FBD Holdings plc (EG7) Earnings Call Transcript & Summary

Thank you all for standing by, and welcome to the FBD Group AGM Conference Call. [Operator Instructions]. And I also must advise you that this conference is being recorded today. Now without any further delay, I would like to turn the conference call over to your speaker, Mr. Liam Herlihy. Thank you. Please go ahead.

Ladies and gentlemen, you are very welcome to our, focused hard, Annual General Meeting today. First, I hope you and your family and friends are setting well. I would like to thank you for your understanding, as we all need to have a restricted meeting. I want to thank you for your cooperation and for submitting your vote remotely. FBD feels that it is imperative that we play a role in trying to prevent community's transmission and reducing unnecessary problems during this period. And given these considerations and the challenge they pose, we believe, it was inappropriate to have a large gathering for our AGM again this year. So what I would say to you is that we certainly look forward to our economy reopening, and we certainly look forward to meeting you all in person at our Annual General Meeting next year. I would like to welcome you, our shareholders, and our professional advisers, who are at AGM today. I want to acknowledge that members of our Board who are here today as well. From an executive management perspective, we are joined today by our group Chief Executive, Tomas O'Midheach; our Chief Financial Officer, John O'Grady; and our company Secretary and Chief Risk Officer, Derek Hall. The notice convening the meeting has been circulated to all shareholders, and I want to confirm that a quorum for the meeting is present. Maybe to deal with one very important item for a start. I am delighted that our new CEO, Tomas O'Midheach, joined the group on the 4th of January of this year as Chief Executive Officer; and both as Executive Director of both FBD Group and of FBD Insurance plc. Tomas has considerable experience of the Irish financial services landscape, and he brings a wealth of experience to FBD in areas, including finance, data, customer analytics, direct channels and digital. Tomas previously worked with Citibank and more recently, has been deputy CEO and Executive Board member of Allied Irish Banks. I and the entire Board and indeed, his management team look forward to working with Tomas to grow the business and deliver for our customers and stakeholders. Just a few words in relation to our performance. The past year has been a difficult 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, during pandemic presented its own challenges, but despite this, the group has produced a robust set of results in the circumstances. While providing for cost of EUR 65 million relating to COVID-19 business interruption claims for customers holding our public health policies, we've been able to report a group profit before tax of EUR 5 million, and our net asset book value per share grew to EUR 1.095. Our solvency capital ratio continues to be very strong at 197%. And this clearly demonstrates the resilience of our business in trying circumstances. In particular, I would like to acknowledge our loyal FBD staff for their unwavering commitment and contribution in this very challenging year. We have successfully adopted remote working and have continued to provide the dedication to customers and great customer service that continues to be a differentiator for FBD. This has not been easy for our team, but it is much appreciated by the Board, and I would like to say a very sincere thanks to you all. It is important for me to acknowledge the contribution of FBD to Paul D'Alton. Paul acted as an Interim Chief Executive Officer since April of last year, and I would like to thank him for his steady leadership through the challenging times last year brought by COVID-19. And we all wish him well in his next endeavor. I'm pleased to announce the appointment of Tim Cullinan as an independent Nonexecutive Director. In December last year, Tim was elected President of the Irish Farmers' Association. And he is -- as we are all aware, Tim was heavily involved in IFA over a 15-year period. And it brings considerable and valuable understanding and insights into Ireland's rural and agricultural communities. So we all look forward to working with him in the years ahead. I would like to thank Joe Healey, who resigned from the Board in July. Following the conclusion of his period in office as IFA President. Joe brought many helpful insights on issues affecting the farming community throughout his 3-year period, which we all very much appreciate, and we wish Joe well in the future. It would be remiss of me if we didn't comment on COVID-19 for a moment. As the pandemic has resulted in significant personal and professional challenges for people and businesses across the country. We've introduced a number of measures to assist our customers through the COVID-19 pandemic, including premium rebates, suspension of cover reductions and payment flexibility where required. We've also assisted our customers with a wide range of supports reflecting the changed environment for individuals and businesses. We are grateful to our loyal customers for their continued support. From an operational perspective, our business continuity plans continue to work very well. Service customers has been maintained and in FBD it has been business as usual. A significant proportion of our employees have worked remotely since late March. And FBD has developed its own action plan to ensure operational resilience and the safety of our staff and customers through extra health security measures as offices reopen. 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 difficulties that the pandemic is causing for those businesses. Our approach has been to achieve clarity on the liability and quantum position by taking proceedings in the Commercial Court by way of a test case. We believed that this was the quickest and most efficient way of achieving clarity for our customers. The hearing took place in October of 2020, and the judgment was issued on the 5th of February, where the interpretation of the policy wording was challenged. FBD noted the decision of the court that our public house policies do provide cover in the circumstances reviewed. We are now in the process of setting claims for the customers involved, which includes issuing interim payments in the short-term while awaiting final clarity on quantum. FBD will also consider the effect of the judgment 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 first general insurance company to feature in the Top 10 Companies in Ireland for excellent customer experience. We're 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 investment 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 continues to support many initiatives, which makes 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 behaviors. We're also working to improve our sustainable business practices through active measurements, management and mitigation of our carbon footprint and to minimize our environmental impact. Our sustainability projects include a commitment to use less paper, printing less, being more efficient in our energy usage and encouraging others to be responsible through integrating environmental, social and governance factors into our investment portfolio. Moving to the topic of claims environment. FBD welcomes the statutory implementation of the new Personal Injury Guidelines, which came into effect on the 24th of April this year. This is a very important step along the way to ensuring consistency in award levels and lowering insurance cost. FBD also welcomes the government public consultation process on the Personal Injuries Board and endorses the objective of making both administrative and legislative changes to increase the number of cases within the Personal Injuries Board system, and thus reduced the number of cases in there in costly litigation. The expansion of the injury categories and the new guidelines to include, for example, psychological injuries, should also facilitate increasing the number of cases being assessed by the personal injuries and accident board. We remain concerned as the level of legal cost awarded in both the High Court and Circuit Court, which continues to increase. The Board believes it is in the long-term interest of all stakeholders to maintain strong solvency margin and it is focused to 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 affect our investment markets and the 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, otherwise known as EIOPA for short, 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 continued uncertainty prevailing, the Board continues to believe that capital preservation is paramount, and no dividend is being proposed at this time. The Board will, however, keep the matter of capital return to shareholders under continuous review. What is important to state is that our capital position remains strong with a solvency capital ratio of 197% at the 31st of December 2020. In conclusion, I would like to thank all of my Board colleagues for their continued support and hard work throughout the year. And indeed, in the uncertain world that we live in, I am confident that whatever challenges lie ahead, FBD is strong and will continue to prosper as a business. Finally, I would like to thank all of our loyal customers for their continued support, loyalty, trust and confidence. It is because of those that FBD is strongly positioned for the future. And we certainly -- we all look forward to working closely with our CEO, Tomas and his executive management team and the entire team to grow value for all our stakeholders. So with that, I want to hand over to our CEO, Tomas, please.

Thank you, Liam. Firstly, good morning to you all. I'd like to take this opportunity to introduce myself. I'm Tomas O'Midheach, and I joined FBD, as the group CEO in January 2021. I'm delighted to take the helm of the only Irish insurer in the market. The core of this business is strong. And I look forward to building on this and delivering for you in the years ahead. I hope to meet you all in person at our next General Meeting, as I'm sure we all want to meet each other in person. And I will now read out the trading statements. The underwriting performance of our business for 2021 to date has been in line with expectations. While average premium charge has reduced, motor and liability claims experience has been benign. No significant weather events have occurred. Equity markets in the year-to-date have been strong. This has led to a positive investment return through the income statement. This has been partially offset by the impact of increases in bond due. During the statement of other comprehensive income, leading to a small hardest investment return for the year so far. The provision we hold for COVID-19 business interruption claims relating to our public house policies, remains at EUR 65 million net of reinsurance. A recent supplementary court judgement gave additional clarity on cost and the definition of product. The final determination of the remaining assets of quantum should be determined following a further court hearing in July. In the meantime, we will continue to progress our claims insurance. And in addition, we have engaged with the financial services and pension [indiscernible] and complains that they are in the process of adjudicate. Gross Written Premium, GWP, has held up well at very competitive market for private motor. This has been despite the impact of the pandemic on activity and on some insured as well as a continuing payment of premium rated to commercial. GWP is trending approximately 1% lower than the equivalent period in 2020, excluding the impact of COVID-19. Policy numbers have remained stable in the year-to-date and have increased by over 1% in the past year. And in addition, there has been strong retention of existing customers. Average premium has reduced by 3% overall, with private motor average premium is down by approximately 5%. FBD continues to rebate premium to businesses, which has been closed with employer for their employers liability and public liability and business interruption elements that we are covering. In the year-to-date, these rebates have totaled [ EUR 4 million ] and have been offset by a lower frequency claim. We are very supportive of the government's insurance reform agenda to reduce premium farmers, businesses and consumers. We particularly love the new Judicial Council's guideline for personal injury board and has been proactive reflecting their impact to prices charged to cost. Overall, we remain confident in the underlying profitability, future growth prospect and capital strength of the business and in our ability to continue to provide excellent services to our customers. And now I hand back to Liam.

Thanks, Tomas. As I said earlier, we invite your questions to be submitted in advance of the meeting. We will now take some time to address those questions. So we just have 4 questions, and I will hand over to Derek Hall to deal with those, please.

Thanks, Liam. So we have three questions from one of our shareholders, [ Thomas Haden], [ Thomas's ] first question is in light of minimal stroke, no returns on government bonds, can we increase our equity exposure and opportunistically take advantage of low prices and equity markets where opportunities present themselves. John, can I hand that one to you?

Yes, sure. Investment performance has been positive for 4 of the past 5 years. However, absolute returns reflect the continuing low interest rate environment as well as the group's conservative investment strategy. Most of the group's investments are matching our claims liabilities are allocated in sovereign and quality corporate bonds. The group takes more risk, the money it holds in excess of claims liabilities, have invested in a diversified portfolio of assets in equities, emerging market debts, high-yield bonds, property and infrastructure in order to enhance its investment return. The group takes a long-term view deciding on investment strategy and is also conscious of the Solvency II capital charges for ]. Investing a lot in equities would increase the capital charge significantly.

Thanks, John. So Thomas', second question is he notes the directors' interest in the company has more than doubled over the course of 2020 with additional shareholdings of John O'Grady and Richard Pike. Excluding the Executive Directors and the company Secretary shareholding, the total director shareholding is 13,100 shares according to the annual report. A tiny amount compared to nonexecutive director remuneration of EUR 581,000 for 2020. If directors are not prepared to put their hands in their own pockets to buy meaningful positions in the company they are responsible for, why don't the Board of Directors try to actively sell the company. If the Board are not prepared to sell the company, what are their plans to return or increase value to shareholders. So Liam, I might pass that one to you, please.

Thanks, Thomas, for that question. The group incentivizes its executive directors and senior executives with equity-based awards on the shareholder approved share schemes. For these executives, there is a requirement to build up to a minimum share of ownership level. There is no requirement for independent nonexecutive directors to build up to a similar shareholding. FBD share purchases are personal matter for nonexecutive directors. Given the continuing uncertainty in the current circumstances, the Board continues to believe that capital preservation is paramount. And therefore, no dividend has been proposed at this time. Having said that, the Board will, however, keep the matter of capital return to shareholders under continuous review.