FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report Protectio. It s i our ature.
CONTENTS 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 8 A5. Other Material Iformatio 8 B. System of Goverace 9 B1. Geeral Iformatio 9 B2. Fitess ad Probity Requiremets 15 B3. Risk Maagemet System 17 B4. The Ow Risk ad Solvecy Assessmet (ORSA) Process 18 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 30 C6. Other Material Risks 31 D. Valuatio for Solvecy Purposes 32 D1. Assets 34 D2. Techical Provisios 35 D3. Other Liabilities 38 D4. Alterative Methods of Valuatio 38 E. Capital Maagemet 39 E1. Ow Fuds 39 E2. Solvecy Capital Requiremet ad Miimum Capital Requiremets 41 F. Appedices 43
INTRODUCTION The EU-wide Solvecy II Directive came ito force with effect from 1 Jauary 2016. This documet is the secod Solvecy ad Fiacial Coditio Report (SFCR) published uder these guidelies 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 isurace 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 brokerage, FBD Fiacial Solutios (also kow as FBD Life & Pesios Limited). The Group is a holdig compay icorporated i Irelad. The Busiess ad Performace sectio highlights the profitability improvemet for FBD Holdigs plc as the Group recorded a profit before tax from cotiuig operatios of 50m i 2017 (2016: 11m). The Group delivered a uderwritig profit of 45m, compared to the uderwritig profit of 3m i 2016. Net claims icurred amouted to 203.1m (2016: 227.9m). We experieced positive prior year reserve developmet of 15.4m drive by the 2016 accidet year which is ow showig sustaied frequecy improvemets. The MIBI levy reserve release of 5.6m is also reflected i these results followig the Supreme Court rulig o the Setata case. The Group s expese ratio was 23.3% (2016: 22.6%). FBD s total ivestmet retur for 2017 was 1.2% (2016: 1.9%). The modest returs are a reflectio of the Eurozoe low iterest rate eviromet ad the Group s coservative ivestmet portfolio. 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 2017, the Board comprised of 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. Two Directors retired ad oe was appoited durig 2017. 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). FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 1
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 o a IFRS basis. The FBD Isurace plc Fiacial Statemets are prepared o a Irish GAAP basis. 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 isurace 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 2017 the Group Solvecy Capital Ratio was at 164%. The FBD Isurace plc ratio was also at 164%. There is a proposed divided payable i May 2018 which will reduce the Solvecy Capital Ratio to 160% for both FBD Holdigs plc ad FBD Isurace plc. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 2
A. BUSINESS AND PERFORMANCE A1. The Busiess A1.1 The Udertakig FBD Holdigs plc is icorporated i Irelad. The oly isurace 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 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 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 Irelad A1.4 FBD shareholders with qualifyig holdigs: The Group has the followig iterests above 10%. 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 2017 Solvecy ad Fiacial Coditio Report 3
A1.5 FBD Holdigs plc Group Structure: FBD Holdigs plc FBD Life & Pesios Ltd FBD Isurace plc 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 Life & Pesios Limited (also kow as FBD Fiacial Solutios ) FBD Corporate Services Limited FBD Trustee Compay Limited Irelad A holdig compay which is paret to the other Group compaies Irelad A regulated isurace compay which uderwrites motor, property, liability ad other smaller isurace lies Irelad A itermediary compay that deals with Life, Pesios ad Ivestmet brokig Irelad This compay will employ all staff workig for FBD Holdigs plc from 1 Jauary 2018 Irelad The priciple activity of this compay is to act as Trustee to FBD Isurace plc pesio schemes No-Pricipal Subsidiaries (represets less tha 1% of FBD Holdigs Net Asset Value) Bieritz Is Limited Legacy Ivestmets Holdigs Limited Topehall Limited A1.6 Relevat operatios trasactios withi the Group 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 FBD Isurace plc icurs a maagemet recharge from FBD Holdigs plc for services provided. FBD Life & Pesios Ltd icurs a maagemet recharge from FBD Isurace plc for services provided. No distributios were paid durig the year by ay compaies. A1.7 Material lies of busiess ad geographical areas FBD Isurace plc provides isurace to agricultural, small busiess ad cosumer customers coverig farm, busiess, home ad motor isurace i Irelad. For Solvecy II purposes the compay reports uder the followig Solvecy II lies of busiess: 1) Motor Vehicle Liability Isurace; 2) Other Motor Isurace; 3) Fire ad other damage to property isurace; 4) Geeral Liability Isurace; 5) Icome Protectio isurace; ad 6) Marie, aviatio ad trasport isurace. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 4
Lies of busiess 5) Icome Protectio ad 6) Marie are combied uder Other Isurace for the tables i this report. There were o sigificat or other evets that occurred over the reportig period that had a material impact o the udertakig. A2. Uderwritig Performace A2.1 The Udertakig FBD Isurace plc is the oly isurace udertakig i the Group. The Compay s uderwritig icome ad expeses by Solvecy II material lies of busiess for 2017 ad 2016 are set out i the tables below. Motor vehicle liability isurace 2017 Other motor isurace 2017 Fire ad other damage to property isurace 2017 Geeral liability isurace 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 et of reisurace commissio (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 Motor vehicle liability isurace 2016 Other motor isurace 2016 Fire ad other damage to property isurace 2016 Geeral liability isurace 2016 Other Isurace 2016 Total 2016 Gross Writte Premium 122,018 49,839 115,637 68,487 5,817 361,799 Net Eared Premium 107,661 48,547 82,020 64,612 5,387 308,226 Net Claims Icurred icludig MIBI (91,342) (24,408) (25,166) (80,601) (3,741) (225,257) Expeses et of reisurace commissio (28,233) (11,094) (18,153) (21,000) (1,270) (79,750) Uderwritig Profit/Loss (11,914) 13,045 38,701 (36,989) 376 3,219 A2.2 Gross Writte Premium The Compay s uderwritig activities are coducted i Irelad. Gross writte premium icreased by 10.7m to 372.5m (2016: 361.8m), which is largely attributable to our farm, busiess ad private motor products of 11.6m, offset by a 0.9m reductio i broker busiess. Moderate rate icreases were carried across the book ad the uderlyig performace of the busiess cotiues to improve. New busiess volumes grew by 12% largely i commercial, private motor ad farm. We cotiue to see strog retetio rates across our book. A2.3 Claims Net claims icurred amouted to 203.1m (2016: 227.9m) excludig its MIBI obligatio. We experieced positive prior year reserve developmet of 15.4m primarily drive by the 2016 accidet year which is ow showig sustaied frequecy improvemets. The MIBI levy reserve release of 5.6m is also reflected i these results followig the Supreme Court rulig o the Setata case. This case foud that MIBI was ot liable for FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 5
third party motor isurer isolvecy. I total the Group icurred a et charge of 1.9m (2016: 7.8m) relatig to its MIBI levy ad related obligatio, which is calculated based o the Group s expected share of the motor market for 2017 ad icludes the MIBI levy reserve release of 5.6m. A2.4 Claims Eviromet The claims eviromet has show sigs of moderatio, but overall remais difficult. The average cost of claims cotiues to icrease with higher levels of iflatio observed i ijury settlemets, particularly for more mior ijury levels. The ameded Book of Quatum has icreased the level of damages awarded by the Ijuries Board for most categories of ijury. Despite this developmet, the rejectio rate of Ijuries Board awards remais very high amogst claimats. FBD s rejectio rate has icreased by 30% sice 2013, with sigificatly fewer claimats ow acceptig Ijuries Board awards tha previously. The eactmet by the Govermet of the proposed PIAB (Amedmet) Bill to tackle the o-co-operatio of claimats ad their legal represetatives with the Ijuries Board, is ecessary to reduce the claimat rejectio rate ad lower the cost of claims. I Jauary 2017, the Cost of Isurace Workig Group published its report o Motor Isurace, with suggested reforms icludig stregtheig the power of the Ijuries Board, establishmet of a Persoal Ijuries Commissio ad improved data sharig. The report o the cost of Employer ad Public Liability isurace was published recetly with some additioal recommedatios. Progress to date o these recommedatios icludes: The establishmet of the Persoal Ijuries Commissio ad its first report, with a focus o stadardisatio of whiplash ijuries. The publicatio of the First Motor Isurace Key Iformatio Report aimed at greater trasparecy o costs ad treds. Proposed icreased powers for the Ijuries Board as outlied i the PIAB (Amedmet) Bill (eactmet awaited). Work started to establish a itegrated isurace fraud database ad the uisured drivers database which ca be updated to the Garda Automatic Number Plate Recogitio (ANPR) system. While ackowledgig the limited progress made to date, i order for costs to reduce we believe that these projects urgetly eed to reach coclusio ad the required legislatio must be eacted to deliver meaigful reform. A2.5 Weather, Claims Frequecy ad Large Claims Storm Ophelia, the strogest easter Atlatic hurricae o record, swept through the coutry o 16 October 2017, causig sigificat wid damage. We received almost 2,200 claims with a approximate cost of 10m- 11m. The et cost to FBD is 5.4m et of reisurace (iclusive of reistatemet premia). Our uderwritig approach has led to a sustaied positive tred i motor ijury frequecy. The gross cost of large claims i 2017 (greater tha 0.5m) is 44m ad is largely i lie with the average of the past five years. O a et of reisurace basis, our large claims cost is 5m lower tha the five-year average as a result of the lower retetios i our 2017 reisurace programme. A2.6 Expeses The Group s expese ratio was 23.3% (2016: 22.6%). Other uderwritig expeses were 75.9m a icrease of 6.5m. 4.5m of the icrease relates to chages i the reisurace arragemets. The balace relates to the icreased full year depreciatio charge from the Group s ew policy admiistratio system. The reclassificatio of claims hadlig expeses has reduced the reported expese ratio by 2.9 percetage poits (2016: 3.4 percetage poits) ad icreased the loss ratio by the same amout. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 6
A3. Ivestmet Performace A3.1 Ivestmet Retur Ivestmet Allocatio FBD s total ivestmet retur for 2017 was 1.2% (2016: 1.9%), with 0.9% (2016: 0.8%) recogised i the Cosolidated Icome Statemet ad 0.3% (2016: 1.1%) recogised i the Cosolidated Statemet of Comprehesive Icome. The modest returs are a reflectio of the Eurozoe low iterest rate eviromet ad the Group s coservative ivestmet portfolio (94% of total assets are ivested i cash ad bods). The Group holds a small portfolio of risk assets icludig equities, ivestmet property ad UCITS fuds. This table shows the uderwritig ivestmet assets of the Group. 31 December 2017 31 December 2016 m % m % Deposits ad cash 230 22% 270 27% Corporate bods 499 47% 493 49% Govermet bods 259 25% 177 18% Equities 22 2% 24 2% Uit trusts 24 2% 24 2% Ivestmet property 18 2% 16 2% 1,052 100% 1,004 100% The Group has cotiued with its coservative ivestmet policy durig the period. FBD has icreased its exposure to Govermet bods towards a 30% target allocatio. Durig 2018 FBD will move ito the fial phase of its strategic asset allocatio. The table below shows the ivestmet icome of the Group. 2017 2016 Actual retur Iterest ad similar icome 12,650 13,760 Icome from ivestmet properties 547 585 Realised profits o ivestmets (363) (1,746) Divided icome 568 657 Revaluatio of ivestmet properties 1,600 1,850 Urealised loss o fiacial ivestmets 5,641 (6,768) Total ivestmet icome 9,361 8,338 By Classificatio of ivestmet Deposits with baks (129) 121 Ivestmets held for tradig 2,296 105 Ivestmet properties 2,147 2,435 Available for sale ivestmets 5,047 5,677 Total ivestmet icome 9,361 8,338 FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 7
A3.2 Ivestmets i Securitisatio The Group has o ivestmets i securitisatio. A4. Other material icome ad expeses There are o other activities that are material. A5. Other material iformatio The Board of FBD Holdigs plc proposes to pay a divided of 24c per share for the 2017 fiacial year. This is equivalet to a pay-out ratio of approximately 20% i respect of 2017 profits. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 8
B. SYSTEM OF GOVERNANCE 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 later i this report. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 9
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 o a daily basis by the 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; ad 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 of the Group 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; 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 of the Group i esurig that the level of remueratio i the Group ad the split betwee fixed ad variable remueratio are 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 2017 Solvecy ad Fiacial Coditio Report 10
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; O a quarterly basis to review the Margi for Ucertaity proposals produced by the CFO; The review of all reports of the Peer Review Actuary ad 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 2017 Solvecy ad Fiacial Coditio Report 11
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; ad 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; ad 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 2 d ad 3 rd 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 Isurace 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 Isurace Risk Maagemet Framework. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 12
The Compliace Fuctio esures FBD remais up to date with legal ad regulatory requiremets ad that appropriate compliace cotrols exist ad operate effectively. The Compliace Fuctio has bee grated the authority to ivestigate ay matter it deems ecessary or prudet; to pose ad have aswered ay questio, to record ad documet ay matter; ad to make ay recommedatio to systems, processes or policy. The Compliace Fuctio has 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, reisurace arragemets ad the ORSA. The Actuarial Fuctio acts as a secod lie of defece i the FBD Isurace 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 Isurace risk maagemet framework by assessig whether all sigificat risks are idetified ad appropriately reported by maagemet ad the Risk Maagemet fuctio to the Board ad the Executive Maagemet; assessig whether they are adequately cotrolled; ad by challegig the Executive Maagemet to improve the effectiveess of goverace, risk maagemet ad iteral cotrols. B1.4 Material chages durig the period There were two retiremets ad oe appoitmet to the Board i 2017. The table below sets out the Directors who served at ay time durig 2017: Director Date of appoitmet/resigatio i 2017 Liam Herlihy Chairma/Appoited as Chairma 5 May 2017 Michael Berkery Chairma/Retired 5 May 2017 Walter Bogaerts Mary Brea Dermot Browe Sea Dorga Seior Idepedet No-Executive Director/ Appoited Seior Idepedet No-Executive Director 5 May 2017 Seior Idepedet No-Executive Director/ Retired 5 May 2017 Joe Healy Appoited 9 August 2017 Orlagh Hut Fioa Muldoo David O Coor Joh O Grady Padraig Walshe FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 13
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. 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, compay performace ad competitive market practice. Variable Remueratio Variable remueratio, which is based o idividual ad Group performace, is available to be awarded to all 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 compay 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. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 14
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. 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: The remueratio of maagemet persoel that exercise sigificat ifluece durig the year was as follows: 2017 2016 Short term employee beefits 1 3,590 3,005 Post-employmet beefits 269 222 Share based paymets 440 183 Charge to the Cosolidated Icome Statemet 4,299 3,410 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 Compay 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). FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 15
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. 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; regulatory sactios, reprimad ad complaits. 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. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 16
B3. Risk Maagemet System B3.1 Risk Maagemet Framework FBD Holdigs PLC 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; 1 st Lie Reviews; 2 d Lie Reviews; Iteral Audits; ad Board / Executive Committee Reportig. 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. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 17
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. 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 Needs ad regulatory capital requiremets ad itegratig the strategic developmet process with the maagemet of all material risks to which it is exposed. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 18
The Board is made aware of the implicatios that strategic decisios have o the risk profile, regulatory capital requiremets ad Overall Solvecy Needs 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; Busiess plaig; ad Product developmet. 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. Followig this sig off by the Board, iformatio o the results ad coclusios regardig the ORSA is commuicated to the Executive Maagemet Team. 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 mitigatio 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. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 19
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. The followig approach was take: The risk profile of the Group was reviewed versus the risk profile of the average compay for which the Stadard Formula was desiged; Each module ad sub-module of the Stadard Formula SCR calculatio was assessed from a qualitative perspective to judge if it was sigificat usig a materiality threshold; If a module, sub-module or key assumptio was deemed isigificat, the a qualitative assessmet was carried; If a module, sub-module or key assumptio was deemed sigificat but it was judged that the module or sub-module adequately captured the risk-profile of the compay for that risk or risks, the ratioale was provided; ad If a module, sub-module or uderlyig assumptio was deemed sigificat by the above approach or if the module or sub-module was thought to have the potetial to misstate the risks, the a quatitative aalysis was performed o this module, sub-module or assumptio. The most material elemet of the Stadard Formula calculatio for FBD is the risk sub-module of premium ad reserve risk. The key assumptio of the calculatio is the volatility parameters for o-life premium ad reserve risk. I the Stadard Formula these are set to reflect the average isurer s experiece. As part of the overall solvecy eeds assessmet FBD calculated their ow volatility parameters based o their ow past data. I additio, the assessmet icluded the followig risks which are ot covered by the Stadard Formula: 1. Equity Risk (withi Stadard Formula usig traditioal measures); 2. Flood Risk; 3. Iflatio Risk withi the Pesio Scheme; 4. Spread ad Default Risk for Eurozoe govermet bods; ad 5. Reputatioal Risk. Based o this assessmet of the solvecy requiremets ad the three year busiess pla FBD s Overall Solvecy Needs were projected i the ORSA Report. The strategic plas were subjected to a umber of stresses to assess their potetial impact o these Solvecy Needs. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 20
B5. Iteral Cotrol System B5.1 Iteral Cotrol Eviromet FBD has i place a iteral cotrol system that ecompasses the policies, processes, tasks, behaviours ad other aspects of the Group that, take together: Facilitate its effective ad efficiet operatio by eablig it to respod appropriately to sigificat busiess, operatioal, fiacial, compliace ad other risks to achievig the Group s objectives. This icludes the safeguardig of assets from iappropriate use or from loss ad fraud, ad esurig that liabilities are idetified ad maaged; Help esure the quality of iteral ad exteral reportig. This requires the maiteace of proper records ad processes that geerate a flow of timely, relevat ad reliable iformatio from withi ad outside the orgaisatio; ad Help esure compliace with applicable laws ad regulatios, ad also iteral policies with respect to the coduct of busiess. The Group s system of iteral cotrol comprises: Iteral cotrol framework; Idetificatio ad evaluatio of risks ad cotrol objectives; Cotrol activities; Iformatio ad commuicatio; Moitorig ad reportig of cotrols; ad Processes for reviewig the effectiveess of the iteral cotrol system. The Iteral Cotrol Framework is the mechaism uder which iteral cotrols are developed, implemeted, ad moitored. It cosists of the processes ad arragemets that esure iteral ad exteral risks to which FBD is exposed are idetified; appropriate ad effective iteral cotrols are developed ad implemeted to soudly ad prudetly maage these risks; ad reliable ad comprehesive systems are put i place to appropriately moitor the effectiveess of these cotrols. FBD has i place a appropriate ad effective iteral cotrol eviromet to esure that the Group is maaged ad cotrolled i a soud ad prudet maer. The Cotrol Framework is the foudatio for all the priciples of the Iteral Cotrol Policy which provides the disciplie, process ad structure. The factors which together comprise the cotrol eviromet are: A Board of Directors that is actively cocered with soud corporate goverace ad that uderstads ad diligetly discharges its resposibilities by esurig that FBD is appropriately ad effectively maaged ad cotrolled; A maagemet that actively maages ad operates FBD i a soud ad prudet maer; The Board ad all FBD employees demostrate a commitmet to itegrity ad values; Orgaisatioal ad procedural cotrols supported by a effective maagemet iformatio system to soudly ad prudetly maage FBD s exposure to risk; ad The utilisatio of a three lies of defece framework i the delieatio of accoutabilities for iteral cotrol as outlied i B1.3, which icorporates a idepedet audit mechaism to moitor the effectiveess of the orgaisatioal ad procedural cotrols. FBD Holdigs plc 2017 Solvecy ad Fiacial Coditio Report 21