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Edited Transcript of EG7.I earnings conference call or presentation 1-Aug-19 8:00am GMT

Half Year 2019 FBD Holdings PLC Earnings Call

Dublin Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of FBD Holdings PLC earnings conference call or presentation Thursday, August 1, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Fiona Muldoon

FBD Holdings plc - Group CEO & Executive Director

* John O'Grady

FBD Holdings plc - Group CFO & Executive Director

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Conference Call Participants

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* Darren McKinley

Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst

* Eamonn Hughes

Goodbody Stockbrokers, Research Division - Financials Analyst

* Owen Callan

Investec Bank plc, Research Division - Head of Financials Research & Banking Analyst

* Paul Christopher De'Ath

Shore Capital Group Ltd., Research Division - Research Analyst

* Stephen Lyons

Davy, Research Division - Financials Analyst

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Presentation

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [1]

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Good morning, everybody, and thank you very much for coming along to our 2019 interim results. As usual, John O'Grady, our Chief Financial Officer, and I will do a short presentation and then we'll be available for questions immediately after.

So if I could kick us off before I hand over to John, with a short overview of the key highlights. It's a very strong half year profit at EUR 38.7 million before tax. This is a strong underlying underwriting profitability, a very benign, exceptionally benign winter and there was no storm. Storm Emma is in the year ago results, but also very little by way of attritional weather as well. And a strong one-off, we believe, investment return as the markets rally. John will take you through that in more detail later.

So the underlying combined ratio, as I said, is a very healthy 82.5%. The current year combined ratio is 87.8%. So there is some EUR 8 million in prior year positive reserve development in the number. Our net asset value is up about 10%. This was 818c at 31/12 and it is now at 896c and strong underlying capital accretion.

I suppose the slight negative in the result is that our premium is back EUR 2 million. It is a very competitive environment out there. There is a new entrant in Agri and indeed there is downward pressure on motor prices. I think the CSO data for the period shows most prices down by some almost 5% and that would be broadly reflective of our own experience as well.

In terms of progress and new news in our business, we did launch what we believe is without a doubt the best-in-class farm product that is out there. It increases the public liability cover we offer as standard and introduces environmental liability, pollution cover essentially for the first time into the market as part of the overall product. We will launch a new small business product in Quarter 3 and Post Insurance partnership is coming along nicely and did contribute materially. It's a small number still, but it is beginning to contribute materially to the top line.

And in other news, I suppose we continue to advocate for insurance reform and there has been quite a bit of political dialogue on that topic. So despite the competition, we do see good retention on the farm account. We continue to defend strongly. We have to spend a little bit in premium terms to do that. But we are happy with retention levels and working hard to keep them in the range where we are comfortable with seeing them historically. We launched a new advertising campaign and CarProtect from EUR 399 and that's gone reasonably well for us.

And other than that, I think I've mentioned most things on that page and I will just hand over to John to take you through the P&L in a little bit more detail.

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [2]

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Thank you, Fiona. So the first slide I want to go through really is just highlighting the key numbers. Fiona has gone through some of them already. I just point out the earnings per share at EUR 0.97 for the 6 months, which is more than double what it was for the same period in 2018, a very strong net asset value gone up by almost a euro since June last year and very strong return on equity. We have the breakout there of the combined operating ratio and obviously, it has been affected a little bit by prior year development. But the current year is just under 88%, which is a very satisfactory outturn. And the investment return, very strong and that's coming through both the income statement and the statement of other comprehensive income. So we've had very strong markets in the first half, a real reversal really of what happened in Q4 last year. And we've seen sort of gains on our risk assets and also mark-to-market gains in corporate bonds and sovereign bonds also.

The next slide is giving a bit more flavor on the income statement. So our top line has come down marginally. Net earned premium has held up well and we've seen our claims costs, incurred claim costs, reduce by EUR 10 million compared to the same period in 2018. Important to point out that 2018 did include the Storm Emma in March of that year and we didn't have anything like that, no weather of any significance at all, in fact, in the first half of 2019.

Other underwriting expenses up slightly, really more to do with salary inflation than anything else and you can see the strong investment income coming through there as well. Our finance costs have reduced and that really now is the result of the refinancing last year with the convertible bond redeemed and replaced by a new EUR 50 million bond at a lower coupon.

The following slide is something we normally give, which is an analysis of the combined operating ratio. And if I could read from the bottom of the table really, so there are our reported numbers, the 82.5% and 88.6% in the previous year; some prior year releases in both years bringing us back to a current year combined ratio including CAT weather of 87.8% and 93.3% in the prior year. [Plus] last year had Storm Emma, and when you strip that out and look at a like-for-like comparison, we see 87.8% being the current year combined operating ratio compared to 89.4% in the previous year. And the improvement there really, we have seen some frequency improvements, particularly in motor damage, and some to a lesser extent in injury that has contributed to that better year-on-year performance in the underlying combined operating ratio.

As we said earlier, we've seen some prior year positive reserve releases and this chart is just showing the progression really of our view of ultimate cost of claims for the years from 2015 up to 2019. And you can see 2015 in the earlier years we needed to add to our reserves. But that's marginally come down. We've seen good improvements in '16 and '17 and '18 a little bit as well. So all of these years are contributing a little bit to those positive prior year reserve releases. Why are they happening? I suppose some stability in court wars has certainly led to some better settlements, which is welcome. The other thing that we've seen in some of these years is benign large claims experience. So we normally expect and reserve for the average experience that we would normally see and in some of these years, it hasn't materialized. The other point that we would make doesn't really affect the prior year that much, but it is something to note is that the frequency of employer liability claims, we've seen an increase in that in 2018 and in 2019. So that's something we're monitoring.

The investments then, just the allocation, not only huge radical changes in the allocation. We've seen some modest uptick in risk assets from about 9% to 11%. We had planned to do more, but we're being cautious. The markets are quite strong, so we're looking for the right opportunity really to increase that allocation. The annualized return is very, very strong and obviously a good part of that EUR 14 million, in fact, going through the OCI in terms of mark-to-market movements on corporate bonds and sovereign bonds also. And just really to reiterate the fact that it's still a very high-quality portfolio. Corporate bonds portfolio has got an average credit rating of A-minus.

So that's really what I was going to say on the numbers, so just then to hand back to Fiona.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [3]

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Thanks, John. So I suppose there has been a huge amount of noise in the area of court awards and costs, and the judicial bill has now gone through. But I think from our perspective, and all we can really do is speak to FBD data; there was some published court award data on the Department of Justice website. It shows that high court awards came down last year. But of course, the vast majority of whiplash and personal injury claims go through the circuit court and that all-court award data shows that circuit court awards are still rising. In FBD's case then specifically, the [litigation] channel, as we would call it, so all injury claims go and settlements that go through the litigation process, we are continuing to see inflation in that channel across all injury claims. So the ones that go to personal injuries board and one we settle without them going that far, settle directly ourselves, we do see moderation. But it is moderation, still up marginally, 2% as you can see and moderating at a very high level. So we are still a ways from seeing any drops, which was the intention of the bill.

And I suppose there, more heat than light maybe. If you look at the bill, it still requires the setting up of a personal injuries committee. It requires the judges to gather the data, agree the award levels. Then it requires the judges sitting at court to agree to implement those awards. So if you look at all of that, it sounds to me like we are some years away from seeing any substantive change in approach. And I think the other part that we would continue to say is that the associated legal costs around all of that remain very high and continue to rise. And finally, a point that I have made publicly and that Jackie McMahon, our Chief Claims Officer, has made publicly is that even when you take the award, sometimes it is the absence of personal responsibility. So for the small business that is the case that once you cross the threshold of the business that negligence is just too easy. And the courts are too quick to assume negligence on the part of the business and that there is an absence or an unwillingness to impose personal responsibility on the injured party.

So I think there are still a number of systemic problems in the system. So all in, what we would say is that even if costs moderate at this level, we seem to be a ways away from seeing them actually drop. And I think there's a bit more detail on that on Page 12. So I will move along to Page 13 and I would just summarize again by saying an excellent profit of EUR 39 million before tax, combined ratio of 82.5%, exceptionally benign winter weather and modest prior year reserve releases. But mainly we see it as an indication of our ongoing underwriting discipline and risk selection and we're very happy with it. We do see a very changed and competitive market with pricing challenges and that is going to make premium growth difficult. Insurance Ireland shows that the entire market shrank 3% between 2018 and 2017. So it's hard to get into the detail of that data, whether it is because business is going overseas to other markets not regulated here or whether it is because there is price pressure. But the market in Ireland did shrink 3% from 2017 to 2018.

Our new farm product is a very important part of our defense and our new small business product will be, we hope, an impetus for growth in the second half. And we continue to aim to be the Irish insurer of choice.

I want to spend a minute on the outlook for the rest of the year. As you all know, I am not somebody who cares to give you too much help in your math. But given the half year that we have had, I suppose, we typically talk about low double-digit return on equity through the cycle and that we target a combined ratio in the early 90s to get there. And what we would see, given the half year that we have, and assuming a more normalized second half of the year that at this point in the cycle, the ROE outturn for 2019 is likely to be mid to high teens. And we think that will be a very good result indeed for us.

So that's it. If you have any questions, we're happy to take them.

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Questions and Answers

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Paul Christopher De'Ath, Shore Capital Group Ltd., Research Division - Research Analyst [1]

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Paul De'Ath from Shore Capital. A couple of questions, please. Firstly on the growth point, I guess given the competition in the market and the, I guess, public pressure potentially, political pressure on you at the moment, it would suggest that growth is going to be pretty difficult to achieve. Should we effectively be thinking about the various -- the SME product and the farm product as a way of kind of maintaining the status quo rather than trying to actually see growth coming through over the next couple of years?

And then the second question is just on the reserve releases. And we've seen seems more in the first half, where we're seeing them coming through a little bit over the last year or so. I guess what's the outlook for reserve releases? There still seem to be quite large bars on that chance of the current reserve that could come down, particularly in 2015. Where are we at in terms of how far that could continue to go?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [2]

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So in terms of 2015, 2015 is starting to look fairly well-developed at this stage. And I think what -- and so you can see it's changing only modestly at this stage, as you would expect. So I think the 2015 was the year that we took a very large prior year development charge. And at that time, we put 5.6% onto what was then the current year combined ratio back in 2015. And you can see that that did not turn out to be enough and we had to -- so you can see it goes up until the bright green bar, and then it has come down marginally since. So I think that higher level in 2015 is a function of price back then. It's a function of risk selection back then. And so I don't think you could read the dark green bar and say that that's going to come down substantially.

At this stage, it's 4 years old and reasonably well-developed and we have reasonably good visibility on it. So I think that is part of the past environment where essentially insurance premium were underpriced and there was adverse risk selection. And from our perspective, we ended up where we ended up. So I think most of our reserve development, most of our positive prior year reserve development has come from the years subsequent and there we had been very cautious to recognize some of the improvements. And you can see that particularly when you look at 2016. We were very cautious. We were recognizing an improvement going into '16, but we were cautious about it. And we have seen those improvements come through since as positive prior year development.

I mean from my perspective that's not a bad place for us to be, cautious in recognizing improvements isn't a bad place to be. But we don't predict prior year development and my new revised guidance is assuming no further prior year development. It's just too hard to predict. Your other question was growth. So I think what we would have talked about in the past was that the economy was expanding and we wanted to capture our share of that economic expansion, more businesses, more employees, more turnover and more motorists on the road, more people in jobs.

I think we have always said we would not do that at the expense of discipline in underwriting selection and discipline in pricing. And that is still the case. I think we would like to grow. It is a very difficult environment out there, but we have certainly not given up on our desire to grow modestly in line with economic growth. But that will be very challenged for this year. But over the kind of strategic horizon, it remains our ambition to grow.

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Stephen Lyons, Davy, Research Division - Financials Analyst [3]

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Stephen Lyons from Davy. Just on the growth point, it looks like you ceded less risk at the top line in the period. I'm wondering, I think it went down from about 10% to 7.5%. I'm wondering whether that's a change or a once-off.

And then just in terms of the ROE trajectory, obviously payouts is one component, continuation of underlying trends another, but also the recycling of your unrealized gains which will come back through. If we don't push that through, obviously that will depress your ROE. So I suppose a few questions wrapped in one, I didn't design it that way. But can you disclose what the unrealized gains are in the portfolio in total, not just in the current period? And when you talk about your current year combined ratio, you do mention benign weather. If you had a more normal weather, what would we be looking at?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [4]

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Okay, that's a lot of different questions. And I have to say, I have given guidance and so I'm not going to give line item guidance. What I can say on the first question in terms of reinsurance, that is not that we have ceded less risk. That is the impact of our underwriting changes and the impact of our profitability has allowed us to cede the same amount of risk at a different price. So that is actually a net benefit to FBD that we were able to negotiate our treaties and show our underlying profitability to our reinsurers in a way that allowed them to price it to our benefit. So that's what that is. So broadly speaking, we renewed the same program. There was a few tweaks, but broadly speaking it was the same program on both the property and liability side. In terms of the ROE and I believe that the accumulated OCI numbers are disclosed. But John, do you want to -- I think they are there, are they not?

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [5]

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I think they are. I think they have been floating [a million] in the current year and we have seen some in the prior period as well. So let's just start at the top number. It's a number that's in excess of what we've seen this year. I think it's important to recognize that, that's -- we are largely holders of bonds and if they move towards maturity, that we will see that debt reduce, and we just need to recognize that in terms of the overall capital position. They are transitory really, quite welcome, I suppose, in the current period.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [6]

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You are correct, of course, in saying that there will be a [pulse bar] over the duration of the bond portfolio and the average duration of the bond portfolio was just shy of 3 years, which matches the underlying liability in economic terms. Your other question?

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Stephen Lyons, Davy, Research Division - Financials Analyst [7]

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You gave a current year core, but you also mention benign weather, not just the significant ones, but more on an attritional basis. What would you have expected it to be indeed if we're looking into H2, allowing for more of an attritional type as well; what's more appropriate to kind of help us with that go forward?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [8]

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I mean that's a -- it's a very specific question. And as I say, a point or two, but we don't get into that level of specificity in providing guidance.

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [9]

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Can I just add to the reinsurance point that in the prior year as well, just to be aware, that we had reinstatement premiums on the CAT loss, which would actually increase the amount that we received in the previous year. So that will appear to be...

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [10]

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Storm Emma.

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [11]

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Storm Emma is in there. So that's something just to bear in mind as well, Stephen.

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Darren McKinley, Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst [12]

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Darren McKinley, Cantor Fitzgerald. A couple of questions. Firstly, just on the Post joint venture, I'm sort of surprised that it sort of hasn't been through the gross written premium growth. But maybe you can just update on that.

And secondly, just on that new product to address the Agri space, I mean it's coming at no additional cost to the consumer. I'm just wondering in terms of FBD's guidance in terms of the cost of that goods sold, was that an additional cost and therefore should we expect margin to be weaker, given it looks like a more attractive product?

And then just on the litigation and the average cost on Slide 11, can I read that slide in that as a function of sort of FBD's management of how to settle claims is that they're basically managing claims by settling claims themselves quicker because it comes at a lower cost to the group than letting them go to court, for instance?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [13]

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Okay, so Post Insurance is progressing nicely. It's a slow thing. We're involved with Post Insurance. But there are other insurers involved as well. So we're competing against those other insurers when Post Insurance is selling. So it is a matter of managing that relationship, managing our pricing very closely in that relationship. And that has slow and steady wins the race there. So we're not disclosing how much. We're not disclosing the number, but we're pleased with how we're progressing with it. But it is cautious.

It's nice and steady is the name of the game there and we're happy enough with it. It got off to a slow start. It might have been a bit of a disappointment. But we're happy enough with where we are now, despite the slower than expected start. You're dead right. The additional cover in the farm product will weaken the margin slightly in farm. There's nothing free in this life. So that is an important part of our defense. It's an important part of our strategy. We're not competing to be the cheapest in town, we’re competing to be the best value in town, not in town, actually if it's farm. But you know what I mean.

So we want to be the best product in the market for the price. And that's pretty much where FBD sits across all its products. We don't ever want to be solely competing on price and then excluding cover or turning back claims. So it is an attempt to enrich the product, to provide better cover for the farmer across employer liability, public liability and now environmental liability as well. And no one else in the market is doing it. But it will cost us a point or two on the combined ratio in the farm product, not overall. And then I can't read my own writing. What was the last thing? Slide 11, yes. So there you're asking -- ask me the question again.

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Darren McKinley, Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst [14]

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Basically, I'm saying, I think it's the second table at the bottom.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [15]

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Oh, settling directly, wasn't it?

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Darren McKinley, Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst [16]

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Yes.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [17]

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Yes, so I mean it is the case that from our perspective, if there is no – 45%, somewhere between 40% and 50% of an award is legal cost. So it's not difficult to see how settling direct could be to the advantage of both the claimant and the insurance company, if the legal costs aren't part of the equation. So the table on the bottom is all injury cases, those that are settled directly, those that are settled through the personal injury assessment board, those that go into litigation and are negotiated and settled and those that go all the way to court, where there's a full-on contest over how much should be awarded.

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Darren McKinley, Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst [18]

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And I mean before yourself and John came on board, I mean what percentage of cases would have been settled in-house relative to now?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [19]

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There has been broadly no change in our claim settlement strategy. We intervene early. We look to settle when we can and when we believe it's a valid claim. So that fundamentally that claims-paying strategy fundamentally hasn't changed.

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Darren McKinley, Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst [20]

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Okay, and then just on the return on equity side, Fiona. Your guidance is at -- I think your guidance has been for sort of low double-digit ROE. I mean clearly, this is sort of consistently good results for the last 3 or 4 quarters. I mean would you be more comfortable that's sort of getting closer to mid-double digit rather than…

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [21]

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Well, for 2019, certainly we're comfortable to say mid to high teens. But are we changing it?

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Darren McKinley, Merrion Stockbrokers Ltd., Research Division - Senior Equity Analyst [22]

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Medium term?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [23]

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No, we're talking about 2019. Yes, yes.

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Owen Callan, Investec Bank plc, Research Division - Head of Financials Research & Banking Analyst [24]

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Owen Callan, Investec. Just 2 quick questions. On the asset allocation, it seems to have maybe stabilized, the different buckets for the first time in a couple years. Are you just taking stock of the movements in the markets or have you found a kind of a model allocation, so to speak, that you're pretty comfortable with? Or does that cash allocation still continue maybe a little bit lower going forward?

And then just more broadly, I've asked about this thing probably at every update that you guys have had, the relationship with the government and what you were hoping for was some support in reforming the sector. Certainly over the last 9 to 12 months, maybe it hasn't quite gone backwards, but certainly, it's gotten a bit more fractious and perhaps there’s electoral cycles in mind there in terms of how that's playing out. But compared to 2 years ago or 3 years when Eoghan Murphy was in there and seemed to be driving on with the Cost of Insurance working group, et cetera, it seems to be less supportive; that environment. Do you think that that's maybe just a few headlines? But actually, I know you've pointed out some progress kind of behind the scenes and in terms of some progress. Or are the headlines maybe a more honest kind of appraisal of how that relationship and how that potential reform is likely to go forward?

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [25]

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For the investment one, yes, you're right, Owen. It's been very marginal changes in the allocation in the period. We do have plans to increase the allocation to risk assets, so capital where we've been doing that, I suppose. But we have been cautious about doing too much of it in the current period. Markets have been pretty high and we're just looking at the right opportunity, I suppose, to increase that allocation. But it is our plan to do that at the expense of cash. What we are trying to do with the risk assets is build a diversified portfolio and we're well on trend in terms of doing that. But we're just being cautious about doing too much of that in the current period, given certain market moves.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [26]

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And I think it's important to remember that the portfolio was atypical through the bad years because we were preserving capital because we didn't want a P&L surprise, given that we had enough surprises on the underwriting side. So what we're trying to do here is the kind of textbook stuff for an insurance company. You have your ALM and matched bond portfolio that underpins the claims side. And then you have your free assets, and then the strategic asset allocation underpinned by shareholders equity. And in the strategic asset allocation exercise, we were atypical.

So what we're trying to do now is move ourselves more towards where you would typically expect an insurance company to be, given that we're less capital constrained and given that our underwriting profitability is much more strengthened. On the government's issue, I mean I suppose, yes. The headlines regard that Minister D'Arcy holds insurance companies in. They aren't helpful headlines. I suppose in many respects and most of the conversations I've been having with media this morning have been around, well, oh, you're making money and you shouldn't be making money at the expense of the consumer. And it's a kind of reductionist thing. And where I've tried to focus in what has actually changed, so a lot of noise and debate.

But what has actually changed since all of this first kicked off I suppose, and there's not that much. And I think some of that is to do with the ability of the legislature to influence the judiciary. Any moderation we're seeing is that the judiciary has moderated and imposed a level of discipline upon the awards. So the big court of appeal decision that turned back, that overturned an award and then the courts themselves have started to moderate. It hasn't been that there has been any legislative impact on the judiciary, and of course they are famously very precious about their own independence and very guarded very jealously. And in the meantime, customers are being charged more and we're returned to profitability, but customers were always going to be charged more, given that the industry was making a loss.

So I mean what has really changed is that people are paying more for their insurance and the business end of it, the insurance industry has steadied itself. But to bring costs down or to bring the cost of insurance down, you have to bring the cost of the inputs down. And there we've seen much less. That maybe awards have moderated at a high level, they haven't come down yet. So it's probably best described as you read in the headlines yet.

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [27]

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Any more questions?

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Unidentified Analyst, [28]

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Just to follow up on the farm point, if I look to the 2018 customer segments, you're looking at Agri at 57% of total exposures on the premium side and you're now down to 54%. Is that 3 percentage point reduction an accurate reflection of the pressure that you're seeing on the new entrant to the farming side?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [29]

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What page are we on?

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Unidentified Analyst, [30]

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(inaudible) of the customer segments on Slide 20. Agri is now 54%. It was 57% last year.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [31]

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I think it ended the year around 55%. Did it? I don't think it was as high as 57%. I mean some of it is we're having a strong commercial year. So our business, our SME segment is doing reasonably well, Post Insurance. I mean this has always been the challenge for FBD. So our farm book is very strong, but there isn't going to be twice as many farmers. So growth is going to come from the other 2 legs of the stool, as we describe it internally and when we're talking to our people. And so the drivers of growth ultimately have got to come from commercial and consumer because farming, while it's good and it's growing and it's driving industry, it's not going to double in size in Ireland. It's not going to be twice as much land. Farming, if anything, is consolidating.

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Unidentified Analyst, [32]

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And maybe just on the net financial services income in the period that's up a decent amount as well, any commentary there as to whether we should expect kind of that as a nice base for further growth or any one source in the period or any future growth potential?

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [33]

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There was a one-off last year and it wasn't in financial services. It was in the holding company expenses. And the size of that business is such that we view it very much as supplemental to the general insurance business. So I don't think it's going to double in size. It's performing very well for us. It's led very well, a very capable team of people. But it is supplemental to our main business, which is selling general insurance. Anything to add to that?

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John O'Grady, FBD Holdings plc - Group CFO & Executive Director [34]

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No. I think that you explained it.

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Unidentified Company Representative, [35]

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Okay, we might take any questions on the line.

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Operator [36]

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(Operator Instructions) Your first question comes from the line of Eamonn Hughes.

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Eamonn Hughes, Goodbody Stockbrokers, Research Division - Financials Analyst [37]

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Just in relation to kind of slightly on the political kind of pressure point, I mean obviously, the focus is around court awards. But just there's also been a lot of commentary around certain areas where insurers based abroad are kind of pulling out the marketplace and we've seen political comments about, oh, this needs to be -- these gaps need to be filled by domestic insurers. Just your thoughts around that, I'm kind of thinking in particular of things like the leisure sector and stuff like that as outside your core. So is it the case that you're still very much focused on exactly what you do already?

And then secondly, just in relation to, I suppose, and not quite as with the interrelationship between your comment and the outlook section, where you're talking about aggressive competition and sustained pricing pressure, which presumably means that average rates are ticking down against the desire to grow premiums. So the volume number needs to be in excess of any pressure you're seeing on pricing, so just your comfort around kind of growing sort of the premium number into second half year-on-year and into 2020.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [38]

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Yes, so you're right. There is the average premium and the pressure on that average premium is a difficult trading environment for us, Eamonn. So while we still have plans and we're working hard on the execution of those plans to grow, it is -- pricing pressure is a headwind. So we're less bullish, I suppose, on our ability to do that than we maybe were. And we're certainly not going to do it at the expense of underwriting things we know and understand, writing it at a price that we believe is in excess of a 100 combined ratio. So I think that underwriting discipline, I mean this is a kind of -- it's a textbook key moment in an underwriting cycle and for FBD is underwriting discipline and understanding and knowing what we're writing is key to our sustainability, even if we disappoint marginally on the top line.

And that's to the second comment, I guess, as well, which is you're right. There has been a lot of talk about things that pull out and in many respects that is a part of the Irish market. This is other insurers coming in and underwriting for a few years and maybe taking over a particular industry or area and then suddenly changing strategy when they don't like the claims or they don't like the environment and pulling out. And then the expertise, the underwriting expertise in that particular industry or area is lost. And we saw that very clearly with the play centers, where they were all written in the U.K. market and then the U.K. market goes away and there's no expertise in that area in Ireland. So we look at all of those.

Every time we hear or see about them, we look at them and we ask ourselves, is there an opportunity? We've seen some opportunity and as I've said, commercial is performing well for us certainly vis-a-vis farm and consumer it's performing well for us in the current set of results. And that's because we have seen and taken some opportunity there, particularly in the leisure sector, so hotels, hospitality; the sorts of things that we would be writing anyway and the sort of thing that we would know and understand.

But are we suddenly going to get into play centers, Eamonn, just because the U.K. market has pulled out? Not so much. And you do need critical mass. You can't write one play center. That's not the way insurance works. So we look at them and certainly, for instance, another thing that's been in the news a lot is community-based events. So that we would regard as a core underwriting expertise in FBD and to the extent that we see community-based festivals or events, talking or feeling that they can't get the market, we would be very interested there. And we've again taken some opportunities in that space.

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Operator [39]

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(Operator Instructions) No more questions over the phone lines. Please continue.

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Fiona Muldoon, FBD Holdings plc - Group CEO & Executive Director [40]

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All right. I think if that's it for everybody, thank you very much for coming along. We're only in this hotel, I think because the other one was unavailable. We will be back in the usual spot at year-end. Thanks, everyone.

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Operator [41]

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This concludes our conference for today. Thank you for participating. You may now all disconnect.