fbd holdings plc · 2018-09-18 · fbd holdings plc 2014 interim results august 2014 1 forward...
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Our Policy is You
FBD Holdings plc2014 Interim Results
August 2014
1
Forward Looking Statement
This presentation contains certain forward-looking statements. Actual
results may differ materially from those projected or implied in
such forward-looking statements. Such forward-looking information
involves risks and uncertainties that could affect expected results.
2014 Interim Results – Highlights
Strategic developments Further progress in delivering on strategic priorities
and aligning business model to continue to meet the needs of customers
Relationships with broker partners are developing well and business written is gaining momentum
Continued investment in platform for growth
Performance GWP up 5.1% Further increase in market share COR of 107%:
• Severe and persistent weather claims of €44.3m, gross of reinsurance, €15.3m net
• Sharp increase in car insurance claims frequency
Annualised investment return of 3.0%, excellent result in a low return environment
Operating EPS of 14c, fully diluted EPS of 8c
Financial strength NAV of 776c Reserving ratio 241% (2013: 235%) Solvency strengthened to 73.4% of NEP
Dividend Interim dividend of 17.0c. Committed to progressive dividend policy
Robust results in difficult six month period, strengthened platform for profitable growth2
2014 2013GWP €184.9m €175.9mOperating profit €5.3m €24.1mPBT €3.2m €19.0m
Operating EPS 14c 63cFully Diluted EPS 8c 49cNAV 776c 740cInterim DPS 17.0c 15.75c
2014 Interim Results – Irish economy
Economic recovery stronger than anticipated
Economy Economic growth has accelerated faster
than anticipated Welcome development post peak to trough
decline in domestic demand of 20.4% Domestic demand forecast to grow 2.9% in
2014 Unemployment rate 11.4% in 2014, down
from 13% in 2013 Consumer sentiment hits a five year high Retail sales of auto fuels, the best gauge of
insurable auto risk, is up 8.8% yoy, far exceeding expectations
Increase in new vehicle registrations:• Cars up 30% • HGVs up 44% • LCVs up 46%
3
‐15.0%
‐10.0%
‐5.0%
0.0%
5.0%
10.0%
Domestic Demand (yoy change) *
Source: CSO/Goodbody * excludes aircraft and R&D
70
75
80
85
90
95
100
105
110
115
Retail sales of automotive fuel Volume adjusted index (Base 2005=100)
71
73
75
77
79
81
2300
2500
2700
2900
3100
3300
3500
3700
3900
4100
4300
Market ‐ €m
2014 Interim Results – Insurance industry
Insurance industry Irish insurance market premium income
stabilises after 11 years of decline Industry COR for 2011-2013 of 102% (Car
112%) Substantial rate increases in car insurance in
recent months Market remains competitive, particularly in
home insurance and for higher value business risks
4
‐8%
‐3%
2%
7%
12%
17%
22%
July 2013 October 2013 January 2014 April 2014 July 2014
1
2
3
4
FBD
5
No Nonsense
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Source : Consumer Intelligence
‐300‐200‐100
0100200300400500600700800
€m
Source: Insurance Ireland
Rate hardening to overcome profitability challenge
Market in car insurance rates July2013 – July 2014Premium Income – Market
Insurance Industry – Underwriting Profit History
2014 Interim Results – Claims
Claims environment Severe and persistent weather experience Improvement in economy led to higher
claims frequency
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Weather and large claims H1 2014 weather cost is the highest in
Group’s history Severe and persistent weather and large
claims accounted for 26% of NEP compared to an average of 16.5% for the previous seven years
Over 9,000 customers impacted by weather
FBD claims cost Net claims incurred increased 17.2% Loss ratio of 79.5% Severe and persistent weather of €44.3m
gross or €15.3m net Sharp increase in frequency of car injury
claims Large claims over €1m revert to norm
Analysis of Loss Ratio 2008 – 2014 Severe and persistent weather and large claims
Impact of storm Darwin ‐ FBD risk exposure per county
15.8% 19.6% 21.5% 14.2% 13.1% 18.7% 25.6%
5%7%9%11%13%15%17%19%21%23%25%27%
2008 2009 2010 2011 2012 2013 2014 H1
Severe and persistent weather & large claims LR Seven year average LR: Severe and persistent weather & large claims
Abnormally high weather cost will revert to norm
Net cost of accident and liability claims (> €1m)
2008 ‐ 2014
‐
2
4
6
8
10
12
‐8%
‐3%
2%
7%
12%
17%
22%
July 2013 October 2013 January 2014 April 2014 July 2014
1
2
3
4
FBD
5
No Nonsense
6
Source : Consumer Intelligence
Third Party Injury Frequency FBD Car 2012‐14
2014 Interim Results – Claims (cont)
Economic recovery leads to higher claims frequency and higher market rates 6
Attritional loss ratio First increase since 2009 Up from 49.2% to 53.9% Car insurance claims frequency increased
due to stronger than expected economic recovery
First increase in frequency in H2 2013, further sharp increases in H1 2014
Increase evident across all customer profiles
Rating action Rating action started in July 2013 Further action in Oct 13 and Feb, Apr, May,
Jul and Aug 14, with more to follow Sales volume continued to rise in H1 2014 and
inbound call activity surged 40% in Q2. This suggests that a market wide adjustment is underway
There is an inevitable lag before the benefit of rate increases reaches NEP
Analysis of Loss Ratio 2008 ‐ 2014
71
73
75
77
79
81
15.8%19.6% 21.5%
14.2%13.1%
18.7% 25.6%
63.3% 64.1%
55.9%
52.4%50.7% 49.2%
53.9%
45%
50%
55%
60%
65%
70%
5%7%9%11%13%15%17%19%21%23%25%27%
2008 2009 2010 2011 2012 2013 2014 H1
Attrition
al Loss R
atio
Severe persistent w
eather & large claims
Impact of severe and persistent weather & large claims on LR
Seven year average LR: Severe and persistent weather & large claims
Attritional Loss Ratio Excluding severe persistent weather & large claims (Right Hand Axis)
2014 Interim Results – Premium
7 FBD continues to outperform market
Analysis of change in GWP (YoY) GWP up 5.1% Growth achieved across all
customer segments Average premium up 3.1%, policy
volume up 2.0% Further increase in market share Stabilisation in cover and mix
continues
‐10.0%
‐8.0%
‐6.0%
‐4.0%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%Policy volume Average rate Cover and mix Total GWP
H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H2 13 H1 14
Average premium
2014 Interim Results – Customer segments
Continuing to broaden and deepen customer reach
Farm and business direct Strong performance, growth in premium, more policies
per customer Business insurance written directly stabilising Continued investment to improve customer
experience, increase focus and provide capacity for growth
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Growth in car insurance despite higher rates Decline in home insurance where FBD has continued to
maintain its underwriting discipline rather than compete with uneconomic rates
Launched new home insurance product in July
Consumer
Brokers Relationships with broker partners are developing well
and premium gaining momentum Brokers accounted for 20% of all new business Rates hardening for commercial insurance Clan Insurance delivering as expected
4%
7%11% 10% 11%
15% 20%
11%20% 30% 29%
47%
61%59%
10%
30%
50%
3%
7%
11%
15%
19%
23%
% of all new business via brokers LHS
% of business insurance new business via brokers RHS
Broker as % of new business premium
Premium by customer segment H1 2014
2014 Interim Results – Market share (GWP)
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Latest availablemarket data (II)
102
169
6080100120140160180200220
Premium Income ‐ FBD and the Market (Base 2000 = 100)
Total Market FBD
200
250
300
350
400
2300
2500
2700
2900
3100
3300
3500
3700
3900
4100
4300
FBD ‐ €m Market ‐ €m Premium Income ‐ FBD and the Market
Total Market FBD
Market share growth in 12 of the last 13 years
12.0
%
7.6%
24.9
%
12.8
%
15.2
%
7.6%
4.8%
9.7%
10.7
%
20.7
%
11.6
%
10.3
%
7.8%
12.0
%
10.4
% 11.3
%
19.9
%
11.2
%
10.0
%
8.0%
12.2
%
10.4
% 11.6
%
19.2
%
11.5
%
10.0
%
8.7%
11.2
%
11.1
%
11.5
%
16.1
%
11.2
%
10.7
%
10.7
%
10.4
%
12.3
%
11.8
%
16.0
%
11.1
%
11.5
%
9.0%
8.6%
14.7
%
12.2
%
15.5
%
11.8
%
11.6
%
9.4%
6.2%
15.9
%
12.6
%
15.4
%
11.1
%
11.6
%
10.0
%
6.5%
14.2
%
13.6
%
13.3
%
12.3
%
12.0
%
10.4
%
6.8%
RSA FBD Aviva Allianz AXA Zurich Liberty/Quinn
2000 2006 2007 2008 2009 2010 2011 2012 2013
2014 Interim Results – Non-underwriting
Financial services
10
Includes: • premium instalment services• life, pension and investment broking (FBD Financial Solutions, largest retail broker in Ireland) • less cost of Holding Company
Operating profit of €1.7m (2013: €2.2m)
Joint venture (JV) 50% share of property and leisure operations in Ireland and Spain Trading performance improved compared to 2013 The Group’s share of JV profits (in the seasonally quiet first half) was €0.1m, a significant improvement
on the €0.4m loss in 2013 Growth in occupancy, rates and revpar, particularly in the Irish market Market for Irish hotel assets has improved significantly, particularly in Dublin city centre The JV agreement with Taylor Wimpey plc to sell a parcel of development land at La Cala Resort Spain
is progressing according to plan This transaction is indicative of JV’s strategy to realise value as market conditions improve The JV is considering the disposal of Temple Bar Hotel if an attractive offer can be obtained
Opportunities to realise value
Prudent management of investment assets - protecting customers and shareholders
2014 Interim Results – Asset allocation
• Annualised return of 3.0%, an excellentperformance in a low yield environment
• Return delivered with a low risk allocation
• All asset classes contributed to performance
• Tactical allocation guards against volatility
• Deposits & fixed income investments rated A-or better
• Equity holdings reduced by 20% as gains were realised
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30-Jun-14 31-Dec-13Underwriting investment assets €m % €m %
Deposits and cash 490 57% 454 53%Corporate bonds 172 20% 144 17%Government bonds 81 10% 134 16%Equities 58 7% 73 9%Unit trusts 24 3% 24 3%Own land & buildings 15 2% 15 2%Investment property 13 1% 12 1%
Underwriting investment assets 853 100% 856 100%
Working capital & other assets 128 116Reinsurers’ share of provisions 62 44Investment in joint venture 45 45Plant and equipment 35 31
Total assets 1,123 1,092
2014 Interim Results – Balance sheet
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Strong capital base with solvency level of 73.4% of NEP up from 69.7% at June 2013
Excess capital over Solvency II requirement Reserving ratio 241% (2013: 235% ) Net asset value per share 776c IAS 19 retirement benefit obligation increased by
€7m, discount rate reached an all time low
NAV progression & solvency strength
823
776
8
21
34
750
850
640
536
582
666
740
776
500
550
600
650
700
750
800
Cent
NAV progression – Dec 2013 to Jun 2014
Evolution of NAV
Strong solvency, robust reserves
224%226%228%230%232%234%236%238%240%242%244%
45%
50%
55%
60%
65%
70%
75%
80%
Solvency Ratio Reserving Ratio
Solvency & Reserving Ratios
15%
17%17%
19%
26%25%
46%
30%
21%
25%
36%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Historic dividend payout ratio (Operating EPS)
2014 Interim Results – Dividend
Policy It is in the long term interest of all stakeholders
to maintain strong solvency and liquidity margins
FBD is committed to a progressive dividend policy and efficient capital management
Target is a 40% - 50% operating payout ratio across insurance cycle
2014 Interim dividend Interim dividend of 17c, an increase of 8% Rationale for increase in dividend:
• Committed to progressive dividend policy• Robust financial position• Confidence in capacity of business model
to deliver returns through the insurance cycle
13
9
10
11
12
13
14
15
16
17
18
Interim Dividend Per Share
Further increase in dividend. Commitment to progressive dividend
2014 Interim Results - Investing in the future
14 Continued investment to provide infrastructure for profitable growth
Technology and processInvestment in new technology will enable:
Enhanced customer experience Agile pricing Product innovation Business intelligence Operational excellence Generating capacity
Realignment around customer Enhanced customer experience Removed voice recognition for farming Generating capacity Optimum aligning of resources for
customers
2014 Interim Results – Outlook
15
FBD• Growth in the second half more likely to come from rate than volume as
Group ensures that car premiums reflect increasing frequency
• Rate increases implemented by FBD since the beginning of 2014 will
improve loss ratio over time
• The inevitable lag before rate actions are effective will have a short term
impact on profitability in 2014 and the early part of 2015
• Growth in economic activity will have a positive effect on FBD in the medium
term, particularly given the Group’s track record of outperforming the market
• The Group has developed the ability to broaden its customer reach and will
continue to focus on farming and direct business customers. Together
these provide a solid platform for profitable growth
• As a result it will continue to outperform the market and deliver superior
returns to shareholders
• The Group re-affirms its previous guidance, subject to no further
exceptional weather events arising, of full year 2014 operating EPS of
between 70 and 80 cent
FBD aims to deliver superior returns to shareholders
Operating environment • Economic indicators point to an improved outlook
• Irish insurance market is likely to grow in H2 2014
• Rate of growth will depend on speed and extent with
which the market chooses to adjust rates to deliver an
acceptable return
• Increasing economic activity will lead to higher claims
frequency
• Market profitability will continue to be challenging for
the remainder of 2014 as the effect of rate increases
are likely to have been more than offset by the upturn
in frequency
• The precise timing and quantum of the improvement in
market profitability will depend on the evolution of
frequency arising from economic growth and any
further rating action
15
2014 Interim Results – Summary
FBD remains well positioned to deliver 18% ROE target through insurance cycle
FBD has A strong track record A robust underwriting business with a strong
core franchise A strong capital base and balance sheet and
a prudent reserving strategy A low-risk investment allocation positioned to
benefit from rising yields
FBD will Seek opportunities for sustainable growth and
profits Continue to invest to maximise potential Deliver superior returns to shareholders Continue to move towards target 40% - 50%
dividend payout ratio across the cycle
16
The insurance market Continues to face profitability challenges Is experiencing increases in car insurance claims
frequency due to the economic recovery Has applied rate increases but more are required Competitive dynamics will decide the speed and extent
of the industry recovery
Our Policy is You
FBD Holdings plc
2014 Interim Results
17