DUBLIN (Reuters) - Canada's Fairfax Financial Holdings (>> Fairfax Financial Holdings Ltd) is to invest 70 million euros (51 million pounds) in Ireland's FBD Holdings (>> FBD Holdings plc) in the form of a convertible bond to bolster the general insurer's capital, the companies said on Wednesday.

Last month Ireland's only publicly traded insurer laid out plans to boost its capital and change strategy after a sharp rise in first-half losses followed two profit warnings last year and the resignation of its chief executive officer.

Fairfax, which was among a group of North American investors that more than tripled a 2011 investment in Bank of Ireland (>> Bank of Ireland), will receive a 7 percent annual interest payment on the 10-year bond, FBD said.

"This is a significant vote of confidence. It underpins the board's strong commitment to maintain healthy capital buffers as we prepare for the implementation of Solvency II," FBD's interim CEO, Fiona Muldoon, said in a statement, referring to the European Union's new capital requirements for insurers.

Shares in FBD, which have fallen by more than 50 percent in the last year, closed up almost 9 percent at 6.82 euros following the announcement.

The agreement is similar to the subordinated loan that Irish state-owned health insurer Vhi Insurance took out with Warren Buffett's Berkshire Hathaway (>> Berkshire Hathaway Inc.) this year.

"We have been a long-standing follower of FBD. This investment underlines our belief in the strength of Ireland's on-going economic recovery and in FBD's core franchise in the farming and agri-business sectors,” Fairfax Chief Executive Prem Watsa said.

While Ireland's economy is growing faster than any other in Europe, FBD has said it will only benefit in the medium term because claims linked to increasing economic activity are on the rise amidst a structural change to the sector, which it said will lead to losses across the industry for 2015 and 2016.

(Reporting by Padraic Halpin; Editing by Greg Mahlich)