Protectio. It s i our ature. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report
Cotets Itroductio 1 A. Busiess ad Performace 3 A1. The Busiess 3 A2. Uderwritig Performace 5 A3. Ivestmet Performace 7 A4. Other material icome ad expeses 9 A5. Other material iformatio 9 B. System of Goverace 10 B1. Geeral Iformatio 10 B2. Fitess ad Probity Requiremets 16 B3. Risk Maagemet System 17 B4. The Ow Risk ad Solvecy Assessmet (ORSA) Process 19 B5. Iteral Cotrol System 21 B6. Iteral Audit Implemetatio 22 B7. Actuarial Fuctio Implemetatio 23 B8. Outsourcig Policy 23 B9. Adequacy of System of Goverace 24 B10. Other Material Iformatio 24 C. Risk Profile 25 C1. Uderwritig risk 25 C2. Market risk 26 C3. Credit risk 27 C4. Liquidity risk 29 C5. Operatioal Risk 31 C6. Other Material Risks 32 D. Valuatio for Solvecy Purposes 33 D1. Assets 35 D2. Techical Provisios 36 D3. Other Liabilities 39 D4. Alterative methods of valuatio 40 E. Capital Maagemet 41 E1. Ow Fuds 41 E2. Solvecy Capital Requiremet ad Miimum Capital Requiremets 44 F. Appedices 46
Itroductio The EU-wide Solvecy II Directive came ito force with effect from 1 Jauary 2016. This documet is the third Solvecy ad Fiacial Coditio Report (SFCR) published uder this directive for FBD Holdigs plc ( FBD or the Group ) which also icludes iformatio relatig to FBD Isurace plc (the Compay ). The SFCR provides arrative iformatio i quatitative ad qualitative form icludig quatitative reportig templates (QRTs). The report covers the Busiess ad Performace of the Group, its System of Goverace, Risk Profile, Valuatio for Solvecy Purposes ad Capital Maagemet. Busiess ad Performace FBD is oe of Irelad s largest property ad casualty isurers lookig after the eeds of farmers, private idividuals ad busiess owers through its pricipal subsidiary, FBD Isurace plc. The Group also has fiacial services operatios icludig a successful life ad pesios itermediary. The Group is a holdig compay icorporated i Irelad. The Busiess ad Performace sectio highlights the profitability of FBD Holdigs plc as the Group recorded a profit before tax from cotiuig operatios of 50.1m i 2018 (2017: 49.7m). The Group delivered a uderwritig profit of 63m, compared to the uderwritig profit of 45m i 2017. Net claims icurred amouted to 183.4m (2017: 203.1m). There were positive prior year reserve releases of 26.9m, maily from the 2015 to 2017 accidet years, which showed sustaied improvemets relative to previous expectatios. There was a further release from prior year reserves of 1.8m as the timig of the itroductio of the 2% Motor Isurace Isolvecy Compesatio Fud (MIICF) levy o isurers was delayed. The Group s expese ratio was 24.9% (2017: 23.3%). Other uderwritig expeses were 84.1m, a icrease of 8.1m. 4.6m of the icrease relates to chages i the re arragemets ad the balace reflects additioal IT sped i respect of work for the itroductio of GDPR, wage iflatio ad icreased regulatory costs. FBD s total ivestmet retur for 2018 was -0.5% (2017: 1.2%). 0.2% (2017: 0.9%) is recogised i the Cosolidated Icome Statemet ad -0.7% (2017: 0.3%) recogised i the Cosolidated Statemet of Other Comprehesive Icome (OCI). The returs are a reflectio of the challegig ivestmet coditios experieced durig 2018 especially Q4. The egative returs i OCI were drive by credit spread wideig o the corporate bod portfolio ad spread wideig o some Eurozoe sovereig bods, particularly Italy. System of Goverace The Board of FBD Holdigs plc is resposible for the log-term success of the Group. The primary role of the Board is to provide leadership ad strategic directio while maitaiig effective cotrol over the activities of the Group. The Board is assisted by the Executive Maagemet Team ad key roles ad fuctios withi the busiess. The Board has approved a Corporate Goverace Framework settig out its role ad resposibilities. This is reviewed aually as part of the Board s evaluatio of its performace ad goverace arragemets. At 31 December 2018 the Board comprised two executive Directors ad eight o-executive Directors, icludig the Chairma. The Board deemed it appropriate that it should have betwee 8 ad 12 members ad that this size is appropriate, beig of sufficiet breadth ad diversity to esure that there is healthy debate ad iput o the mai busiess to be dealt with by it. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 1
Risk Profile A aual review is completed by the Risk Committee of all major risks to esure all risks are idetified ad evaluated. Each risk is assessed by cosiderig the potetial impact ad the probability of the evet occurrig. Impact assessmets are made agaist fiacial, operatioal, regulatory ad reputatioal criteria. The Risk Profile details the Uderwritig, Market, Credit, Liquidity, Operatioal ad Other material risks relatig to FBD Isurace plc. For each of the risks, FBD has udertake stress testig as part of its Ow Risk ad Solvecy Assessmet (ORSA). The outcome of the stress ad sceario tests was that i each case FBD would have sufficiet available capital to cotiue to meet the Solvecy Capital Requiremet (SCR). Valuatio for Solvecy Purposes The Valuatio for Solvecy Purposes outlies the differece betwee the Solvecy II Valuatio ad the Fiacial Statemets for the Group ad FBD Isurace plc. FBD Holdigs plc Fiacial Statemets are prepared i accordace with Iteratioal Fiacial Reportig Stadards (IFRS). The FBD Isurace plc Fiacial Statemets are prepared o Fiacial Reportig Stadard basis 102 ad 103 (FRS 102 & 103). There are o sigificat measuremet differeces betwee the two bases. Capital Maagemet The Capital Maagemet sectio outlies the SCR ad Miimum Capital Requiremet (MCR) for the Group ad the etity. FBD measures ad calculates capital usig the Stadard Formula. The solvecy positio is moitored o a regular basis to esure compliace with the SCR ad MCR. At 31 December 2018 the Group Solvecy Capital Ratio was 165% icludig the foreseeable divided of 17.6m. The FBD Isurace plc ratio was 162%. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 2
A. Busiess ad Performace A1. The Busiess A1.1 The Udertakig FBD Holdigs plc is icorporated i Irelad. The oly etity i the Group is FBD Isurace plc, a isurer licesed i Irelad. The address of the Registered Office ad Head Office is; FBD Holdigs plc FBD House Bluebell Dubli 12 D12 YOHE Irelad A1.2 Supervisory Authority FBD Holdigs plc ad FBD Isurace plc are domiciled i Irelad ad the supervisory authority resposible for fiacial supervisio of the udertakigs is: Cetral Bak of Irelad New Wappig Street North Wall Quay Dubli 1 D01 F7X3 A1.3 Idepedet Auditors FBD s idepedet auditors are: PricewaterhouseCoopers Chartered Accoutats ad Statutory Audit Firm Oe Specer Dock North Wall Quay North Wall Dubli 1 D01 X9R7 Irelad A1.4 FBD shareholders with qualifyig holdigs: The shareholders below have iterests above 10% i the Group. Farmer Busiess Developmets plc No. of Shares % of Class % of Votig Rights Ordiary shares of 0.60 each 8,531,948 25% 22% 8% No-Cumulative Preferece Shares 1,470,292 42% 4% 14% No-Cumulative Preferece Shares 1,340,000 100% 3% Total % Votig Rights 29% FBD Trust Compay Limited No. of Shares % of Class % of Votig Rights Ordiary shares of 0.60 each 2,984,737 9% 8% 8% No-Cumulative Preferece Shares 2,062,000 58% 5% Total % Votig Rights 13% FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 3
A1.5 FBD Holdigs plc Group Structure: FBD Holdigs plc FBD Isurace plc FBD Isurace Group Ltd FBD Corporate Services Ltd FBD Trustee Compay Ltd Bieritz Is Ltd Legacy Ivestmets Holdigs Ltd Topehall Ltd FBD Holdigs plc ( FBD or the Group ) FBD Isurace plc ( the Compay ) FBD Isurace Group Ltd t/a FBD FBD Corporate Services Limited FBD Trustee Compay Limited Irelad A holdig compay which is paret to the other Group compaies Irelad A regulated compay which uderwrites motor, property, liability ad other smaller lies Irelad FBD Isurace Group Ltd is a itermediary compay. Direct geeral sales activity is trasacted through FBD Isurace Group Ltd which is the uderwritte by FBD Isurace plc. The compay also deals with life, pesios ad ivestmet brokig. Irelad This compay employs all staff workig for the Group from 1 Jauary 2018 No-Pricipal Subsidiaries (represets less tha 1% of FBD Holdigs Net Asset Value) Bieritz Is Limited Legacy Ivestmets Holdigs Limited Topehall Limited Irelad The priciple activity of this compay is to act as Trustee to FBD Isurace plc pesio schemes Irelad The compay activities are property ivestmet ad developmet Irelad A compay used for ivestmet purposes Isle of Ma The pricipal activity is the holdig of lad i Warwickshire A1.6 Relevat operatios trasactios withi the Group FBD Holdigs paid a divided of 8.6m to shareholders i 2018. A divided of 10m was paid by FBD Isurace plc to FBD Holdigs plc i 2018. All employees of the Group are employed by FBD Corporate Services Ltd which recharges the costs of the employees to the Group compaies beig FBD Holdigs plc, FBD Isurace plc ad FBD Isurace Group Ltd. All direct geeral premium for the Group is geerated through the itermediary FBD Isurace Group Ltd which is paid commissio by FBD Isurace plc for the reveue ad icurs expeses related to the sales operatios. Iter-group loas are i place ad iter-compay trasactios arise betwee the Group compaies i the ormal course of busiess. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 4
A1.7 Material lies of busiess ad geographical areas FBD Isurace plc uderwrites i Commercial, Agri ad Cosumer segmets coverig farm, busiess, home ad motor i Irelad. For Solvecy II purposes the compay reports uder the followig lies of busiess: 1) Motor Vehicle Liability Isurace; 2) Other Motor Isurace; 3) Fire ad other damage to property ; 4) Geeral Liability Isurace; 5) Icome Protectio ; ad 6) Marie, aviatio ad trasport. Lies of busiess 5) Icome Protectio ad 6) Marie are combied uder Other Isurace for the tables i this report. A1.8 Sigificat Busiess or Evets durig the reportig period O 1 October 2018 FBD Holdigs plc aouced that its subsidiary FBD Isurace plc had etered ito a agreemet to purchase ad cacel the 70,000,000 7% Covertible Notes which were i issue for 86,059,000. O 2 October 2018 FBD Isurace plc successfully agreed to issue 50,000,000 of ew Callable Dated Deferrable Subordiated Notes due 2028. The agreed coupo for the otes was 5%. Iterest costs associated with the subordiated otes totallig 589,000 were icurred ad recogised durig the fiacial year. From 30th April 2018, sales, reewal ad marketig activity for direct operatios were trasacted through FBD Isurace Group Ltd tradig as FBD Isurace (formerly called FBD Life ad Pesios). All customers will deal with oe compay for all their eeds. A2. Uderwritig Performace A2.1 The Udertakig The Group s uderwritig icome ad expeses by Solvecy II material lies of busiess for 2018 ad 2017 are set out i the tables below. Motor vehicle liability 2018 Other motor 2018 Fire ad other damage to property 2018 Geeral liability 2018 Other Isurace 2018 Total 2018 Gross Writte Premium 123,243 58,615 110,859 73,200 5,587 371,504 Net Eared Premium 108,181 58,927 99,448 66,521 4,827 337,903 Net Claims Icurred icludig MIBI (61,995) (25,112) (39,182) (51,256) (3,838) (181,383) Expeses icludig CHE (31,838) (11,676) (29,509) (18,864) (1,214) (93,102) Uderwritig Profit/Loss 14,348 22,139 30,756 (3,599) (226) 63,418 FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 5
Motor vehicle liability 2017 Other motor 2017 Fire ad other damage to property 2017 Geeral liability 2017 Other Isurace 2017 Total 2017 Gross Writte Premium 123,176 57,965 113,333 72,239 5,746 372,459 Net Eared Premium 105,680 56,666 93,521 65,121 4,944 325,931 Net Claims Icurred icludig MIBI (66,556) (27,879) (43,710) (54,651) (2,695) (195,491) Expeses icludig CHE (28,173) (11,115) (27,288) (17,710) (1,211) (85,497) Uderwritig Profit/Loss 10,952 17,672 22,522 (7,241) 1,038 44,943 A2.2 Gross Writte Premium The Compay s uderwritig activities are coducted i Irelad. Strog competitio i all customer segmets has resulted i a decrease i gross writte premium of 1m to 371.5m (2017: 372.5m). Icreases i Commercial busiess were offset by reductios i Agri ad Cosumer as we maitaied our uderwritig disciplie i the face of strog competitio. The uderlyig loss performace is improvig with miimal rate icreases carried across the book. New busiess volumes grew by 11% primarily i Persoal Lies. Retetio rates geerally held up with the aid of sustaied efforts ad customer iitiatives. A2.3 Claims Net claims icurred amouted to 181.4m (2017: 195.5m). There was positive prior year reserve releases of 26.9m maily from the 2015 to 2017 accidet years which showed sustaied improvemets relative to previous expectatios. There was a further release from prior year reserves of 1.8m as the timig of the itroductio of the 2% Motor Isurace Isolvecy Compesatio Fud (MIICF) levy o isurers was delayed. The Group icurred a et charge of 7.1m (2017: 1.9m) relatig to its MIBI levy ad related obligatio, which is calculated based o the Group s expected share of the motor market for 2018. The 2017 charge icludes the MIBI levy reserve release of 5.6m for the Setata case. A2.4 Claims Eviromet More moderate iflatio is evidet across the claims eviromet though the cost of claims cotiues to remai high. The level of icreases i the average cost of smaller ijury claims has slowed, though we have also observed a sigificat icrease i the average cost of motor damage ad property claims over the course of the year. We cotiue to await the eactmet by the Govermet of the PIAB (Amedmet) Bill to tackle the o-cooperatio of claimats ad their legal represetatives with the Ijuries Board. This legislatio is ecessary to reduce the rate at which claimats are rejectig compesatio offers by the Ijuries Board ad to ultimately lower the cost of claims. The Judicial Coucil is expected to rewrite the Book of Quatum although o bill has yet bee drafted. Overall we are very disappoited with the pace of reform, give that the key recommedatios of the Cost of Isurace Workig Group were published two years ago. We are hopeful claims awards will reduce followig the Court of Appeal case Byre v Ardehealth Compay Ltd where a uaimous judgemet cofirmed that the occupier had ot breached their statutory duty to take reasoable care ad ca assume visitors will take reasoable care of their ow safety, overturig the earlier High Court damages award. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 6
We cotiue to vigorously cotest suspect claims. We welcome the amedmet to the Civil Liability ad Courts Act where a judge ca dismiss a claim if a claimat gives false evidece havig provided a swor affidavit. This chage may act as a deterret for dishoest or false claims. The Persoal Ijuries Commissio report published i September 2018 highlighted icosistecies betwee Irish ad iteratioal awards that must be tackled if we are to reduce costs for Irish busiesses, farmers ad cosumers alike. A2.5 Weather, Claims Frequecy ad Large Claims I March 2018 Storm Emma was a combiatio of sow ad strog wids which created blizzard like coditios impactig the whole of Irelad, particularly the south. FBD received over 1,200 claims costig 6.6m et of re ad reistatemet premia. Stabilisatio i motor ijury frequecy cotiued followig reductios i 2016 ad 2017. The projected gross cost of large ijury claims (greater tha 0.5m) i 2018 is approximately i lie with the five year average. While there has bee a sigificat decrease i the umber of persoal motor large ijury claims this year, this has bee replaced by a sigificat icrease i the umber of employers liability claims, i particular large farm claims. We have also observed a improvemet i the developmet of large claims from 2016 ad 2017 relative to previous expectatios. A2.6 Expeses The Group s expese ratio was 24.9% (excludig Claims hadlig expeses (CHE) of 2.7%) (2017: 23.3%, CHE 2.9%). Other uderwritig expeses were 84.1m (excludig Claims hadlig expeses of 9m), a icrease of 8.1m. 4.6m of the icrease relates to chages i the re arragemets ad the balace reflects additioal IT sped i respect of work for the itroductio of GDPR, wage iflatio ad icreased regulatory costs. A3. Ivestmet Performace A3.1 Ivestmet Retur FBD s total ivestmet retur for 2018 was - 5.4m (-0.5% as a percetage of average assets uder maagemet for the year). This compares with 12.2m for the full year 2017 (1.2%). The table below shows the ivestmet icome of the Group by asset class: Actual retur 2018 2017 Corporate bods (2,386) 4,646 Govermet bods 373 3,030 Deposits ad cash 81 (129) Ivestmet property 905 2,147 Equities (3,212) 2,239 Other risk assets (1,124) 233 Total ivestmet icome (5,363) 12,167 The returs are a reflectio of the challegig ivestmet coditios experieced durig 2018 especially Q4. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 7
Corporate Bods The egative returs o corporate bods were drive by sigificat credit spread wideig durig 2018. This led to icreasig yields which reduced the market value of the portfolio ad offset the icome received i coupos. Govermet Bods Govermets bods achieved positive returs but were also impacted by spreads wideig, i particular for Italia govermet debt. Deposits ad cash Returs o deposits ad cash remai low due to the low iterest rate eviromet. Ivestmet Property There was a small icrease i the valuatio of Ivestmet Property i 2018 ( 0.3m) compared with a icrease of 1.6m i 2017. The remaiig retur is accouted for by retal icome from the property. Equities Equity markets experieced a big sell off durig Q4 2018 ad this led to the egative performace above. This was i cotrast to 2017 i which equity markets performed relatively well. Other risk assets Emergig Market Debt was the mai cotributor to the egative performace i this category of assets i 2018. This followig table shows the allocatio of uderwritig ivestmet assets across the Group. 31 December 2018 31 December 2017 m % m % Corporate bods 498 48% 499 47% Govermet bods 297 29% 259 25% Deposits ad cash 146 14% 230 22% Equities 24 2% 22 2% Ivestmet property 18 2% 18 2% Other risk assets 55 5% 24 2% 1,038 100% 1,052 100% The Group adopts a coservative ivestmet policy where it esures that its techical reserves are well matched by cash ad fixed iterest securities of similar ature ad duratio. FBD has icreased its allocatio to Govermet bods ad risk assets durig the year i lie with the compay s curret Strategic Asset Allocatio framework. Deposits ad Cash of 36.1m were used i the cacellatio ad repaymet of the Fairfax covertible bod. Other risk assets at 31 December 2018 cosisted of Emergig Market Debt ad Absolute Retur Fixed Icome assets. A3.2 Ivestmets i Securitisatio The Group has o ivestmets i securitisatio. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 8
A4. Other material icome ad expeses O 1 October 2018 FBD Holdigs plc aouced that its subsidiary FBD Isurace plc had etered ito a agreemet to purchase ad cacel the 70,000,000 7% Covertible Notes which were i issue for 86,059,000. Iterest costs associated with the Notes totallig 4,864,000 (2017: 6,298,000) were icurred ad recogised durig the fiacial year up to the date of derecogitio of the Notes. Further to the loss o the debt portio of the bod of 11,477,000 i the Cosolidated Icome Statemet, redemptio costs of 359,000 were icurred i the period. The total exceptioal loss icluded i the Cosolidated Icome Statemet is 11,836,000. O 2 October 2018 FBD Isurace plc successfully agreed to issue 50,000,000 of ew Callable Dated Deferrable Subordiated Notes due 2028. The agreed coupo for the otes was 5%. Iterest costs associated with the subordiated otes totallig 589,000 were icurred ad recogised durig the fiacial year. A5. Other material iformatio The Board of FBD Holdigs plc proposes to pay a divided of 50c per share for the 2018 fiacial year. This is equivalet to a pay-out ratio of approximately 40% i respect of 2018 profits. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 9
B. System of Goverace B1. Geeral Iformatio B1.1 The Board ad Committees Structure FBD Holdigs plc Board FBD Isurace plc Board Board subcommittees Executive Maagemet Team Board subcommittees Executive Maagemet Team Risk Committee Risk Committee Reservig Committee Audit Committee Audit Committee Remueratio Committee Remueratio Committee Nomiatio Committee Nomiatio Committee The Board The primary role of the Board is to provide leadership ad strategic directio while maitaiig effective cotrol over the activities of the Group. The Board has approved a Corporate Goverace Framework settig out its role ad resposibilities. This is reviewed aually as part of the Board s evaluatio of its performace ad goverace arragemets. The Framework icludes a formal schedule of matters reserved to the Board for its cosideratio ad decisio, which icludes: The approval of the Group s objectives ad strategy; Approval of the aual budget icludig capital expediture ad the review of the Group s systems of iteral cotrol; Maiteace of the appropriate level of capital, the allocatio thereof ad decisios as to the recommedatio or paymet of divideds; Approval of Fiacial Statemets; ad The appoitmet of Directors ad the Compay Secretary. This schedule esures that the skills, expertise ad experiece of the Directors are haressed to best effect ad esures that ay major opportuities or challeges for the Group come before the Board for cosideratio ad decisio. Other specific resposibilities of the Board are delegated to Board appoited Committees, details of which are give below. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 10
Risk Committee The Committee is the forum for risk goverace withi FBD. It is resposible for providig oversight ad advice to the Board i relatio to curret ad potetial future risk exposures of the Group ad future risk strategy. This advice icludes recommedig a risk maagemet framework icorporatig strategies, policies, risk appetites ad risk idicators to the Board for approval. The Risk Committee oversees the risk maagemet fuctio, which is maaged by the Chief Risk Officer (CRO). The key resposibilities delegated to the Committee are to: Promote a risk awareess culture withi the Group; Esure that the material risks facig the Group have bee idetified ad that appropriate arragemets are i place to maage ad mitigate those risks effectively; Advise the Board o the effectiveess of strategies ad policies with respect to maitaiig, o a ogoig basis, the amouts, types ad distributio of capital adequate to cover the risks of the Group; Review ad challege risk iformatio received by the Chief Risk Officer from the busiess departmets to esure that the Group is ot exceedig the risk limits set by the Board; Preset a profile of the Group s key risks, risk maagemet framework, risk appetite ad tolerace ad risk policies at least aually together with a summary of the Committee s busiess to the Board. Audit Committee The objective of the Committee is to assist the Board i fulfillig its oversight resposibilities for such matters as fiacial reportig, the system of iteral cotrol ad maagemet of fiacial risks, the audit process ad the Group s process for moitorig compliace with laws ad regulatios. The key resposibilities delegated to the Committee iclude: Reviewig the Group s fiacial results aoucemets ad Fiacial Statemets; Reviewig the Solvecy II returs; Overseeig the relatioship with the exteral auditors icludig reviewig their terms of egagemet, idepedece ad fees; Reviewig the scope, resources, results ad effectiveess of the Group s iteral audit fuctio; ad Performig detailed reviews of specific areas of fiacial reportig as required by the Board or the Committee. The Committee members have bee selected to esure that the Committee has available to it the rage of skills ad experiece ecessary to discharge its resposibilities. Remueratio Committee The objective of the Committee is to assist the Board i esurig that the level of remueratio i the Group is sufficiet to attract, retai ad motivate executive Directors ad seior maagemet of the quality required to ru the Group i a maer which is fair ad i lie with market orms, while ot exposig the Group to uecessary levels of risk. The key resposibilities delegated to the Committee iclude: Determiig the broad policy for the remueratio of the Group s executive Directors, Compay Secretary ad other seior executives; Determiig the total remueratio packages for the foregoig idividuals, icludig salaries, variable remueratio, pesio ad other beefit provisio ad ay compesatio o termiatio of office; Esurig that the Group operates to recogised good goverace stadards i relatio to remueratio; Makig awards of shares uder the Group s approved log term icetive pla; ad Preparatio of the detailed Report o Directors Remueratio. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 11
Nomiatio Committee The objective of the committee is to esure that the Board ad its Committees are made up of idividuals with the ecessary skills, kowledge ad experiece to esure that the Board is effective i dischargig its resposibilities. The key resposibilities delegated to the Committee iclude: Reviewig the structure, size ad compositio of the Board ad makig recommedatios to the Board for ay appoitmets or other chages; Recommedig chages to the Board s committees; ad Advisig the Board i relatio to successio plaig both for the Board ad the seior executives i the Group. Reservig Committee The Executive Maagemet Team established a Reservig Committee for the Compay with idepedet No-Executive Directors as members, with formal terms of referece ad with resposibility, iter alia, for the followig: O a quarterly basis to review the adequacy of reserves ad to recommed to the Board the level of Best Estimate for iclusio i the fiacial statemets; The review of the adequacy of Solvecy II Techical Provisios ad recommed for iclusio i regulatory returs; The review of all reports of the Head of Actuarial Fuctio as to the adequacy of reserves ad reportig to the Board of Directors thereo; The review of all reports of the Peer Review Actuary ad ay reports made available by the exteral auditors; ad Agreemet of the risk appetite for reservig risk ad the recommedatio of said agreemet to the Board Risk Committee ad the Board. The Committee has full access to the Group s Head of Actuarial Fuctio ad ay other perso as deemed ecessary by the Committee to effectively carry out its fuctios. B1.2 Key Roles The Chairma The role of the Chairma is set out i writig i the Corporate Goverace Framework. He is resposible, iter alia, for: The effective ruig of the Board, settig its ageda ad esurig that it receives accurate, timely ad clear iformatio; Esurig that the Board as a whole plays a full ad costructive part i the developmet ad determiatio of the Group s strategy ad overall commercial objectives; ad Esurig that the views of shareholders are commuicated to the Board. The Group Chief Executive The role of the Group Chief Executive is set out i writig i the Corporate Goverace Framework. She is resposible, iter alia, for: Ruig the Group s busiess; Proposig ad developig the Group s strategy ad overall objectives i close cosultatio with the Chairma ad the Board; ad Implemetig the decisios of the Board ad its Committees. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 12
The Executive Maagemet Team The Group Chief Executive has established a Executive Maagemet Team ( EMT ) comprisig seior Group executives to assist her i the discharge of her resposibilities for the Group s performace, operatios ad compliace. The compositio of this team is a matter for the decisio of the Group Chief Executive ad its role ad resposibilities iclude: Maagig the day to day ruig of the Group s busiess; Formulatig the Group s strategic plas for the approval of the Board; Commuicatig the stadards of performace, strategy ad goals of the Group to meet the objectives approved by the Board; Leadig the implemetatio of the agreed programme of priority developmet iitiatives; Reviewig ad commuicatig progress agaist the goals, providig directio to the Group s employees, removig barriers to achievig the goals ad allocatig the Group s resources to the areas of greatest importace; Advisig the Board, through the Group Chief Executive, o all matters cocerig orgaisatioal strategy ad performace. B1.3 Authority ad idepedece of key fuctios The cotrol fuctios report regularly to the Board o the effectiveess of the System of Goverace icludig the Iteral Cotrol System. The cotrol fuctios are defied as the Risk Fuctio, Compliace Fuctio, Iteral Audit Fuctio, ad Actuarial Fuctio. The Group uses a three lies of defece framework i the delieatio of accoutabilities for iteral cotrol. Primary resposibility for risk maagemet rests with lie maagemet; Lie maagemet is supported by the secod lie Risk, Actuarial ad Compliace Fuctios; The third ad fial lie of defece is the Iteral Audit fuctio, which provides idepedet assurace to the Audit Committee of the Board o risk takig activities. The 2d ad 3rd Lie of defece fuctios have defied Terms of Referece (ToR) reviewed at least aually by the appropriate committee. Risk Fuctio The Board has established a Risk Fuctio, headed by a appoited Chief Risk Officer. The Risk Fuctio has idepedet oversight of the Group risk maagemet activities with specific resposibility for esurig that the Group s risk maagemet framework is documeted ad implemeted ad that its risk maagemet procedures are carried out effectively. The Risk Fuctio acts as a secod lie of defece i the FBD s Risk Maagemet Framework. The Risk Fuctio s terms of referece states that the fuctio shall have full, urestricted access to all iformatio, explaatios, records, ad persoel ecessary for the purposes of the idetificatio, assessmet, moitorig ad reportig of risk to the Board Risk Committee ad the Board. Compliace Fuctio The Board has established a Compliace Fuctio, headed by a appoited Head of Compliace. The Compliace Fuctio acts i a advisory, oversight ad assurace role to esure that the Group has the ecessary systems ad cotrols i place to esure adherece, o a o-goig basis, to its legal ad regulatory requiremets. The Compliace Fuctio acts as a secod lie of defece i the FBD s Risk Maagemet Framework. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 13
The Compliace Fuctio s Terms of Referece states that the fuctio shall have full urestricted access to all iformatio, explaatios, records, ad persoel ecessary for the purposes of the idetificatio, assessmet, moitorig ad reportig of compliace to Seior Maagemet ad the Board. Actuarial Fuctio The Board has established a Actuarial Fuctio, headed by a appoited Head of Actuarial Fuctio. The Actuarial Fuctio co-ordiates the calculatio of Techical Provisios ad provides a Opiio ad accompayig report o the Techical Provisios to the Board ad the Cetral Bak of Irelad. I additio, the Actuarial Fuctio prepares a Opiio o the Uderwritig Policy, Re arragemets ad the ORSA. The Actuarial Fuctio acts as a secod lie of defece i FBD s Risk Maagemet Framework. Iteral Audit Fuctio The Board has established a Iteral Audit Fuctio, headed by a appoited Head of Iteral Audit. Iteral Audit is a idepedet fuctio reportig to the Board through the Audit Committee. Iteral Audit acts as the third lie of defece i the FBD Risk Maagemet Framework ad examies ad evaluates the fuctioig of the iteral cotrols ad all other elemets of the system of goverace, as well as the compliace of activities with iteral strategies, policies, processes ad reportig procedures. B1.4 Material chages durig the period There were o chages to the Board i 2018. The table below sets out the Directors who served durig 2018: Liam Herlihy Walter Bogaerts Mary Brea Dermot Browe Joe Healy Orlagh Hut Fioa Muldoo David O Coor Joh O Grady Padraig Walshe Chairma Idepedet No-Executive Director Idepedet No-Executive Director Seior Idepedet No-Executive Director Idepedet No-Executive Director Idepedet No-Executive Director Group Chief Executive Idepedet No-Executive Director Group Chief Fiacial Officer No-Executive Director Ms. Orlagh Hut ad Mr. Dermot Browe have aouced their itetio ot to stad for re-electio at the AGM. The Board is i the process of replacig the retirig idepedet o-executive directors. B1.5 Remueratio policy ad practices The Group s Remueratio Policy is determied by the Board of FBD Holdigs plc through the Remueratio Committee. It is the policy of the Group to provide all employees of FBD with appropriate remueratio ad icetives to ecourage high performace ad to esure that they are, i a fair ad resposible maer, rewarded for their idividual cotributios which are aliged to the success of FBD while also esurig that the priciples of soud, prudet risk maagemet are fully reflected ad that excessive risk takig is either ecouraged or rewarded. The remueratio of the o-executive Directors of the Group is determied by the Board. The idividual remueratio packages of Seior Executives are determied by the Remueratio Committee who report to the Board. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 14
B1.5.1 Compoets of Remueratio Fixed Remueratio The core elemet of the remueratio package for all employees is fixed remueratio comprisig basic salary ad membership of a pesio scheme. Basic salary is reviewed aually havig regard to persoal performace, Group performace ad competitive market practice. Variable Remueratio Variable remueratio, which is based o idividual ad Group performace, is available to be awarded to all eligible permaet employees ad varies by amout ad structure depedig o role but i all cases is desiged to ecourage ad reward ehaced performace, whilst promotig soud risk maagemet. 1. Short Term Icetives Bous Head Office Employees ad Maagemet Short Term Icetives comprise aual bouses. For the majority of employees, the attaimet of Group fiacial targets determies the amout of aual bous which may be available to ay employee. These targets ecourage ehaced performace i the best iterests of the Group ad its Shareholders ad are approved by the Remueratio Committee. After the fiacial targets have bee measured, the idividual performace of the employee will be assessed agaist agreed performace objectives. This will determie the amout of aual bous available to be paid. The Remueratio Committee approves the aual bous payable to each of the Seior Executives. Sales Icetives Sales employees bous arragemets are based o the achievemet of KPIs which are agreed aually icludig targets for such matters as gross writte premium, retetio levels, discretioary discouts ceded, compliace stadards ad busiess quality. Ay bous or variable pay proposals are i compliace with Cetral Bak of Irelad Guidelies for Variable Remueratio Arragemets for Sales Staff. 2. Log Term Icetives Uder the Log Term Icetive Pla (LTIP), coditioal awards of shares i FBD Holdigs plc are made at the sole discretio of the Remueratio Committee of FBD Holdigs plc to ay FBD Group executive or employee so desigated by it. The awards are made withi the terms of the shareholder approved scheme. The period over which the performace coditios applyig to a coditioal LTIP award are measured is curretly over three years. These coditios are desiged to esure aligmet betwee the iterests of the employees ad those of FBD Holdigs plc s shareholders, to icetivise retetio of key idividuals ad to ecourage appropriate focus o log-term sustaiable busiess performace. The Chief Risk Officer of the Group is cosulted prior to ay proposed coditioal award by the Remueratio Committee to Executives or employees of the Group to esure that the coditios attachig to ay award do ot ecourage excessive takig of risk. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 15
B1.5.2 Compoets of Remueratio The remueratio of persos who exercise a sigificat ifluece o the udertakig ad with members of the admiistrative, maagemet or supervisory body (which comprises the Board of Directors ad Compay Secretary of FBD Isurace plc ad the members of the Executive Maagemet Team) is as follows: 2018 2017 Short term employee beefits 1 3,545 3,590 Post-employmet beefits 297 269 Share based paymets 316 440 Charge to the Cosolidated Icome Statemet 4,158 4,299 1 Short term beefits iclude fees to o-executive Directors, salaries ad other short-term beefits to all persoel that exercise sigificat ifluece. B1.5.3 Special Arragemets for Risk, Compliace ad Iteral Audit Roles There is o likage betwee aual bous ad Group performace targets for employees who hold roles i the Risk, Compliace ad Iteral Audit fuctios. Aual bouses will be awarded coditioal oly o the attaimet of idividual performace objectives. This esures the idepedece of these role holders ad their ability to perform their secod ad third lie of defece roles, without compromise. B1.6 Supplemetary Pesio FBD operates a Defied Cotributio pesio arragemet for its employees, where both the employee ad employer cotribute to the retiremet fud. FBD also operates a legacy Defied Beefit arragemet, which is closed to future accrual. B1.7 Material Trasactios There are o material trasactios to ote. B2. Fitess ad Probity Requiremets B2.1 Board requiremets The Cetral Bak of Irelad published its Regulatios ad Stadards of Fitess ad Probity. The Board has approved a Corporate Goverace Framework settig out its role ad resposibilities (see sectio B1.1 for more detail). Other specific resposibilities of the Board are delegated to Board appoited Committees, details of which are give later i this report. B2.2 Fit ad proper policy The Cetral Bak of Irelad published its Regulatios ad Stadards of Fitess ad Probity (the F&P Stadards), issued uder Part 3 of the Cetral Bak Reform Act 2010 ( the 2010 Act ), o 1 September 2011. These statutory stadards came ito effect o 1 December 2011. The 2010 Act provides for a fitess ad probity regime for the periodic assessmet of idividuals performig Cotrolled Fuctios ad Pre-Approval Cotrolled Fuctios, icludig Directors, seior maagemet ad those employees whose activities have a material impact o the busiess. As a regulated etity, FBD is subject to the F&P Stadards. There are rigorous ad cotiuous processes i operatio withi FBD to determie which roles fall uder the F&P Stadards ad to collect ad collate iformatio to evidece compliace with the F&P Stadards. FBD cosiders itself to be i compliace with the F&P Stadards. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 16
B2.3 Selectio due diligece The Compay operates robust HR recruitmet ad selectio cotrols which esure that we select oly cadidates that meet the F&P Stadards. These cotrols iclude appropriate screeig of cadidates ad the completio of the Cetral Bak s Idividual Questioaire by all PCF preferred cadidates prior to their egagemet. This icludes screeig for amogst other thigs; educatioal qualificatio ad work experiece; bakruptcy ad debt judgmets ad regulatory sactios. I additio, our employmet cotract terms require cotiuig adherece to all regulatory stadards icludig, amogst others, the F&P Stadards ad Miimum Competecy Code (MCC) obligatios. B2.4 Cotiuous due diligece The Group operates a cotiuous due diligece programme which covers all Directors, seior executives ad employees across the Group. Uder this programme, traiig ad a questioaire are completed aually by Cotrolled Fuctio ad Pre-Approval Cotrolled Fuctio role holders. Validatio ad assessmet of completed Idividual Questioaires is idepedetly udertake by HR i cosultatio with Compliace. Where this review causes the Chief HR Officer ad the Head of Compliace to form the opiio that there is reaso to believe or suspect a perso s fitess ad probity to perform the relevat fuctio, a formal process may be coducted which may result i the perso beig removed from carryig out the regulated fuctio. Such circumstace may iclude, but is ot limited to, material or udeclared judgemets; crimial or civil covictios or regulatory cesure. I assessig the impact of these circumstaces, FBD takes ito cosideratio all relevat matters icludig the circumstaces surroudig the issue; the legth of time sice the issue; the explaatio give; the proposed role ad its impact. B3. Risk Maagemet System B3.1 Risk Maagemet Framework FBD has adopted a Eterprise Risk Maagemet Framework which comprises of strategies, policies, processes ad reportig procedures ecessary to idetify, assess, moitor, maage ad report, o a cotiuous basis the risks, at a idividual ad at a aggregated level, to which the Group could be exposed. The key elemets of the Eterprise Risk Maagemet framework are goverace, process ad people. FBD has established procedures to moitor ad report o the system of cotrols ad it follows the three lies of defece model outlied previously. Key compoets of moitorig ad reportig of the system of cotrol iclude: Busiess Uit Quality Assurace; Busiess Uit Maagemet Iformatio; Risk Cotrol Self-Assessmet; Error Reportig; First Lie Reviews; Secod Lie Reviews; Third Lie Iteral Audits; ad Board/Executive Committee Reportig. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 17
B3.2 Risk Implemetatio ad Itegratio All staff are expected to demostrate appropriate stadards of behaviour i the developmet of strategy ad the pursuit of objectives. This philosophy is supported by the followig guidig priciples. Maagemet ad employees shall: Cosider all forms of risk i decisio-makig; Create ad evaluate busiess-uit level ad Group-level risk profile to cosider what s best for their idividual busiess uit ad departmet ad what s best for the Group as a whole; Support executive maagemet s creatio of a Group-level portfolio view of risk; Retai owership ad accoutability for risk ad risk maagemet at the busiess uit or other poit of ifluece level; Strive to achieve best practices i eterprise risk maagemet; Moitor compliace with policies ad procedures ad the state of eterprise risk maagemet; Leverage existig risk maagemet practices, wherever they exist withi the Group; Documet ad report all sigificat risks ad eterprise risk maagemet deficiecies; ad Accept that eterprise risk maagemet is madatory, ot optioal. Roles ad Resposibilities While the Board has ultimate resposibility for all risk-takig activity withi the Group, it has delegated some risk goverace tasks to a umber of committees or key officers. The Group uses a three lies of defece framework i the delieatio of accoutabilities for risk goverace as outlied i B 1.3. The Risk Maagemet Fuctio maitais a Corporate Risk Register with each risk assiged to a Risk Ower ad a Risk Champio i the Busiess. Lie Maagemet/Risk Ower The first lie of defece withi each busiess ad support uit is Lie Maagemet. Lie maagemet has primary resposibility for esurig that the busiess complies with their specific obligatios. I additio, the first lie of defece is resposible for workig with the Risk Maagemet Fuctio to idetify, assess, moitor ad report risk. Lie maagemet is also resposible for esurig that all staff members receive appropriate traiig. Risk Champio Risk Champios report to their departmetal maager with a dotted lie to the Chief Risk Officer. These idividuals are well placed i FBD Isurace to esure the cotiuous moitorig ad reportig of their risk ad cotrol eviromet. Risk Appetite Framework Risk appetite is a measure of the amout ad type of risks FBD is willig to accept or ot accept over a defied period of time i pursuit of its objectives. The Risk Appetite Framework defies FBD s appetite for each mai risk category describig at a high level the type of risk we are willig to take. The Group s appetite is to maitai sustaiable profit ad a strog capital positio while actig i the best iterests of cosumers. The risk appetite i FBD is drive by a overarchig desire to protect the solvecy of the Group at all times. Through the proactive maagemet of risk, FBD esures that it does ot curretly have or will ot take o a idividual risk or combiatio of risks that could threate the solvecy of the Group. This esures that FBD has ad will have i the future sufficiet capital to pay its policyholders ad all other creditors i full as these liabilities fall due. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 18
The maagemet of risks are outlied further i Sectio C of this report. The Risk Appetite Framework is reviewed ad approved at least aually by the Board ad is moitored ad reported by the Risk Fuctio i order to support ad embed risk i the decisio makig process of the Group. Risk Policies The Group has developed a umber of risk maagemet policies which clearly set out the followig: Defiitio of risk; Objective; Roles ad Resposibilities; Processes; ad Reportig procedures to be applied. The risk policies are reviewed at least aually by the Board or more frequetly if the system, or area cocered, udergoes sigificat chage. B4. The Ow Risk ad Solvecy Assessmet (ORSA) Process B4.1 ORSA Process Overview A ORSA policy has bee documeted ad is approved by the Board aually. The ORSA report is prepared aually ad reviewed by the Board. The Group has i place processes for maagig its overall solvecy eeds ad regulatory capital requiremets ad itegratig the strategic developmet process with the maagemet of all material risks to which it is exposed. The Board is made aware of the implicatios that strategic decisios have o the risk profile, regulatory capital requiremets ad overall solvecy eeds of the Group ad to cosider whether these effects are desirable, affordable ad feasible give the quatity ad quality of its capital. The output from the ORSA assists the Board i makig strategic decisios icludig i relatio to: Capital Maagemet Policy; Adequacy of Risk Appetite; ad Busiess plaig. Followig the output from the ORSA, where ecessary, maagemet actios are developed. Ay strategic or other major decisios that may materially affect the risk ad/or capital positio of the Group eed to be cosidered through the ORSA process before such a decisio is take. This does ot require a full performace of the ORSA. The Group cosider how the output of the last assessmet of the overall solvecy eeds chages if certai decisios are take ad how these decisios affect the regulatory capital requiremets. The ORSA provides a comprehesive view ad uderstadig of the risks the Group is exposed to or could face i the future ad how they traslate ito capital requiremets or alteratively require mitigatio actios. The ORSA process ad output is commuicated to the Board ad Executive Maagemet via the Iteral Report o ORSA. The Iteral Report o ORSA is prepared by the Chief Risk Officer ad preseted to the Board Risk Committee ad Board for approval. The iformatio commuicated is sufficietly detailed to esure that the Board Risk Committee ad Board is able to use it i its strategic decisio-makig process ad that other employees ca esure that ay ecessary follow-up actio o foot of the report is take. The Board is resposible for challegig ad approvig the results of the ORSA. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 19
B4.2 ORSA Approval by the Admiistrative, Maagemet or Supervisory Body (AMSB) The ORSA is a top dow process owed by the Board. It is a ogoig process which esures that the busiess is maaged soudly ad prudetly by idetifyig, assessig ad moitorig curret ad future solvecy eeds i light of all the risks faced. FBD must submit at least oe ORSA Report to the Cetral Bak of Irelad each year. The ORSA is a very importat process for the Board as it provides it with a comprehesive view ad uderstadig of the risks to which the Group is exposed or could face i the future ad how they traslate ito capital eeds or alteratively require mitigatig actios. To aid i the assessmet of the overall solvecy eeds ad busiess ad capital plaig process, the Group will carry out a umber of stress tests, reverse stress tests ad sceario aalyses. The ature ad umber of stress ad sceario tests is iitially developed by the Risk Fuctio with iput from key stakeholders. The stress ad scearios chose take ito accout the material risks facig the Group, exteral eviromet ad likelihood of occurrig based o historical aalysis. These are preseted to the Board Risk Committee for review ad challege ad to the Board for review, challege ad approval. The followig are documeted as part of the stress testig: Source of data used; Stress test assumptios used; Method of stress testig used; ad Coclusio ad actio pla if ecessary. The ORSA Supervisory Report is prepared by the Chief Risk Officer ad is subject to Board Risk Committee ad Board approval prior to submissio to the Cetral Bak. The ORSA Supervisory Report is the same as the iteral report uless otherwise determied by the Board. B4.3 Overall Solvecy Needs FBD s overall solvecy eeds are assessed at least aually as part of the ORSA process. The assessmet takes ito accout the specific risk profile, approved risk tolerace limits ad the busiess strategy of the Group. A key part of this assessmet is to review the sigificace of ay deviatio betwee the risk profile of FBD ad the assumptios uderlyig the Stadard Formula SCR calculatio. Our approach to this assessmet of the appropriateess of the Stadard Formula is as follows: Assess, from a qualitative perspective, if key assumptios for each module ad sub-module i the Stadard Formula are appropriate for capturig the risks specific to the Compay. For ay key assumptio assessed as potetially iappropriate to the Compay, a further qualitative assessmet is carried out to determie if ay deviatio is likely to materially impact the overall SCR. Where a key assumptio is assessed as both potetially iappropriate ad also likely to have a material impact o the overall SCR a quatitative assessmet is carried out to better capture the risk exposure for the Compay. O completio of the quatitative assessmet the overall appropriateess of SCR is determied for the Compay. As part of the overall solvecy eeds assessmet the Compay s Strategy ad Busiess Pla is cosidered. Base case fiacial projectios coverig the FBD plaig cycle period are developed. Based o these fiacials the Compay s capital positio is projected over a three year period. This capital projectio is the subjected to a umber of stress tests, reverse stress tests ad sceario aalyses. Based o the outputs of these tests the Compay reviews the appropriateess of their Capital Risk Appetite. FBD Holdigs plc 2018 Solvecy ad Fiacial Coditio Report 20