
| Cumulative payments | (194,589) (198,115) (205,318) (230,114) (192,655) (136,888) (117,702) (112,425) | (80,777) | (67,682) | |||||||||
| Claims outstanding at 31 December 2020 |
16,901 | 6,436 | 13,922 | 16,530 | 41,831 | 63,703 | 47,666 | 63,236 | 91,159 | 112,207 | 198,066 | 671,657 |
| Claims outstanding at 31 December 2019 |
20,709 | 8,578 | 17,887 | 24,492 | 51,678 | 83,022 | 63,836 | 79,260 | 117,632 | 149,889 | – | 616,983 |
| Movement during the year | (3,808) | (2,142) | (3,965) | (7,962) | (9,847) | (19,319) | (16,170) | (16,024) | (26,473) | (37,682) | 198,066 | 54,674 |
Full provision, net of reinsurance recoveries, is made at the reporting date for the estimated cost of claims incurred but not settled, including claims incurred but not yet reported and expenses to be incurred after the reporting date in settling those claims. The Group takes all reasonable steps to ensure that it has appropriate information regarding notified claims and uses this information when estimating the cost of those claims.
The Group uses estimation techniques, based on statistical analysis of past experience, to calculate the estimated cost of claims outstanding at the year end. It is assumed that the development pattern of the current claims will be consistent with previous experience. Allowance is made, however, for any changes or uncertainties that may cause the cost of unsettled claims to increase or reduce. These changes or uncertainties may arise from issues such as the effects of inflation, changes in the mix of business or the legal environment.
At each reporting date, liability adequacy tests are performed to ensure the adequacy of the insurance liabilities. In performing these tests, current best estimates of future cash flows and claims handling and administration expenses are used. Any deficiency is immediately recognised in the Consolidated Income Statement.
Included in the gross claims outstanding balance at 31 December 2020 is €149,000,000 gross claims costs (including legal and other expenses ) for Covid-19 business interruption claims. The best estimate net claims outstanding impact is €54,000,000 and is included in the net claims provision shown below. Further details regarding the business interruption claims provision and reinsurance assets are included in note 3 (U).
| Gross | Net | |
|---|---|---|
| €000s | €000s | |
| Balance at 1 January 2019 | 738,025 | 657,106 |
| Change in provision for claims | (54,693) | (40,123) |
| Balance at 31 December 2019 | 683,332 | 616,983 |
| Change in provision for claims | 111,084 | 54,674 |
| Balance at 31 December 2020 | 794,416 | 671,657 |
The following changes have occurred in the provision for unearned premium during the year:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Balance at 1 January | 183,545 | 182,875 |
| Net premium written | 315,196 | 338,227 |
| Net premium earned | (315,232) | (337,553) |
| Changes in provision for unearned premium – reinsurers' share | 1,032 | (4) |
| Provision for unearned premium at 31 December | 184,541 | 183,545 |
| Claims outstanding |
Unearned premium reserve |
||
|---|---|---|---|
| €000s | €000s | ||
| Balance at 1 January 2019 | 80,919 | 6 | |
| Movement during year | (14,570) | (5) | |
| Balance at 31 December 2019 | 66,349 | 1 | |
| Movement during year | 56,411 | 1,032 | |
| Balance at 31 December 2020 | 122,760 | 1,033 |
| Premium rebates |
MIICF contribution |
MIBI levy | Total | |
|---|---|---|---|---|
| €000s | €000s | €000s | €000s | |
| Balance as at 1 January 2019 | – | – | 7,738 | 7,738 |
| Provided in the year | – | 3,857 | 4,089 | 7,946 |
| Net amounts paid | – | (205) | (7,062) | (7,267) |
| Balance as at 31 December 2019 | – | 3,652 | 4,765 | 8,417 |
| Provided in the year* | 11,817 | 3,609 | 6,072 | 21,498 |
| Net amounts paid | (9,790) | (3,652) | (4,406) | (17,848) |
| Balance as at 31 December 2020 | 2,027 | 3,609 | 6,431 | 12,067 |
*Premium rebates of €11,817,000 are included in Gross premium written, and MIICF and MIBI amounts of €9,790,000 are included in Movement in other provisions, both in the Consolidated Income Statement.
FBD committed to rebating Motor policy and certain elements of Commercial policy premiums to reflect the changing claims environment and enforced restrictions as a result of the Covid-19 pandemic. The total amount of premium rebates provided for in the year was €11,817,000 of which €9,790,000 was paid to 31 December 2020. The remaining €2,027,000 provision represents a best estimate of the remaining Commercial rebates due in respect of 2020.
The Group's contribution to the Motor Insurers' Insolvency Compensation Fund "MIICF" for 2020 is based on 2% of its Motor Gross Written Premium. Payment is expected to be made in the first half of 2021.
The Group's share of the Motor Insurers' Bureau of Ireland "MIBI" levy for 2020 is based on its estimated market share in the current year at the Statement of Financial Position date. Payments of the total amount provided is paid in equal instalments throughout the year.
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Balance at 1 January | 49,485 | 49,426 |
| Amortised during the year | 59 | 59 |
| Balance at 31 December | 49,544 | 49,485 |
The amount relates to €50,000,000 Callable Dated Deferrable Subordinated Notes due 2028. The coupon rate on the notes is 5%. Interest costs associated with the subordinated notes totalling €2,500,000 (2019: €2,500,000) were incurred and recognised during 2020.
The Group operates defined contribution retirement benefit plans for qualifying employees who opt to join. The assets of the plans are held separately from those of the Group in funds under the control of Trustees. The Group recognised an expense of €4,693,562 (2019: €3,513,401) relating to these pension schemes during the year ended 31 December 2020.
The Group also operates a legacy funded defined benefit retirement pension scheme for certain qualifying employees. This scheme was closed to new members in 2005 and closed to future accrual in 2015. The defined benefit pension scheme is administered by a separate Trustee Company that is legally separated from the entity. The Trustee Company, who is responsible for ensuring compliance with the Pensions Act 1990 and other relevant legislation, is composed of an independent Trustee and representatives from both the employers and current and former employees. The Trustees are required by law and by its Articles of Association to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. deferred members, retirees and employers. They are responsible for the investment policy with regard to the assets of the scheme.
Under the defined benefit pension scheme, qualifying members are entitled to retirement benefits of 1/60th of final salary for each year of service on attainment of a retirement age of 65. A full actuarial valuation of the defined benefit pension scheme was carried out as at 1 July 2019. This valuation was carried out using the projected unit credit method. The minimum funding standard was updated to 31 December 2020 by the schemes' independent and qualified actuary. This confirms that the Scheme continues to satisfy the minimum funding standard. The next full actuarial valuation of the scheme is expected to be completed no later than as at 1 July 2022.
The long-term investment objective of the Trustees and the Group is to limit the risk of the assets failing to meet the liabilities of the scheme over the long term, and to maximise returns consistent with an acceptable level of risk so as to control the long-term costs of the scheme. To meet these objectives, the scheme's assets are primarily invested in bonds with a smaller level of investment in diversified growth funds and property. These reflect the current long-term asset allocation ranges, having regard to the structure of liabilities within the scheme. The scheme typically exposes the Group to actuarial risks such as: investment risk, interest rate risk and longevity risk.
| 2020 | 2019 | |
|---|---|---|
| % | % | |
| Inflation rate | 1.20 | 1.30 |
| Pension payment increase | 0.00 | 0.00 |
| Discount rate | 0.50 | 0.90 |
| 2020 | 2019 | |
|---|---|---|
| Years | Years | |
| The average life expectancy of current and future retirees used in the scheme at age 65 is as follows: |
||
| Male | 21.8 | 21.7 |
| Female | 24.2 | 24.1 |
When taking into account members who have not yet retired and those who are currently in receipt of pensions, the weighted average duration of the expected benefit payments from the scheme is circa 16 years.
As required by IAS 19 disclosures; the discount rate is set by reference to yields available at 31 December 2020 on high quality corporate bonds having regard to the duration of the schemes liabilities. The actual return on the scheme assets for the year was a gain of €7,796,000 (2019: €9,764,000).
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Charged to Consolidated Income Statement: | ||
| Service cost: employer's part of current service cost | 391 | 338 |
| Net interest credit | (81) | (233) |
| Charge to Consolidated Income Statement | 310 | 105 |
Charges to the Consolidated Income Statement have been included in other underwriting and financial services and other costs.
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Remeasurements in the year due to: | ||
| – Changes in financial assumptions | 5,595 | 11,173 |
| – Experience adjustments on benefit obligations | (1,031) | 1,120 |
| Actual return less interest on scheme assets | (6,890) | (8,057) |
| Total amount recognised in OCI before taxation | (2,326) | 4,236 |
| Deferred taxation debit/(credit) | 291 | (530) |
| Actuarial (gain)/loss net of deferred taxation | (2,035) | 3,706 |
| 2020 | 2019 | 2018 | 2017 | 2016 | |
|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | |
| Present value of defined benefit obligations | 94,927 | 93,958 | 83,434 | 88,103 | 90,887 |
| Fair value of plan assets | 105,776 | 102,681 | 96,378 | 97,877 | 99,602 |
| Net pension (asset)/liability | (10,849) | (8,723) | (12,944) | (9,774) | (8,715) |
| Experience gains/(losses) on scheme liabilities | 1,031 | (1,120) | 999 | 150 | (266) |
| Total amount recognised in OCI before taxation | 2,326 | (4,236) | 3,232 | 275 | (12,233) |
The cumulative charge to the Consolidated Statement of Comprehensive Income is €102,480,000 (2019: €104,806,000).
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Managed bond funds - fair value at quoted prices | 87,108 | 84,561 |
| Managed unit trust funds - fair value at quoted prices | 5,173 | 5,169 |
| Managed infrastructure fund - fair value at unquoted prices | 5,442 | 5,419 |
| Managed dividend growth fund - fair value at quoted prices | 4,642 | 4,291 |
| Managed opportunities fund - fair value at quoted prices | 2,610 | 2,629 |
| Cash deposits and other - at amortised cost | 801 | 612 |
| Scheme assets | 105,776 | 102,681 |
| Actuarial value of liabilities | (94,927) | (93,958) |
| Net pension surplus | 10,849 | 8,723 |
The assets are part of unitised funds which have a broad geographical and industry type spread with no significant concentration in any one geographical or industry type.
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Net surplus in scheme at 1 January | 8,723 | 12,944 |
| Current service cost | (391) | (338) |
| Employer contributions | 120 | 120 |
| Interest on scheme liabilities | (835) | (1,474) |
| Interest on scheme assets | 906 | 1,707 |
| Total amount recognised in OCI before taxation | 2,326 | (4,236) |
| Net surplus at 31 December | 10,849 | 8,723 |
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Assets | ||
| Assets in scheme at 1 January | 102,681 | 96,378 |
| Actual return less interest on scheme assets | 6,890 | 8,057 |
| Employer contributions | 120 | 120 |
| Interest on scheme assets | 906 | 1,707 |
| Benefits paid | (4,821) | (3,581) |
| Assets in scheme at 31 December | 105,776 | 102,681 |
| Liabilities | ||
| Liabilities in scheme at 1 January | 93,958 | 83,434 |
| Experience gains and losses on scheme liabilities | (1,031) | 1,120 |
| Changes in financial assumptions | 5,595 | 11,173 |
| Current service cost | 391 | 338 |
| Interest on scheme liabilities | 835 | 1,474 |
| Benefits paid | (4,821) | (3,581) |
| Liabilities in scheme at 31 December | 94,927 | 93,958 |
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are as follows:
| Retirement benefit surplus |
Unrealised gains on investments & loans |
Revaluation surplus on investment properties |
Other timing differences |
Total | |
|---|---|---|---|---|---|
| €000s | €000s | €000s | €000s | €000s | |
| At 1 January 2019 | 1,618 | 325 | 1,329 | 338 | 3,610 |
| (Credited)/debited to the Consolidated Statement of Comprehensive Income |
(530) | 1,366 | – | – | 836 |
| Debited/(credited) to the Consolidated Income Statement |
1 | (46) | 502 | 2 | 459 |
| At 31 December 2019 | 1,089 | 1,645 | 1,831 | 340 | 4,905 |
| Debited to the Consolidated Statement of Comprehensive Income |
291 | 563 | – | 140 | 994 |
| Credited to the Consolidated Income Statement | (20) | – | (444) | (14) | (478) |
| At 31 December 2020 | 1,360 | 2,208 | 1,387 | 466 | 5,421 |
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Amounts falling due within one year: | ||
| Payables and accruals | 26,025 | 28,348 |
| PAYE/PRSI | 1,403 | 1,674 |
| Payables arising out of direct insurance operations | 17,301 | 5,743 |
| Total payables | 44,729 | 35,765 |
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Amounts falling due within one year: | ||
| Payables and accruals | 2,555 | 2,648 |
| Total payables | 2,555 | 2,648 |
Governance
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Paid during year: | ||
| 2019 dividend of 0.0 cent (2018: 8.4 cent) per share on 14% non-cumulative preference shares of €0.60 each |
– | 113 |
| 2019 dividend of 0.0 cent (2018: 4.8 cent) per share on 8% non-cumulative preference shares of €0.60 each |
– | 169 |
| 2019 final dividend of 0.0 cent (2018: 50.0 cent) per share on ordinary shares of €0.60 each |
– | 17,432 |
| Total dividends paid | – | 17,714 |
| 2020 | 2019 | |
| €000s | €000s | |
| Proposed: | ||
| 2020 dividend of 0.0 cent (2019: 8.4 cent) per share on 14% non-cumulative preference shares of €0.60 each |
– | 113 |
| 2020 dividend of 0.0 cent (2019: 4.8 cent) per share on 8% non-cumulative preference shares of €0.60 each |
– | 169 |
| 2020 final dividend of 0.0 cent (2019: 100.0 cent) per share on ordinary shares of €0.60 each |
– | 34,862 |
The 2019 dividend was not paid due to uncertainty in respect of Covid-19 and following regulatory guidance issued to insurance companies. Given the continuing uncertainty prevailing, the Board continues to believe that capital preservation is paramount and therefore no dividend is being proposed at this time. The Board will however keep the matter of capital return to shareholders under continuous review.
| (a) Subsidiaries | Nature of Operations | % Owned |
|---|---|---|
| FBD Insurance plc | General insurance underwriter | 100% |
| FBD Insurance Group Limited | Investment services, pensions and life brokers | 100% |
| FBD Corporate Services Limited | Employee services company | 100% |
The Registered Office of each of the above subsidiaries is at FBD House, Bluebell, Dublin 12.
All shareholdings are in the form of ordinary shares.
The financial year end for the Group's principal subsidiaries is 31 December.
FBD Holdings plc is an Irish registered public limited company. The Company's ordinary shares of €0.60 each are listed on Euronext Dublin and the UK Listing Authority and are traded on both Euronext Dublin and London Stock Exchange.
All individual subsidiary's financial statements are prepared in accordance with FRS 102, the financial reporting standard applicable in the UK and Republic of Ireland with the exception of FBD Insurance plc whose financial statements are prepared in accordance with International Financial Reporting Standards ("IFRSs") adopted by the European Union, in preparation for the adoption of IFRS 17 Insurance Contracts from 1 January 2023 by the Group.
There are no capital commitments at the financial year end (2019: €nil).
There were no contingent liabilities or contingent assets at either 31 December 2020 or 31 December 2019.
Conditional awards of ordinary shares are made under the FBD Group Performance Share Plan ("LTIP"). The LTIP was last approved by the shareholders of FBD Holdings plc at the 2018 AGM.
Conditional awards up to 2016 under the LTIP were dependent on the Group meeting onerous performance targets in terms of total shareholder returns, combined operating ratio, business scorecard metrics and share price performance (market conditions). The market conditions were removed from conditional awards in 2017 and subsequent years which are solely based on the non-market conditions as detailed. The extent to which these conditions have been met and any award (or part of an award) has therefore vested will be determined in due course by the Remuneration Committee of the Board of FBD Holdings plc. Further detail on the LTIP is available within the Report on Directors' Remuneration on pages 66 to 78.
The fair values of the below listed conditional share awards have been calculated using the assumptions noted in a Monte Carlo simulation model.
| LTIP award October 2015 |
LTIP award March 2016 |
|
|---|---|---|
| Share price at grant | €6.65 | €6.55 |
| Initial award price | €6.65 | €6.55 |
| Expected volatility | 35.0% | 35.0% |
| Expected life in years | 3 | 3 |
| Risk free interest rate | 0.0% | 0.0% |
| Expected dividend yield % | n/a | n/a |
| Fair value | €5.39 | €5.25 |
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous two to three years preceding the date of grant.
The fair value of the LTIP awards for 2017, 2018, 2019 and 2020 were determined to be equal to the share price at the grant date on the basis that no market conditions were attached to these awards.
Accounting charge for share based payments
| Grant date | Number outstanding at 1 January 2020 |
Granted during year |
Vested during year |
Lapsed during year |
Forfeited during year |
Number outstanding at 31 December 2020 |
Performance Period |
Earliest vesting date |
|---|---|---|---|---|---|---|---|---|
| 28.03.2017 LTIP | 190,501 | – | (189,998) | (503) | – | - | 2017-2019 | Mar-20 |
| 23.08.2018 LTIP | 204,069 | – | – | – | (8,390) | 195,679 | 2018-2020 | Aug-21 |
| 25.03.2019 LTIP | 264,134 | – | – | – | (21,242) | 242,892 | 2019-2021 | Mar-22 |
| 24.04.2020 LTIP | – | 381,573 | – | – | (42,484) | 339,089 | 2020-2022 | Apr-23 |
| Total | 658,704 | 381,573 | (189,998) | (503) | (72,116) | 777,660 |
| Grant date | Vesting period (years) |
Number outstanding at 31 December 2020 |
% of shares expected to vest |
Share price at grant date |
Fair value of share award at grant date |
2020 | 2019 |
|---|---|---|---|---|---|---|---|
| % | € | € | €000s | €000s | |||
| 09.10.2015 LTIP | 3 | – | 0% | 6.65 | 5.39 | – | 56 |
| 23.03.2016 LTIP | 3 | – | 0% | 6.55 | 5.25 | – | 220 |
| 28.03.2017 LTIP | 3 | – | 90% | 7.95 | 7.95 | 92 | 483 |
| 23.08.2018 LTIP | 3 | 195,679 | 125% | 10.80 | 10.80 | 762 | 1,009 |
| 25.03.2019 LTIP | 3 | 242,892 | 125% | 8.79 | 8.79 | 878 | 613 |
| 24.04.2020 LTIP | 3 | 339,089 | 25% | 6.12 | 6.12 | 213 | – |
| Total | 777,660 | 1,945 | 2,381 |
During the financial year 189,998 shares of the March 2017 award vested, with a value of €1,366,000.
The Directors' estimate 125% of the August 2018 awards will vest, 125% of the March 2019 awards will vest and 25% of the April 2020 awards will vest.
Farmer Business Developments plc and FBD Trust Company Ltd have a substantial shareholding in the Group at 31 December 2020. Details of their shareholdings and related party transactions are set out in the Report of the Directors on page 47.
Both companies have subordinated debt investment in the Group. Farmer Business Developments holds a €20.0m investment and FBD Trust Ltd holds a €13.0m investment. Interest payments are made to both companies on a quarterly basis in proportion to their holding. Please refer to note 27 for further details.
At 31 December 2020 the intercompany balance with other subsidiaries was €3,462,000 (2019: €3,755,000).
For the purposes of the disclosure requirements of IAS 24, the term "key management personnel" (i.e. those persons having authority and responsibility for planning, directing and controlling the activities of the Group) comprises the Board of Directors and Company Secretary of FBD Holdings plc and the Group's primary subsidiary, FBD Insurance plc and the members of the Executive Management Team.
The remuneration of key management personnel ("KMP") during the year was as follows:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Short term employee benefits1 | 3,801 | 3,501 |
| Post-employment benefits | 295 | 305 |
| Share based payments | 1,012 | 993 |
| Charge to the Consolidated Income Statement | 5,108 | 4,799 |
1 Short term benefits include fees to Non-Executive Directors, salaries and other short-term benefits to all key management personnel.
Full disclosure in relation to the 2020 and 2019 compensation entitlements and share awards of the Board of Directors is provided in the Report on Directors' Remuneration.
In common with all shareholders, Directors received payments/distributions related to their holdings of shares in the Company during the year, amounting in total to €0 (2019: €27,830).
The Group is committed to managing its capital to ensure it is adequately capitalised at all times and to maximise returns to shareholders. The capital of the Group comprises of issued capital, reserves and retained earnings as detailed in notes 22 to 24. The Group has an Investment Committee, a Pricing & Underwriting Committee, a Capital Management Forum, an Audit Committee, a Reserving Committee and Board and Executive Risk Committees, all of which assist the Board in the identification and management of exposures and capital.
The Group maintained its capital position and complied with all regulatory solvency margin requirements throughout both the year under review and the prior year. In 2020, the Group maintained its Solvency Capital Requirement (SCR) coverage above its target range of 150-170% of SCR.
An experienced Actuarial team is in place with policies and procedures to ensure that Technical Provisions are calculated in an appropriate manner and represent a best estimate. Technical Provisions are internally peer reviewed every quarter, audited once a year and subject to external peer review every two years.
An approved Reinsurance Programme is in place to minimise the solvency impact of Catastrophe events to the Group.
The annual ORSA provides a comprehensive view and understanding of the risks to which the Group is exposed or could face in the future and how they translate into capital needs or alternatively require mitigation actions.
The CFO is responsible for consideration of the implications for the capital position as part of the strategic planning process and key strategic decision-making and for ensuring appropriate action is taken as approved by the Board/CEO/relevant committee.
On at least an annual basis, a target range for its SCR Ratio, developed as part of the annual planning/budgeting process, is approved by the Board as part of the Risk Appetite Statements in the Risk Appetite Framework.
The Group also devotes considerable resources to managing its relationships with the providers of capital within the capital markets, for example, existing and potential shareholders, financial institutions, stockbrokers and corporate finance houses.
The Group is exposed to daily calls on its cash resources, mainly for claims payments. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring that the maturity profile of its financial assets is well matched to the maturity profile of its liabilities and maintaining a minimum cash amount available on short term access at all times.
The following tables provide an analysis of assets and liabilities into their relevant maturity groups based on the remaining period to contractual maturity. The contracted value below is the undiscounted cash flow.
| Carrying value total |
Contracted Value |
Cashflow within 1 year |
Cashflow 1-5 years |
Cashflow after 5 years |
|
|---|---|---|---|---|---|
| Assets – 2020 | €000s | €000s | €000s | €000s | €000s |
| Financial assets | 1,019,998 | 1,019,134 | 248,579 | 533,786 | 236,769 |
| Reinsurance assets | 123,793 | 123,793 | 101,398 | 19,723 | 2,672 |
| Loans and receivables | 66,003 | 66,003 | 66,003 | – | – |
| Cash and cash equivalents | 129,535 | 129,535 | 129,535 | – | – |
| Total | 1,339,329 | 1,338,465 | 545,515 | 553,509 | 239,441 |
| Liabilities – 2020 | |||||
| Insurance contract liabilities | 978,957 | 978,957 | 351,962 | 533,641 | 93,354 |
| Payables | 44,729 | 44,729 | 44,729 | – | – |
| Other provisions | 12,067 | 12,067 | 12,067 | – | – |
| Subordinated bond* | 49,544 | 70,000 | 2,500 | 10,000 | 57,500 |
| Total | 1,085,297 | 1,105,753 | 411,258 | 543,641 | 150,854 |
*See note 27
| Carrying value total |
Contracted Value |
Cashflow within 1 year |
Cashflow 1-5 years |
Cashflow after 5 years |
|
|---|---|---|---|---|---|
| Assets – 2019 | €000s | €000s | €000s | €000s | €000s |
| Financial assets | 982,573 | 992,585 | 287,475 | 567,255 | 137,855 |
| Reinsurance assets | 66,350 | 66,350 | 19,701 | 37,854 | 8,795 |
| Loans and receivables | 64,477 | 64,477 | 64,477 | – | – |
| Cash and cash equivalents | 94,982 | 94,982 | 94,982 | – | – |
| Total | 1,208,382 | 1,218,394 | 466,635 | 605,109 | 146,650 |
| Liabilities – 2019 |
| Total | 960,544 | 983,559 | 329,733 | 485,893 | 167,933 |
|---|---|---|---|---|---|
| Subordinated bond* | 49,485 | 72,500 | 2,500 | 10,000 | 60,000 |
| Other provisions | 8,417 | 8,417 | 8,417 | – | – |
| Payables | 35,765 | 35,765 | 35,765 | – | – |
| Insurance contract liabilities | 866,877 | 866,877 | 283,051 | 475,893 | 107,933 |
*See note 27
The Group has invested in term deposits, listed debt securities, investment property and externally managed collective investment schemes which provide exposure to a broad range of asset classes. These investments are subject to market risk, whereby the value of the investments may fluctuate as a result of changes in market prices, changes in market interest rates or changes in the foreign exchange rates of the currency in which the investments are denominated. The extent of the exposure to market risk is managed by the formulation of, and adherence to, an Investment Policy incorporating clearly defined investment limits and rules, as approved annually by the Board of Directors and employment of appropriately qualified and experienced personnel and external investment management specialists to manage the Group's investment portfolio. The overriding philosophy of the investment policy is to protect and safeguard the Group's assets and to ensure its capacity to underwrite is not put at risk.
Interest rate and spread risk arises primarily from the Group's investments in listed debt securities and deposits and their movement relatively to the Group's liabilities. The Group reviews its exposure to interest rate and spread risk on a quarterly basis by conducting an asset liability matching analysis. As part of this analysis it monitors the movement in assets minus liabilities for defined interest rate stresses and ensures that they remain within set limits as laid out in its Asset Liability Management policy. Similar monitoring is done for spread risk.
At 31 December 2020, the Group held the following deposits and listed debt securities:
| 2020 | 2019 | |||
|---|---|---|---|---|
| Market Value |
Weighted average interest rate |
Market Value |
Weighted average interest rate |
|
| €000s | % | €000s | % | |
| Time to maturity | ||||
| In one year or less | 140,609 | 0.84 | 169,259 | 1.81 |
| In more than one year, but not more than two years | 201,410 | 1.13 | 148,245 | 0.88 |
| In more than two years, but not more than three years | 161,056 | 1.00 | 185,279 | 1.21 |
| In more than three years, but not more than four years | 83,953 | 1.21 | 157,866 | 1.11 |
| In more than four years, but not more than five years | 64,299 | 1.13 | 67,902 | 1.35 |
| More than five years | 251,741 | 1.17 | 142,623 | 1.20 |
| Total | 903,068 | 871,174 |
The Group is subject to equity price risk due to its holdings in collective investment schemes which invest in equities.
The amounts exposed to equity price risk at the reporting date are:
| 2020 | 2019 | |
|---|---|---|
| €000s | €000s | |
| Equity exposure | 48,931 | 45,714 |
The Group does not directly hold investment assets in foreign currencies; however, it does have exposure to non-euro exchange rate fluctuations through its collective investment scheme holdings. The underlying exposure to foreign currency is as follows.
| 2020 | 2019 | |
|---|---|---|
| Assets | €000s | €000s |
| Emerging Markets1 | 11,238 | 32,928 |
| USD | 9,600 | 4,554 |
| Other OECD | 435 | 743 |
1 The Emerging Markets currency exposure is achieved through the collective investment schemes and is highly diversified. The largest exposure to any one currency as at 31 December 2020 was €2.8m in Hong Kong Dollars.
The Group did not directly hold any derivative instruments at 31 December 2020 or 31 December 2019.
Credit risk is the risk of loss in the value of financial assets due to counterparties failing to meet all or part of their obligations.
Financial assets are graded according to current credit ratings issued by the main credit rating agencies. Investment grade financial assets are classified within the range of AAA to BBB ratings. Financial assets which fall outside this range are classified as speculative grade. All of the Group's bank deposits are with financial institutions which have a minimum A- rating. The Group holds the following listed Government bonds (average credit rating: A) and listed corporate bonds (average credit rating: A-), with the following credit profile:
| 2020 | 2019 | ||||
|---|---|---|---|---|---|
| Market Value |
Weighted Average Duration |
Market value |
Weighted Average Duration |
||
| €000s | €000s | ||||
| Government bonds | |||||
| AAA | 47,166 | 1.5 | 54,997 | 1.1 | |
| AA+ | 8,113 | 2.2 | 21,306 | 3.6 | |
| AA | 69,101 | 4.6 | 42,579 | 5.4 | |
| A+ | 40,700 | 1.2 | 41,060 | 2.2 | |
| BBB+ | 72,624 | 6.0 | 71,236 | 6.9 | |
| BBB- | 73,171 | 5.8 | 71,178 | 2.8 | |
| Total | 310,875 | 4.2 | 302,356 | 3.8 | |
| Corporate Bonds | |||||
| AAA | 915 | 0.7 | 937 | 1.7 | |
| AA+ | 3,046 | 1.4 | – | – | |
| AA | 11,688 | 2.4 | 12,508 | 1.5 | |
| AA- | 39,454 | 2.0 | 45,509 | 1.9 | |
| A+ | 55,059 | 2.4 | 45,133 | 2.1 | |
| A | 76,189 | 2.5 | 68,909 | 2.2 | |
| A- | 91,141 | 2.7 | 96,016 | 2.8 | |
| BBB+ | 117,030 | 2.7 | 109,077 | 2.5 | |
| BBB | 118,484 | 3.0 | 100,812 | 2.9 | |
| BBB- | 39,187 | 2.4 | 29,917 | 2.6 | |
| Total | 552,193 | 2.6 | 508,818 | 2.5 |
All of the Group's current reinsurers either have a credit rating of A- or better. The Group has assessed these credit ratings and security as being satisfactory in diminishing the Group's exposure to the credit risk of its reinsurance receivables. At 31 December 2020, the maximum balance owed to the Group by an individual reinsurer, including reinsurers' share of insurance contract liabilities not yet called, was €25,639,000 (2019: €11,295,000).
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group's most significant exposure to credit risk. There are no financial assets past due but not impaired.
Receivables arising out of direct insurance operations are considered by the Directors to have low credit risk and therefore no provision for bad or doubtful debts has been made. All other receivables are due within one year and none are past due.
Concentration risk is the risk of loss due to overdependence on a singular investment or category of business. The main concentration risks to which the Group is exposed, and how they are mitigated, are as follows:
Receivables arising out of direct insurance operations and other receivables have no significant concentration of risk.
The table below identifies the Group's key sensitivity factors. For each sensitivity test the impact of a change in a single factor is shown, with other assumptions left unchanged.
| Sensitivity factor | Description of sensitivity factor applied |
|---|---|
| Interest rate and investment return | The impact of a change in the market interest rate by an increase of 1% or a decrease of 0.25%. For example if a current interest rate is 2%, the impact of an immediate change to 3% and 1.75%. |
| Exchange rates movement | The impact of a change in foreign exchange rates by ± 10%. |
| Equity market values | The impact of a change in equity market values by ±10%. |
| Available for sale investments | The impact of a change in bond market valuations by ±5%. |
| Level 3 investments | The impact of a change in valuations by ±10%. |
| Net loss ratios | The impact of an increase in underwriting net loss ratios by 5%. |
The pre-taxation impacts on profit and shareholders' equity at 31 December 2020 and at 31 December 2019 of each of the sensitivity factors outlined above are as follows:
| 2020 | 2019 | ||
|---|---|---|---|
| €000s | €000s | ||
| Interest rates | 1% | (30,634) | (30,650) |
| Interest rates | (0.25%) | 6,772 | 7,784 |
| 2020 | 2019 | ||
|---|---|---|---|
| €000s | €000s | ||
| FX rates | 10% | 2,127 | 3,822 |
| FX rates | (10%) | (2,127) | (3,822) |
| Equity | 10% | 4,893 | 4,571 |
| Equity | (10%) | (4,893) | (4,571) |
| Available for sale investments | 5% | 43,153 | 40,558 |
| Available for sale investments | (5%) | (43,153) | (40,558) |
| Level 3 investments (note 18) | 10% | 4,216 | 394 |
| Level 3 investments (note 18) | (10%) | (4,216) | (394) |
| Net loss ratio | (5%) | 15,762 | 16,878 |
The sensitivity of changes in the assumptions used to calculate general insurance liabilities and reinsurance assets are set out in the table below:
| 31 December 2020 | Change in assumptions |
Increase in gross technical reserves €000s |
Increase/ (decrease) in net technical reserves €000s |
Impact on profit before taxation €000s |
Reduction/ (increase) in shareholders' equity €000s |
|---|---|---|---|---|---|
| Injury claims IBNR and IBNER | +10% | 12,253 | 9,213 | (9,213) | 8,061 |
| Other claims IBNR and IBNER | +10% | 5,246 | (4,876) | 4,876 | (5,572) |
| Legal fees revert to pre PIAB levels | 6,196 | 5,577 | 5,577 | 4,880 | |
| Reinsurance assets - claims outstanding | (10 %) | – | 12,276 | (12,276) | 10,742 |
| 31 December 2019 | |||||
| Injury claims IBNR and IBNER | +10% | 8,666 | 6,191 | (6,191) | 5,417 |
| Other claims IBNR and IBNER | +10% | 99 | 45 | (45) | 39 |
| Legal fees revert to pre PIAB levels | 6,845 | 6,160 | (6,160) | 5,390 | |
| Reinsurance assets - claims outstanding | (10 %) | – | 6,635 | (6,635) | 5,806 |
The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results. The sensitivity analysis does not take into consideration that the Group's assets and liabilities are actively managed. Additionally, the financial position of the Group may vary at the time that any actual market movement occurs.
Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk. They represent the Group's view of possible near-term market changes that cannot be predicted with any certainty and assume that all interest rates move in an identical fashion.
As set out in accounting policy K in note 3, the Group has chosen to defer application of IFRS 9 due to its activities being predominantly connected with insurance.
To facilitate comparison with entities applying IFRS 9, the table below presents an analysis of the fair value of the classes of financial assets as at the end of the reporting period, as well as the change in fair value during the reporting period. The financial asset classes are divided into two categories:
| Financial assets | Financial assets that passed SPPI |
Other | Total Fair Value |
|---|---|---|---|
| €000s | €000s | €000s | |
| Other receivables | 65,402 | – | 65,402 |
| Deposits with banks | 40,000 | – | 40,000 |
| Cash and cash equivalents | 129,535 | – | 129,535 |
| Available for sale investments | – | 863,880 | 863,880 |
| Investments held for trading | – | 116,930 | 116,930 |
| Total Financial Assets | 234,937 | 980,810 | 1,215,747 |
| Financial assets | Financial assets that passed SPPI |
Other | Total Fair Value |
|---|---|---|---|
| €000s | €000s | €000s | |
| Other receivables | 63,866 | – | 63,866 |
| Deposits with banks | 60,000 | – | 60,000 |
| Cash and cash equivalents | 94,982 | – | 94,982 |
| Available for sale investments | – | 811,986 | 811,986 |
| Investments held for trading | – | 111,399 | 111,399 |
| Total Financial Assets | 218,848 | 923,385 | 1,142,233 |
For receivables, loans and cash and cash equivalents carried at amortised cost, the carrying value is considered to be approximately equal to fair value.
The below table presents fair value movements on financial assets measured on a fair value basis and investments held for trading.
There was no material change in fair value during the year in respect of financial assets that passed the SPPI test.
| Financial assets measured on a fair value basis |
Financial instruments held for trading |
|
|---|---|---|
| €000s | €000s | |
| Balance as at 1 January 2020 | 811,986 | 111,399 |
| Additions | 217,014 | 54,009 |
| Disposals | (166,093) | (53,835) |
| Realised (losses)/gains | (14) | 557 |
| Unrealised gains | 987 | 4,800 |
| Balance as at 31 December 2020 | 863,880 | 116,930 |
For financial assets whose cash flows represent SPPI as defined above, the table below provides information on credit risk exposure. The Group mitigates it's concentration risk to a single counterparty as part of its cash and deposit holdings by placing limits on its total exposures to banking counterparties, the Group's largest exposure to any counterparty for cash and deposit holdings is €33,000,000 (2019:€33,000,000).The financial assets are categorised by asset class with a carrying amount measured in accordance with IAS 39 requirements.
| Other receivables |
Deposits with banks |
Cash and cash equivalents |
Total | |
|---|---|---|---|---|
| Rating | €000s | €000s | €000s | €000s |
| AAA | – | – | – | – |
| AA | – | – | 6,467 | 6,467 |
| AA- | – | – | 25,494 | 25,494 |
| A+ | – | – | 34,344 | 34,344 |
| A- | – | 40,000 | 60,997 | 100,997 |
| BBB | – | – | 2,233 | 2,233 |
| Unrated | 65,402 | – | – | 65,402 |
| Total | 65,402 | 40,000 | 129,535 | 234,937 |
| Other receivables |
Deposits with banks |
Cash and cash equivalents |
Total | |
|---|---|---|---|---|
| Rating | €000s | €000s | €000s | €000s |
| AAA | – | – | 6,577 | 6,577 |
| AA- | – | – | 18,000 | 18,000 |
| A | – | 30,000 | 38,216 | 68,216 |
| A- | – | 30,000 | 33,242 | 63,242 |
| BBB | – | – | (1,053) | (1,053) |
| Unrated | 63,866 | – | – | 63,866 |
| Total | 63,866 | 60,000 | 94,982 | 218,848 |
The Irish Commercial Court judgement in respect of Covid-19 related business interruption cover for public house policies was issued on 5 February 2021 and FBD were deemed liable to cover the claims cost when the public houses were closed by the Government. The judgement is an adjusting event for the purposes of the 2020 financial statements on the basis that the impacted claims are 2020 events. FBD accept this judgement and will pay interim claim payments to our affected customers in a timely manner with final payments to follow once all required information is received and processed. The net liability in respect of the public house business interruption claims is included in the 2020 result with a provision made of €65.3m (€54.0m included in the net claims incurred and €11.3m included in respect of assumed reinsurance reinstatement premium). Gross claims costs are currently estimated to be approximately €150m. Post year end extensions to the period of Level 5 Covid-19 restrictions initially imposed on 24 December 2020 are also adjusting events for the purposes of the 2020 financial statements on the basis that they impact the valuation of 2020 Covid-19 related business interruption claims. The impact of these extensions are included in the net liability detailed above. Discussions are on-going with our reinsurance partners to finalise the reinsurance recovery position.
The Group uses the following alternative performance measures: Loss ratio, expense ratio, combined operating ratio, annualised investment return, net asset value per share, return on equity and gross premium written.
Loss ratio (LR), expense ratio (ER) and combined operating ratio (COR) are widely used as a performance measure by insurers, and give users of the financial statements an understanding of the underwriting performance of the entity. Investment return is used widely as a performance measure to give users of financial statements an understanding of the performance of an entities investment portfolio. Net asset value per share (NAV) is a widely used performance measure which provides the users of the financial statements the book value per share. Return on equity (ROE) is also a widely used profitability ratio that measures an entity's ability to generate profits from its shareholder investments. Gross premium written refers to the premium on insurance contracts entered into during the year and is widely used across the general insurance industry.
The calculation of the APM's is based on the following data:
| 2020 | 2019 | ||
|---|---|---|---|
| Note | €000s | €000s | |
| Loss ratio | |||
| Net claims and benefits | 4(c) | 221,403 | 148,679 |
| Movement in other provisions | 4(c) | 9,681 | 7,946 |
| Total claims incurred | 4(c) | 231,084 | 156,625 |
| Net premium earned | 315,232 | 337,553 | |
| Loss ratio (Total claims incurred/Net premium earned) | 73.3% | 46.4% | |
| Expense ratio | |||
| Other underwriting expenses | 4(c) | 88,527 | 87,259 |
| Net premium earned | 4(c) | 315,232 | 337,553 |
| Expense ratio (Underwriting expenses/Net premium earned) | 28.1% | 25.9% | |
| Combined Operating Ratio | % | % | |
| Loss ratio | 73.3% | 46.4% | |
| Expense ratio | 28.1% | 25.9% | |
| Combined operating ratio (Loss ratio + Expense ratio) | 101.4% | 72.3% | |
| 2020 | 2019 | ||
| Investment return | €000s | €000s | |
| Investment return recognised in Consolidated Income Statement | 5 | 10,388 | 17,892 |
| Investment return recognised in Statement of Comprehensive Income | 4,505 | 10,924 | |
| Total investment return | 14,893 | 28,816 | |
| Average investment assets | 1,117,036 | 1,073,429 | |
| Investment return % (Total investment return/Average investment assets) | 1.3% | 2.7% |
| 2020 | 2019 | ||
|---|---|---|---|
| Note | €000s | €000s | |
| Net Asset Value per share | |||
| Shareholders' funds – equity interests | 383,981 | 372,228 | |
| Number of shares | |||
| Number of ordinary shares in issue (excluding treasury) | 22 | 35,052,462 | 34,862,464 |
| Cent | Cent | ||
| Net asset value per share (NAV) (Shareholders' funds/Closing number of ordinary shares) | 1,095 | 1,068 | |
| Return on Equity | |||
| Weighted average equity attributable to ordinary equity holders of the parent | 378,105 | 327,856 | |
| Result for the year | 4,390 | 98,225 | |
| Return on equity (Result for the year/Weighted average equity attributable to ordinary equity holders of the parent) |
1% | 30% |
Gross premium written: The total premium on insurance underwritten by an insurer or reinsurer during a specified period, before deduction of reinsurance premium.
Expense ratio: Underwriting and administrative expenses as a percentage of net earned premium.
Loss ratio: Net claims incurred as a percentage of net earned premium.
Combined Operating Ratio: The sum of the loss ratio and expense ratio. A combined operating ratio below 100% indicates profitable underwriting results. A combined operating ratio over 100% indicates unprofitable results.
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