TIDMCSN
RNS Number : 3461P
Chesnara PLC
31 August 2017
Chesnara plc
Chesnara delivers: the group moves forward on all fronts
following completion of its latest acquisition.
"The first six months of 2017 have seen the business deliver
against each of our core strategic objectives, with the successful
completion of the acquisition of Legal and General Nederland, good
operational delivery and economic tailwinds. The financial results
support the continuation of our dividend strategy and show
continued Economic Value growth. This has been achieved whilst
remaining true to our well established culture and values of
treating customers fairly, adopting a robust approach to regulatory
compliance and ensuring we do not compromise on our risk
appetite."
Financial Highlights
-- Economic Value (EcV) of GBP700.4m (Note 1) (31 December 2016: GBP602.6m).
We completed the acquisition of Legal and General Nederland
(which we have since rebranded "Scildon") which created GBP65.4m of
incremental EcV. The closing value, which is after payment of the
GBP19.0m 2016 full year dividend, includes a foreign exchange gain
of GBP11.0m
-- Economic Value earnings net of tax of GBP105.8m (six months
ended 30 June 2016: GBP(3.5)m).
The earnings include the aforementioned GBP65.4m gain from
completing the acquisition of Legal and General Nederland.
Beneficial economic conditions account for the majority of the
remaining profit with continued new business profits in Movestic
contributing to modest operating gains.
-- Movestic EcV new business contribution of GBP6.5m (six months
ended 30 June 2016: GBP4.0m).
The continued successful focus on higher margin pension transfer
business has resulted in a further increase in new business
profits. Scildon also writes new business and whilst post
acquisition profits were not material for the period and will
remain so in the near future, their new business results will be
incorporated in this metric going forward.
-- Group cash generation of GBP46.2m (Note 2) (six months ended 30 June 2016: GBP13.6m).
The total group cash generation includes a GBP6.4m negative
short term impact on cash from the Legal and General Nederland
acquisition. This is in line with expectations and as cash emerges
from Scildon over coming years, the cumulative impact on group cash
is expected to become positive in the medium term.
-- Divisional cash generation of GBP54.8m (Note 2) (six months
ended 30 June 2016: GBP9.8m).
All divisions have made positive contributions, with the results
benefitting from economic conditions and a number of non-recurring
management actions.
-- IFRS profit before tax of GBP51.6m (six months ended 30 June 2016: GBP0.2m).
This includes a GBP20.7m gain on the acquisition of Legal and
General Nederland. Economic profits of GBP14.3m compare to a
corresponding loss of GBP9.3m in the first half of 2016. The
underlying core operating profit of GBP16.6m is higher than in the
prior period (2016: GBP9.5m).
-- Group solvency ratio of 143% (31 December 2016: 144% (Note 3) ).
We are well capitalised at both group and subsidiary level and
have not used any elements of the long term guarantee package,
including transitional arrangements.
-- 2.9% increase in interim dividend compared with 2016.
The results in the period support the continued growth of the
dividend to 7.00p per share (2016 interim: 6.80p).
Strategic delivery highlights
-- Completion of the acquisition of Legal and General Nederland.
The acquisition of Legal and General Nederland completed in line
with plan. The "day one" financial benefits are slightly ahead of
expectation. Furthermore, our early assessment of the business
confirms our expectation that Scildon, following a planned
improvement programme, will provide future cash generation and
value growth.
John Deane, Chief Executive said:
"Strong results during the first half of 2017, which include the
gain on acquisition of Legal and General Nederland, are underpinned
by the continuation of good value emergence from the UK business,
as many operational and economic value drivers have aligned to give
a better than expected positive cumulative impact.
I am also pleased to report that our overseas operations are
making significant contributions to cash and value generation.
Movestic continues to grow and this has resulted in further cash
generation and dividend potential.
The completion of the acquisition of Legal and General
Nederland, now successfully rebranded as "Scildon", has delivered
"Day 1" benefits slightly ahead of expectations. Furthermore, our
early assessment of the business confirms our expectation that
Scildon, following a planned improvement programme, will provide
future cash generation and value growth.
We have made great progress integrating Scildon into the
Chesnara group and will continue with our focus of maximising the
value from all our existing in-force books of business and our
acquisition and new business objectives."
Note 1 Economic Value is based on the Solvency II "Own funds"
valuation with adjustments for contract boundaries, risk margin and
adding back the impact of restrictions placed on the value of
certain ring-fenced with-profit funds. We consider the Solvency II
rules understate the commercial value of these items. Contract
boundary rules require Solvency II Own Funds to assume no future
regular premiums on certain contracts and the Solvency II risk
margin is significantly higher than under Embedded Value.
Note 2 Cash generation represents the movement in the surplus
assets that exists within the group over and above the level of
capital that is required to be held. The level of capital required
to be held takes account the buffers that management has set to
hold over and above the solvency requirements imposed by our
regulators.
Note 3 The 2016 closing solvency ratio of 158% was enhanced by
equity raised ahead of the purchase of Legal and General Nederland.
The adjusted position at 31 December 2016, excluding this impact,
was 144%. This lower ratio was a more meaningful figure and also
represents a more logical comparison for assessing movements during
2017.
The Board approved this statement on 30 August 2017.
Enquiries
John Deane, Chief Executive, Chesnara plc - 01772 972079
Roddy Watt, fwd Consulting - 0207 623 2368 / 07714 770493
Notes to Editors
Chesnara plc ('Chesnara'), which listed on the London Stock
Exchange in May 2004, is the owner of Countrywide Assured plc ('CA
plc'), Protection Life Company Limited ('PL'), Movestic
Livförsäkringar AB ('Movestic') and Chesnara Holdings BV, the
intermediate holding company of the 'Waard Group' and Scildon NV
('Scildon').
CA plc is a UK life assurance subsidiary that is closed to new
business. In June 2005 Chesnara acquired a further closed life
insurance company - City of Westminster Assurance - for GBP47.8m.
With effect from 30 June 2006, CWA's policies and assets were
transferred into CA plc. Save & Prosper Insurance Limited and
its subsidiary, Save & Prosper Pensions Limited, were acquired
on 20 December 2010 for GBP63.5m. With effect from 31 December
2011, the business of Save & Prosper was transferred into CA
plc. On 28 November 2013 Chesnara acquired Direct Line Life
Insurance Company Limited (subsequently renamed Protection Life
Company Limited) from Direct Line Group plc for GBP39.3m. On 31
December 2014 the PL business transferred into CA plc. CA plc
operates an outsourced business model.
Movestic, a Swedish life assurance company which originally
focused on pensions and savings, was acquired on 23 July 2009 for
GBP20 million. The company is open to new business and seeks to
grow its position in the Swedish unit-linked market. Its
proposition was strengthened in February 2010 with the acquisition
of the operations of Aspis Försäkringar Liv AB which has a risk and
health product bias.
The Waard Group, a Netherlands-based Group comprising three
closed book insurance companies and a servicing company, was
acquired on 19 May 2015 for EUR69.9m. The Waard Group, comprising
Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V.
and Tadas Verzekeringen B.V. was previously owned by DSB Beheer
B.V., a Dutch financial services Group. The policy base of the
Waard Group is predominantly term life policies, with some unit
linked policies and some non-life policies. Further details are
available on the Company's website (www.chesnara.co.uk).
Scildon is a leading provider in the Dutch market of risk and
investment-linked products, sold through brokers to high net worth
customers. It also offers a defined contribution group pension
platform focussing on Dutch SMEs. The company was acquired in April
2017 from Legal and General, having previously been called Legal
and General Nederland.
FORWARD-LOOKING STATEMENTS
This document may contain forward-looking statements
with respect to certain of the plans and current
expectations relating to the future financial
condition, business performance and results of
Chesnara plc. By their nature, all forward-looking
statements involve risk and uncertainty because
they relate to future events and circumstances
that are beyond the control of Chesnara plc including,
amongst other things, UK domestic, Swedish domestic,
Dutch domestic and global economic and business
conditions, market-related risks such as fluctuations
in interest rates, currency exchange rates, inflation,
deflation, the impact of competition, changes
in customer preferences, delays in implementing
proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations
within relevant industries, the policies and
actions of regulatory authorities, the impact
of tax or other legislation and other regulations
in the jurisdictions in which Chesnara plc and
its subsidiaries operate. As a result, Chesnara
plc's actual future condition, business performance
and results may differ materially from the plans,
goals and expectations expressed or implied in
these forward-looking statements.
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NOTE ON TERMINOLOGY
The principal reporting segments of the Group
are:
CA, which comprises the original business of
Countrywide Assured plc, the group's original
UK operating subsidiary; City of Westminster
Assurance Company Limited, which was acquired
by the group in 2005, the long-term business
of which was transferred to Countrywide Assured
plc during 2006; and Protection Life Company
Limited which was acquired by the group in 2013,
the long-term business of which was transferred
into Countrywide Assured plc in 2014;
S&P, which was acquired on 20 December 2010.
This business was transferred from Save & Prosper
Insurance Limited and Save & Prosper Pensions
Limited to Countrywide Assured plc on 31 December;
Movestic, which was purchased on 23 July 2009
and comprises the group's Swedish business, Movestic
Livförsäkring AB and its subsidiary
and associated companies;
The Waard Group, which was acquired on 19 May
2015 and comprises three insurance companies;
Waard Leven N.V., Hollands Welvaren Leven N.V.
and Waard Schade N.V.; and a service company,
Tadas Verzekering;
Scildon which was acquired on 5 April 2017; and
Other Group Activities which represents the functions
performed by the parent company, Chesnara plc.
Also included in this segment are consolidation
adjustments.
In this preliminary announcement:
(i) The CA & S&P segments may also be collectively
referred to as the 'UK Business';
(ii) The Movestic segment may also be referred
to as the 'Swedish Business';
(iii) The Waard Group segment may also be referred
to as the 'Dutch Business';
(iv) 'CA plc' refers to the legal entity Countrywide
Assured plc, which includes the long term business
of CA, CWA, S&P and PL;
(v) 'CWA' refers to the long-term of City of
Westminster Assurance Company Limited, subsidies
to Countrywide Assured plc;
(vi) 'S&P' refers collectively to Save & Prosper
Insurance Limited and Save & Prosper Pensions
Limited, which subsidies to Countrywide Assurance
plc;
(vii) 'PL' refers to the long term business that
was, prior to Part VII transfer into CA plc on
31 December 2015, reported in Protection Life
Company Limited and was reported as a separate
segment for IFRS reporting purposes;
(viii) 'PL Ltd' refers to the legal entity Protection
Life Company Limited;
(ix) 'Movestic' may also refer to Movestic Livförsäkring
AB, as the context implies;
(x) 'Acquisition of Waard Group' refers to the
purchase of the Waard Group, based in the Netherlands
on 19 May 2015; and
(xi) Scildon, 'LGN' or 'Legal and General Nederland'
refers to the legal entity Scildon formerly known
as Legal & General Nederland Levensverzekering
Maatschappij N.V, which Chesnara acquired on
5 April 2017.
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SECTION A: OVERVIEW
HIGHLIGHTS
FINANCIAL
IFRS
IFRS PRE-TAX PROFIT Note 1 GBP51.6M
Six months ended 30 June 2016 GBP0.2m
IFRS TOTAL COMPREHENSIVE INCOME Note 1 GBP53.8M
Six months ended 30 June 2016 GBP15.7m
Includes foreign exchange gain of GBP7.1m (GBP15.2m foreign
exchange gain for six months ended 30 June 2016).
Note 1: includes GBP20.7m gain on acquisition of Legal &
General Nederland.
SOLVENCY
GROUP SOLVENCY 143%
31 December 2016 158%*
We are well capitalised at both group and subsidiary level and
have not used any elements of the long term guarantee package,
including transitional arrangements.
* The 2016 closing ratio of 158% was enhanced by equity raised
ahead of the purchase of Legal & General Nederland. The
adjusted position at 31 December 2016, excluding this impact, was
144%. This lower ratio was a more meaningful figure and also
represents a more logical comparison for assessing movements during
2017.
ECONOMIC VALUE
ECONOMIC VALUE Note 2 GBP700.4M
31 December 2016 GBP602.6M
Movement in the period is stated after dividend distributions of
GBP19.0m.
ECONOMIC VALUE EARNINGS Note 2 GBP105.8M
Six months ended 30 June 2016 GBP(3.5)m
Note 2: Includes GBP65.4m gain on acquisition of Legal &
General Nederland.
MOVESTIC NEW BUSINESS PROFIT GBP6.5M
Six months ended 30 June 2016 GBP4.0m
CASH GENERATION
GROUP CASH GENERATION GBP46.2M
Six months ended 30 June 2016 GBP13.6m
Includes the end to end impact of the acquisition of Legal &
General Nederland.
DIVISIONAL CASH GENERATION GBP54.8M
Six months ended 30 June 2016 GBP9.8m
OPERATIONAL AND STRATEGIC
DIVID
INTERIM DIVID INCREASE
Interim dividend increased by 2.94% to 7.00p per share
(2016: 6.80p interim and 12.69p final).
ACQUISITIONS
COMPLETION OF LEGAL & GENERAL NEDERLAND ACQUISITION
With a purchase price of EUR161m, this acquisition was
successfully completed on 5 April 2017 and the company renamed
Scildon. Good initial progress has been made on integration with
the Chesnara group with benefits delivered slightly ahead of
expectations.
ECONOMIC BACKDROP
POSITIVE EQUITY MARKETS, INCREASES IN DUTCH AND SWEDISH
GOVERNMENT BOND YIELDS AND STRENGTHENING OF EURO AND SWEDISH KRONA
AGAINST STERLING
Equity markets have continued to perform positively during the
first six months of the year. In addition, 10 year government bond
yields have increased in both Sweden and the Netherlands, whilst UK
10 year gilts have closed in line with the start of the year.
The Swedish Krona and Euro have both strengthened against
Sterling, resulting in positive exchange gains being reported in
the period.
SOLVENCY
SOLVENCY II DELIVERED
New reporting requirements embedded with successful delivery of
quarterly, annual and narrative reporting submissions to the
regulators.
CHAIRMAN'S STATEMENT
"Strong results during the first half of 2017 are underpinned by
the continuation of good value emergence from the UK business, as
many operational and economic value drivers have aligned to give a
better than expected positive cumulative impact.
I am also pleased to report that our overseas operations are
making significant contributions to cash and value generation.
Movestic continues to grow and this has resulted in further cash
generation and dividend potential.
The completion of the acquisition of Legal & General
Nederland, now successfully rebranded as "Scildon", has delivered
"Day 1" benefits slightly ahead of expectations. Furthermore, our
early assessment of the business confirms our expectation that
Scildon, following a planned improvement programme, will provide
future cash generation and value growth.
We have made great progress integrating Scildon into the
Chesnara group and will continue with our focus of maximising the
value from all our existing in-force books of business and our
acquisition and new business objectives."
During the first half of 2017 we have delivered against each of
our core strategic objectives with economic tailwinds, good
operational delivery and the successful completion of the
acquisition of Legal & General Nederland. This has resulted in
financial results that support the continuation of our dividend
strategy and show continued Economic Value growth. This has been
achieved whilst remaining true to our well established culture and
values of treating customers fairly and adopting a robust approach
to regulatory compliance. Importantly, the business growth has been
achieved without compromising our risk appetite.
MAXIMISE VALUE FROM EXISTING BUSINESS ACQUIRE LIFE AND PENSIONS BUSINESSES ENHANCE VALUE THROUGH PROFITABLE NEW
BUSINESS
7.4% growth in group Economic Value Acquisition of Legal and General
Note 1. Nederland (now Scildon) created a New business profits from Movestic of
positive Economic Value GBP6.5m plus a modest post acquisition
Note 1 - Excluding the Economic Value impact of GBP65.4m. new business
gain on acquisition of Legal & profit of GBP0.6m from Scildon
General Nederland, new
business profits and the impact of
the dividend payment in the period.
-------------------------------------- -------------------------------------- --------------------------------------
Maximise value from existing business
All of our divisions have made full positive cash contributions.
This together with the impact of the acquisition of Legal &
General Nederland, resulted in a total group cash generation of
GBP46.2m.
A large proportion of the cash emergence is driven by positive
economic conditions which of course may not continue in the future.
The cash generation has also been positively impacted by several
non recurring capital requirement reduction items including the
reinvestment of Scildon's shareholder assets from equities to less
capital intensive fixed interest investments.
The growth in the Economic Value of the existing business is
also dominated by the impact of positive economic conditions. The
group's economic operating profit is relatively modest as a result
of a recurring increase in group governance overheads in support of
the acquisition of Legal & General Nederland and we have made
provision to adopt a slightly more attractive pricing strategy on
certain white label funds in Movestic. The underlying operating
profit is in line with expectations.
VALUE GROWTH, DRIVEN IN THE MAIN BY ECONOMIC CONDITIONS,
TOGETHER WITH SEVERAL NON RECURRING CAPITAL REDUCTION
ACTIONS, HAS RESULTED IN STRONG CASH GENERATION.
Acquire life and pensions businesses
The completion of the acquisition of Legal & General
Nederland has delivered "Day 1" financial benefits slightly ahead
of expectations. Since completion, management have spent time
working with our new colleagues in the Netherlands. Initial
assessment confirms that the business is well managed and soundly
governed. We have also identified opportunities to make some
relatively modest improvements over the next two years which we
expect to increase the future financial returns from the business.
We have completed a successful rebrand to the new company name,
"Scildon" and have made significant progress in integrating the
business into the Chesnara group.
THE ECONOMIC VALUE OF THE GROUP HAS INCREASED BY 16.2%
IN THE PERIOD OF WHICH 10.9% RELATES TO THE GAIN ON
COMPLETION OF THE ACQUISITION OF LEGAL AND GENERAL NEDERLAND.
Enhance value through new profitable new business
Movestic has continued to operate within its market share target
range and has generated GBP6.5m of new business profit which on an
annualised basis represents a 5.3% growth on Movestic's opening
Economic Value. We acquired Scildon with an expectation that it was
breaking even on writing new business. It is therefore pleasing to
report that Scildon generated GBP1.7m of new business profit in the
first half of 2017. Through some modest but smart process changes
we aim to move towards the upper end of our target 5% - 10% market
share range which would create more commercially meaningful levels
of new business profit.
FURTHER NEW BUSINESS PROFIT FROM MOVESTIC OF GBP6.5M.
The completion of the acquisition of Legal & General
Nederland (since rebranded Scildon) continues Chesnara's
evolution from a UK operation to becoming a balanced
European group. This enhances the outlook in terms of
diversification of the group and improved cash generation
potential, value growth and acquisition opportunities.
Initial assessment of the business confirms our valuation
assumptions and gives comfort that we have acquired
a high quality, well governed business. We have also
identified improvement opportunities which will be delivered
over the next two years.
Solvency II Implementation
After many years and lots of hard work I am pleased to report
the implementation stage of the transition to the Solvency II
regime is now fully complete. During the period, we successfully
produced our inaugural Solvency II narrative reports with the
Solvency and Financial Condition Report being made available on our
website. We believe Solvency II creates an improved focus on
capital requirements and risk. This means we can better assess the
impact of management decisions and also creates the potential for
value adding management actions.
As Solvency II becomes embedded into day to day operations, the
industry now faces the challenge of applying new accounting rules
for insurance contracts, known as IFRS 17. It is not expected to
have any direct bearing on the commercial assessment of Chesnara.
That is, it is not expected to have an impact on Economic Value or
cash generation, other than the direct impact of the cost of
implementing the change. The interim results incorporate an
estimate of the future costs of further assessment and
implementation of this accounting development. For investors who do
focus on the IFRS results, IFRS 17 should help make the income
statements for Life & Pensions companies more meaningful and
allow better direct comparison across the industry and to other
sectors.
AN INCREASED UNDERSTANDING OF THE DYNAMICS OF SOLVENCY
II IS EXPECTED TO CREATE AN OPPORTUNITY TO BENEFIT FROM
CAPITAL OPTIMISATION IN THE FUTURE
Regulation
Compliance with regulation remains a priority for the group. We
have continued to maintain a positive and constructive relationship
with regulatory bodies across the group.
Following the final guidance from the FCA's review of the "Fair
treatment of long standing customers in the life insurance sector",
we have been able to progress with the delivery of our Customer
Strategy. The programme is now established and board approved
budgets are recognised within our provisions. The work undertaken
to date continues to support the level of provision made. The
project does include an improvement plan which, when completed will
ensure our customers continue to receive fair outcomes, a positive
customer experience and communications in line with the FCA's new
guidelines.
The investigation into how Countrywide Assured disclosed exit
fees to customers, initially announced on 3 March 2016, is ongoing.
We have provided the FCA with all information requested.
Discussions are ongoing and given the narrow scope of the
investigation we retain our opinion that the outcome from the
investigation should not have a material impact on the company.
No significant regulatory issues have arisen in the Netherlands
or Sweden during the period.
Solvency
At the end of 2016 the group solvency ratio, which includes no
transitional adjustments, was 158% which translated to an absolute
level of surplus of GBP185m. This position had the temporary
benefit of holding GBP50m of surplus due to the equity raised in
advance of funding the acquisition of Legal & General
Nederland. The underlying solvency ratio of 144% equated to GBP135m
of absolute surplus.
During the first half of 2017 the absolute level of surplus,
over and above the SCR increased by GBP47m. Of this increase
GBP4.7m was the direct consequence of the acquisition of Legal
& General Nederland. This relatively modest impact is in line
with expectations and is consistent with the equity raise
prospectus. The acquisition impact as reported includes the
benefits of having reinvested shareholder assets shortly after
completion from equities to fixed income investments, with lower
capital requirements. This is consistent with Chesnara's investment
policy and risk appetite regarding the investment of shareholder
assets. The remainder of the surplus emerging is due to surpluses
arising in all of our businesses. The UK provided the majority of
the increase although Movestic and Waard continued to make
meaningful positive contributions. Whilst the post acquisition
period for Scildon is too short to form any conclusions regarding
future cash generation, it was encouraging to see a surplus of
GBP3.3m emerge during the second quarter. On an annualised basis
this is broadly inline with expectations.
When expressed as a ratio the closing solvency ratio as at 30
June 2017 of 143% is broadly the same as at the end of 2016
(adjusted to exclude the temporary equity raise benefit).
2.94% INCREASE IN INTERIM DIVID
Investment proposition
Given Chesnara shares are primarily held by those requiring
predictable and attractive income, I am pleased to report a 2.94%
increase in our interim dividend.
Governance and risk management
We continue to place great importance on the continuous
enhancement of our risk and governance system, and have a number of
developments underway. Embedding activity continues with
significant focus in 2017 on continuing to increase the consistency
of our approach across the group, including the newly acquired
Scildon business.
In line with our implementation of a strong governance
framework, we plan to put our external audit out to tender during
the second half of 2017. The successful firm will assume
responsibilities for the audit of the 2018 statements.
Outlook and Brexit
I remain optimistic that Chesnara can continue to deliver
against its strategic objectives which in turn fund our well
established dividend strategy.
In particular, the UK business remains a robust source of cash,
with additional potential to take management actions to enhance the
core cash if required. Movestic now has the scale to continue
contributing to the cash position and Scildon has significant
surplus capital and is also expected to be cash generative on an
ongoing basis.
We now have sufficient scale and presence in both the UK and the
Netherlands to continue our focus on acquisition activity in those
territories. We also remain open minded about new territories but
the benefits would need to outweigh the inherent challenge of
adding another regulatory environment into our business model. Our
balance sheet has further capacity for debt, we have significant
levels of surplus capital and recent experience suggests we retain
shareholder support for further equity for the right deal. This
together with operational capacity means we remain well positioned
to act should an opportunity arise that meets our stringent price
and risk profile criteria.
Movestic has become an established profitable new business
operation and I see potential for Scildon to make improvements to
their new business value in the medium term. I believe this will
result in a meaningful level of recurring value growth from new
business being achieved without an inappropriate shift from our
core specialism of acquiring and managing in-force businesses.
The structure of the group, having established regulated
entities in several European countries together with the fact we do
not trade or share resource across territories, means I remain of
the view that whatever the outcome from the Brexit negotiations, we
expect it to have little direct impact on our business model.
In light of the above I remain confident that Chesnara is well
positioned to continue to provide value to policyholders and
shareholders.
Peter Mason
Chairman
30 August 2017
SECTION B: MANAGEMENT REPORT
BUSINESS REVIEW
INTRODUCTION
The business review is structured to report on how we have
performed against each of our three stated strategic objectives and
our culture and values. Where relevant, the review reports
separately for our UK, Swedish and Dutch operations.
This review focuses on:
- How we have performed generally
- Key developments and challenges
- Key performance indicators
- Risks associated with each objective
Our strategic objectives and culture and values are reassessed
on an annual basis as part of the group business planning process.
Their continued relevance gives consideration to recent
performance, emerging risks and future opportunity and they are
assessed giving full regard to both internal and external
influences e.g. changes to regulatory requirements.
The three core strategic objectives, which are underpinned by
the group's culture and values, are consistent with those reported
in the 2016 Annual Report & Accounts.
The group's governance framework seeks to ensure that controls
and procedures are in place to protect all stakeholders. The
control environment has remained effective and robust throughout
the period. Further details of the operation of the governance
framework, and its future development, are included in Section C -
Corporate Governance, of the 2016 Annual Report & Accounts.
Maximise value Acquire Life and Enhance value through
from existing business Pension businesses profitable new business
-------------------------- ---------------------- --------------------------------------------
Business Model
------------------------------------------------------------------------------------------------
Maintain adequate Fair treatment Provide a competitive Robust regulatory
financial resources of customers return to shareholders compliance
------------------------ ---------------------- -------------------------- ------------------
Responsible risk based management
------------------------------------------------------------------------------------------------
STRATEGIC OBJECTIVES, OVERVIEW
CULTURE & VALUES
-------------------------- ------------------------------------------------------------------------------------------
CULTURE & VALUES Our strong culture and values underpin
everything we do.
* Responsible risk-based management for the benefit of
all our stakeholders.
* Fair treatment of customers.
* Provide a competitive return to our shareholders.
* Robust regulatory compliance.
* Maintain adequate financial resources.
-------------------------- ------------------------------------------------------------------------------------------
BUSINESS MODEL Our strategic objectives and culture and
values are delivered through the operation
of our business model.
In the UK, Chesnara adopts an outsourced
business model. Governance oversight and
corporate management is provided by a
highly experienced centralised governance
team. This governance team also ensures
robust and consistent governance practice
across the group, although operational
autonomy is devolved to our divisions
to ensure we benefit from our strong divisional
management teams. Core operations are
not outsourced in Sweden or the Netherlands
because it would not suit the open business
model or inherited model in those territories.
.
-------------------------- ------------------------------------------------------------------------------------------
MAXIMISE VALUE FROM Managing our existing customers fairly
EXISTING and efficiently is core to delivering
BUSINESS our overall strategic aims.
-------------------------- ------------------------------------------------------------------------------------------
DIVISIONAL UK SWEDEN NETHERLANDS
UPDATE: See 'Business See 'Business See 'Business
Review UK' Review Sweden' Review Netherlands'
-------------------------- ------------------------- ----------------- ----------------- -------------------------
ACQUIRE LIFE AND PENSIONS Acquiring and integrating companies into
BUSINESSES our business model is key to continuing
our growth journey.
An update on how we have delivered against
this strategic objective has been provided
in the 'Business Review: Acquire Life
and Pensions Businesses' section.
-------------------------- ------------------------------------------------------------------------------------------
ENHANCE VALUE THROUGH Writing profitable new business in Sweden
PROFITABLE NEW BUSINESS and the Netherlands supports the growth
of our group and helps mitigate the natural
run off of our closed books of business.
-------------------------- ------------------------------------------------------------------------------------------
DIVISIONAL UPDATE: SWEDEN NETHERLANDS
See 'Business See 'Business
Review Sweden' Review Netherlands'
-------------------------- --------------------------- ----------------- ------------------------------------------
BUSINESS REVIEW | UK
The UK division manages 310,000 policies and is in run-off. The
division follows an outsourcer-based operating model, with
functions such as customer services, investment management and
accounting and actuarial services being outsourced. A central
governance team is responsible for managing all outsourced
operations.
The UK division has continued to deliver against its core
business objectives, namely delivering its customer strategy
implementation plan, continuing to focus on capital management
initiatives, and ensuring the business is governed well.
The division has delivered a healthy set of financial results in
the period. Cash generation is strong, the solvency position
remains robust and IFRS profits have continued to emerge ahead of
plan.
MAXIMISE VALUE FROM EXISTING BUSINESS
Capital and value management
Background
- As a closed book, the division creates value through managing
the following key value drivers: costs, policy attrition,
investment growth and reinsurance strategy.
- In general surplus regulatory capital emerges as the book runs
off. Following the implementation of Solvency II, the surplus
capital available is more closely linked with the level of risk
that the division is exposed to. Management's risk-based decision
making process seeks to continually manage and monitor the balance
of making value enhancing decisions whilst maintaining a risk
profile in line with the board's risk appetite.
- At the heart of maintaining value is ensuring that the
division is governed well from a regulatory and customer
perspective.
Initiatives and progress in 2017
- Strong Economic Value growth of GBP21.9m in the period before
impact of the dividend, driven by the positive impact of investment
market conditions.
- During the first half of the year GBP9.0m of previously
trapped surplus capital was extracted from our two ring-fenced
with-profit funds.
- Cash of GBP30.4m has been generated by the division, including
the aforementioned GBP9.0m from the ring-fenced funds.
- IFRS profit before tax of GBP23.1m is ahead of plans.
- Successful embedding of our Capital Optimisation Advisory
Group, a sub-set of executive team members who focus on the
division's solvency and value management initiatives.
Future priorities
- Continue to identify, assess and subsequently deliver any
appropriate actions associated with managing the solvency capital
and valuation balance sheet of the division.
KPIs
Economic value
Healthy value growth, before the impact of dividends.
GBPm 2013 2014 2015 2016 30 Jun
2017
---------------------- ------ ------ ------ ------ -------
EEV / EcV 337.3 311.8 272.2 279.6 271.5
Cumulative dividends 48.0 113.0 143.5 173.5
---------------------- ------ ------ ------ ------ -------
Total 337.3 359.8 385.2 423.1 445.0
---------------------- ------ ------ ------ ------ -------
Cash generation
Cash generation of GBP30.4m exceeds prior year dividend Chesnara
paid to shareholders.
GBPm 2013 2014 2015 2016 30 Jun
2017
----------------- ----- ----- ----- ----- -------
Cash generation 54.1 50.9 42.5 21.3 30.4
Customer outcomes
Background
- Treating customers fairly is our primary responsibility. We
seek to do this by having effective customer service operations
together with competitive fund performance whilst giving full
regard to all regulatory matters. This supports our aim to ensure
policyholders receive good returns, appropriate communication, and
service in line with customer expectations.
- During December 2016 the FCA issued a publication "FG 16/8
Fair treatment of long-standing customers in the life insurance
sector". Our customer strategy incorporates plans to ensure the
guidelines within this publication are fully complied with.
Initiatives and progress in 2017
- The division has successfully embedded its customer committee
during the period. One of its key immediate responsibilities is to
deliver the oversight of the division's customer strategy
implementation plan. This is a three year programme which
incorporates changes required to ensure compliance with the newly
issued guidelines by the FCA.
- The FCA's investigation into the level of disclosure of exit
charges to customers, which was announced in March 2016, remains
open. Full ongoing support has been provided to the FCA to ensure
all of its information requests are dealt with, of which there have
been five separate requests to date.
- The 1% exit fee cap on all pension products where the
policyholder is over 55 was successfully implemented during the
period.
Future priorities
- Continue to deliver the customer strategy implementation plan. This includes:
o An initial focus on reviewing our key customer communications
to ensure in line with the most recent guidelines.
o Continued development and delivery of enhanced product review
framework.
- Continue to support the FCA's investigation work into how exit
and surrender charges have been disclosed to customers.
- Continue to deliver competitive fund performance.
KPIs
Policyholder fund performance
12 months to 30 Jun 2017 12 months to 30 Jun 2016
CA Pension Managed 17.9% 2.9%
CWA Balanced Managed Pension 14.8% 5.4%
S&P Managed Pension 20.1% 1.6%
Benchmark - ABI Mixed Inv 40%-85% shares 16.4% 1.8%
Governance
Background
- Maintaining effective governance and a constructive
relationship with regulators underpins the delivery of the
division's strategic plans.
- Ensuring that appropriate time and resources are dedicated to
delivering robust governance processes provides management with a
platform to deliver the other aspects of the business strategy. As
a result a significant proportion of management's time and
attention continues to be focused on ensuring that both the
existing governance processes, coupled with future developments,
are delivered.
Initiatives and progress in 2017
- Strong solvency position has been maintained throughout the period.
- Solid delivery of outsourced services.
- Delivered our inaugural Solvency and Financial Condition
Report (SFCR) and Regular Supervisory Report (RSR), reports
required by Solvency II rules.
Future priorities
- Ensure we deliver our plans to meet the General Data
Protection Regulation (GDPR) well within the timeframes of the
regulatory deadline of 25 May 2018.
- Develop and start to deliver against implementation plans for
"IFRS 17 Insurance Contracts", a new insurance accounting standard
which was issued in May 2017 and has an effective date of 1 January
2021.
KPIs
Divisional solvency ratio
30 Jun 2017: 154%
31 Dec 2016: 128%
BUSINESS REVIEW | SWEDEN
Movestic is currently the part of the Chesnara group which
delivers most prominently against the core objective "Enhance value
through profitable new business". From its Stockholm base, Movestic
operates as a challenger brand in the Swedish life insurance
market. It offers transparent unit linked pension and savings
solutions through brokers. Movestic is currently one of the most
selected providers of advised occupational pension plans within the
fund insurance segment in Sweden.
Movestic has had a positive start to 2017. New business and
recurring regular premiums have resulted in net positive client
money inflows, which together with investment growth, has created a
continued increase in AuM with a corresponding 5.6% increase in
Economic Value. Despite an increase in capital requirements (as a
direct consequence of the value growth) the absolute capital
surplus has increased during the period.
MAXIMISE VALUE FROM EXISTING BUSINESS
Capital and value management
Background
- Movestic creates value predominantly by generating growth in
the unit linked assets under management and by optimising the
income that the assets generate, without compromising the fees
incurred by policyholders. AuM growth is dependent upon positive
client cash flows and positive investment performance. Capital
surplus is a factor of both the value and capital requirements and
hence surplus can also be optimised by effective management of
capital.
Initiatives and progress in 2017
- Favourable equity market performance and further positive
policyholder cash flows contribute in broadly equal measure to a
total AuM growth of 8.6%.
- Economic Value growth of 5.6%.
- Increase to the solvency capital requirement (SCR), largely
due to the impact of the positive growth in value.
- Optimising fee income by developing an investment fund (SICAV)
which manages white label funds and Movestic funds.
- Improved life and health business loss ratios.
- Movestic management company, which operates out of Luxembourg,
became fully operational during the period with a successful
migration from the previous outsource provider.
Future priorities
- Continue to generate positive client cash flows by:
o maintaining lapse levels within valuation assumptions; and
o strategic pricing to maintain transfers-in to 2016 levels or
above.
- Identify management actions to optimise the capital requirement.
- Provide a sustainable and predictable dividend to Chesnara plc.
KPIs
Growth in assets under management
GBPbn 2013 2014 2015 2016 30 Jun
2017
--------------------- ----- ----- ----- ----- -------
Total assets under
management 1.6 2.0 2.2 2.5
New client cashflow 0.09
Investment growth 0.13
2017 Total assets
under management 1.6 2.0 2.2 2.5 2.8
--------------------- ----- ----- ----- ----- -------
IFRS profit
GBPm 2013 2014 2015 2016 30 Jun
2017
------------- ----- ----- ----- ----- -------
IFRS profit 2.1 3.9 7.8 9.5 7.1
Value growth
GBPm 2013 2014 2015 2016 30 Jun
2017
----------- ----- ----- ----- ----- -------
EEV / EcV 122 152 192 230 243
Customer outcomes
Background
- Movestic places great importance on providing quality service
to both customers and brokers, with simple, clear unit linked
products, supported by an attractive and broad investment fund
range. The aim of Movestic is to offer policyholders the best funds
and management services on the market.
Initiatives and progress in 2017
- Fund range development including improved sustainability rating.
- Competitive unit linked fund returns.
Future priorities
- Fund range development in line with customer and market requirements.
- Deliver competitive unit linked fund returns.
- Consolidate the recent operational and fund performance
improvements to maintain broker assessment ratings.
KPIs
Broker assessment rating (0 to 5)
2012 2013 2014 2015 2016
-------- ----- ----- ----- ----- -----
Rating 3.1 3.6 3.6 3.7 3.8
2016 Policyholder average investment return:
7.5% (Swedish stock market 5.8%)
Note: Broker assessment and investment return KPIs are not
available at half year.
Governance
Background
- Movestic operates to exacting regulatory standards and adopts
a robust approach to risk management.
Initiatives and progress in 2017
- Full compliance with Solvency II reporting requirements.
- Deepened understanding and analysis of Solvency II dynamics.
- Inaugural Solvency II narrative reports.
Future priorities
- Continue to deepen the understanding of the Solvency II dynamics.
- Improved continuous solvency monitoring.
- Improve efficiency of regulatory reporting routines.
KPIs
Divisional solvency ratio
30 Jun 2017: 148%
31 Dec 2016: 142%
ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS
Profitable new business
Background
- As an "open" business, Movestic not only adds value from sales
but as it gains scale, it will become increasingly cash generative
which will fund further growth or contribute towards the group's
dividend strategy. Movestic has a clear sales focus and targets a
market share of 10 -15% of the advised occupational pension market.
This focus ensures we are able to adopt a profitable pricing
strategy.
Initiatives and progress in 2017
- New business profits of GBP6.5m.
- Successful pricing strategy attracts increased levels of high
value and higher margin transfer business.
- Market shares within target range.
- Increases in average gross margins.
Future priorities
- Continue to write new business within our target range without
any reductions in gross margins thereby delivering total profits at
a similar level to 2016.
KPIs
Occupational pension market share %
% 2013 2014 2015 2016 30 Jun
2017
-------------- ----- ----- ----- ----- -------
Market share 13.7 12.6 11.7 13.2 14.1
New business profit
GBPm 2013 2014 2015 2016 30 Jun
2017
--------------------- ----- ----- ----- ----- -------
New business profit 6.6 9.0 6.6 12.1 6.5
BUSINESS REVIEW | NETHERLANDS
The completion of the acquisition of Scildon N.V. (formerly
known as Legal & General Netherlands) brings a "New business
profit" dimension to the business model in the Netherlands. From
Hilversum, the 33 year old company focuses on three product market
combinations via brokers. Scildon is a well-established profitable
player on the term market, the current market leader in unit-linked
savings insurances with transparent products and is a challenger
brand in the Dutch defined contribution pension insurance market.
As a challenger, Scildon is assessed as the most preferred pension
insurer by brokers in the SME-market.
The first half of 2017 has been positive for the Dutch
businesses. The IFRS result includes a maiden contribution from
Scildon, driven by developments in credit spreads and equity market
growth. A good start has been made on integrating the reporting
processes for Finance, Actuarial and Risk.
The growth in sales and assets, in combination with equity
de-risking, contributed to an increase in Scildon's capital
surplus. Waard's solvency ratio of 533% remains strong but has
fallen during the period due to their part funding of the Scildon
acquisition.
MAXIMISE VALUE FROM EXISTING BUSINESS
Capital and value management
Background
- Both Waard and Scildon have a common aim to make capital
available to the Chesnara group to fund further acquisitions or to
contribute to the dividend funding. Whilst their aims are common
the dynamics by which the businesses add value do differ:
o Waard is in run-off and has the benefit that the capital
requirements reduce in-line with the attrition of the book.
o As an "open business" Scildon's capital position does not
benefit from book run-off. It therefore adds value and creates
surplus capital through writing new business and by efficient
operational management and capital optimisation.
o Waard management assists Chesnara with regards to pursuing its
acquisition strategy in the Netherlands. Successful acquisitions
need to satisfy dual financial criteria being positive Economic
Value impact and the creation of surplus capital and hence dividend
potential.
Initiatives and progress in 2017
- Successful transfer of Hollands Welvaren Leven into Waard Leven.
- Equity de-risk in Scildon post acquisition to reduce capital
requirements and align the investment of shareholder funds to
Chesnara's policy and risk appetite.
- Towards the end of 2016 the re-insurance structure was
improved to reflect the positive effect of underwriting in the
mortality result of Scildon.
- During 2017 and beyond capital and value management should
benefit from the recent removal of guarantees on new business, now
focussing instead on growth in the UL market, without providing
future guarantees.
Future priorities
- Over a two year period the Dutch businesses plan to deliver
efficiency improvements from a range of developments including:
o Identifying and delivering modest synergies between Waard and
Scildon.
o Insourcing certain activities to reduce costs.
o Realising the benefits from an already well progressed IT
system development in Scildon.
o Process and value for money improvements in Scildon such as
increased levels of "straight through" processing.
o Continual assessment of the business model to ensure an
optimal balance between returns generated versus the solvency
capital requirements.
GBPm 2013 2014 2015 2016 30 Jun
2017
---------------------- ------ ------ ------ ------ -------
EEV / EcV 304.5 326.1 334.5 354.3 366.9
Cumulative dividends 14.0 59.7 95.7 132.6 132.6
---------------------- ------ ------ ------ ------ -------
Total 318.5 385.8 430.2 486.9 499.5
---------------------- ------ ------ ------ ------ -------
Scildon has a track record of delivering value growth enabling
dividend distribution to the parent company
Customer outcomes
Background
- Regardless of whether the customers are of the closed Waard
Group or the Scildon business, which is open to new business, great
importance is placed on providing customers with high quality
service and positive outcomes.
- Whilst the ultimate priority is the end customer, in Scildon
we also see the brokers who distribute our products as being
customers and hence developing processes to best support their
needs is a key focus.
Initiatives and progress in 2017
- Scildon received awards for "Best occupational pension
insurer" and "Best annuity insurer". Scildon was rated in 2nd place
for term insurance according to the broker organisation
(Adfiz).
- The annual performance research for consumers shows high scores.
- Scildon replaced some non-performing funds.
Future priorities
- Organise discussions with brokers to support the development
of our processes in conjunction with their requirements.
- Perform a customer assessment and use the outcome to improve quality of service.
- Introduce chat-function on new website, improve navigation to
documents and disclose more relevant information on-line.
- Improve the brand recognition of Scildon.
KPIs
Client satisfaction rating (0-10)
2014 2015 2016
-------- ----- ----- -----
Rating 7.3 7.3 8.5
Governance
Background
- The Waard Group and Scildon operate in a regulated environment
and comply with rules and regulations both from a prudential and
from a financial conduct point of view.
Initiatives and progress in 2017
- Waard and Scildon both successfully delivered their Solvency
II narrative reports. This represented the final step of the
transition to the Solvency II regime.
- Aligning the Governance and Risk Management framework to
Chesnara practices, including ORSA, RSR, SFCR and risk
reporting.
- The short term priority for Scildon has been the successful
integration of statutory reporting routines to enable the
production of the group's Half Year Report.
- Waard and Scildon ended the period with healthy solvency ratios of 533% and 240% respectively.
Future priorities
- The focus during the second half of the year and into 2018 is
to fully align and integrate the governance routines such as the
Risk Management Framework, Business planning, MI production and
ensuring local processes conform to the Chesnara group Governance
Map where appropriate.
KPIs
Divisional solvency ratio
Scildon 30 Jun 2017: 240% 31 Mar 2017: 204%
Waard 2017 30 Jun 2017: 533% 31 Dec 2016: 712%
ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS
Profitable new business
Background
- The acquisition of Scildon has added a "New business"
dimension to the Dutch business model. Scildon sell protection,
individual savings and group pensions contracts via a broker-led
distribution model. As with Movestic the aim is to deliver
meaningful value growth from realistic market share. Having
realistic aspirations regarding volumes means we are able to adopt
a profitable pricing strategy. New business also helps the business
maintain scale and hence contributes to unit cost management.
Initiatives and progress in 2017
- During the period there has been a modest recovery in new
business profits with a half year profit of cGBP1.7m.
- Market share for the core Protection business is towards the middle of our 5 - 10% range.
- The business has been successfully rebranded to Scildon and
the change of ownership of the company appears to have had no
adverse impact on new business levels or broker support.
- New business processes have been reviewed and the exercise has
identified improvement opportunities which will be mutually
beneficial to brokers, customers and new business profit
levels.
Future priorities
- Whilst the new business foundations are solid, management
actions are planned over the next two years to generate a more
commercially meaningful level of new business profit.
- The objective of the improvement programme is to move the
market share for protection business towards the top end of the
5-10% target range.
- Whilst maintaining the focus on protection, Scildon plan to
increase the assets under management for pension business and
remain market leader in the small but growing unit linked
market.
KPIs
Scildon - term assurance market share %
% 2013 2014 2015 2016 30 Jun
2017
-------------- ----- ----- ----- ----- -------
Market share 10.9 5.0 6.6 5.9 7.4
Scildon - new business profit
GBPm 2013 2014 2015 2016 30 Jun
2017
---------------------------- ----- ------ ----- ----- -------
New business profit/(loss) 0.9 (3.5) 0.1 2.0 1.7
BUSINESS REVIEW | acquire life and pensions businesses
On 5 April 2017 we completed the acquisition of Legal &
General Nederland (subsequently renamed Scildon).
The completion of Scildon, which had an economic value of
EUR237.5m at the point of acquisition, results in the group having
40% of its Economic Value in the Netherlands.
The deal was funded by a combination of debt, equity and
existing cash resources.
This acquisition represents the ongoing delivery of our
acquisition strategy in the Netherlands, following the purchase of
the Waard Group in 2015. We believe this deal leaves us with
sufficient scale and presence to progress further value adding
deals in the Dutch market.
Highlights of Scildon acquisition:
- Completion purchase price of EUR161.2m
- Economic value of EUR237.5m at acquisition, representing a purchase price discount of 32%
- The impact of the acquisition, after taking account of the
equity de-risk programme, is to increase the solvency surplus of
the group by GBP4.7m
- Integration plans progressing well, with equity de-risk programme completed
Acquisition of Scildon
About Scildon
EUR237.5m 204% Solvency 175,000 Policies EUR2.2bn 149 Employees
EcV ratio AUM
---------- -------------- ----------------- --------- --------------
- Scildon is a long established, award winning specialist insurer in the Netherlands.
- It has approximately 175,000 policies, predominantly
individual protection and savings contracts and operates on a stand
alone basis.
- It is open to new business and sells protection, individual
savings and group pensions contracts via a broker led distribution
model.
- Scildon is well-capitalised, with a solvency ratio of 204% at
the point of acquisition. It applies the standard formula with no
transitional measures.
Impact on the group
Cash generation
- Cash generation is expected to emerge from the business post
acquisition at levels which would more than cover incremental
funding costs thereby creating a net positive impact on group
cash.
Value
- Scildon was purchased at a 32% discount to its economic value,
resulting in a day 1 gain of GBP65.4m.
- This one off gain contributes materially to overall group EcV of GBP700.4m.
- The Netherlands now makes up 40% of group EcV.
Customer outcomes
- Continuity of Scildon's operating model will ensure existing
high quality customer outcomes are not compromised.
Risk appetite
- The risks associated with Scildon align with the appetite of
the Chesnara group following the equity de-risk activity.
- Our integration plans include bringing Scildon within the group's risk management framework.
Policy numbers
- Additional policies of 175,000 results in the group now
managing a policy base of over 1 million, of which 26% are in the
Netherlands.
Solvency
- The acquisition has given rise to an increase in the absolute
level of group capital above its capital requirements, after taking
account of the planned equity de-risk programme.
- The group remains well capitalised, with a solvency ratio of
143%, with a surplus of GBP181.9m.
Capital
- The deal was financed through GBP66.7m of equity after costs,
GBP49.0m of incremental debt and GBP21.9m of Chesnara's own
cash.
- Our group gearing ratio of 23.7% remains well within our risk appetite.
- Further equity raising capacity is expected to be available for future deals.
Post acquisition integration
A post acquisition integration plan is in the process of being
delivered, and has progressed in line with expectations. In
particular:
- On 11 April 2017 the Scildon brand was launched, replacing the
previous name of Legal and General Nederland.
- The acquisition business case assumed that the investment
management strategy of Scildon would be aligned with the existing
Chesnara group, and consequently a number of indirect equity
holdings were sold post acquisition, as planned. This has resulted
in a reduction in the level of market risk capital required to be
held, thus improving the solvency position of both Scildon and the
group.
- The alignment of financial reporting processes has progressed
as planned. Some further alignment of finance processes will
continue to be delivered over the course of the year.
- Our integration plans include aligning risk and governance
processes of Scildon with the group framework. This has progressed
in line with plans, with further integration work expected to be
delivered during the remainder of the year.
- Ongoing review with local management is underway to deliver
process and value for money enhancements over the next two
years.
Acquisition outlook
The successful completion of the Scildon acquisition contributed
positively to the acquisition outlook due to increased scale and
presence in the Netherlands, and we are well-positioned to take
advantage of any future acquisition opportunities.
From a UK perspective we have seen a gradual increase in closed
book market activity which, in our view, is driven in part by
reduced uncertainty regarding Solvency II and regulatory
developments.
The environment in which European life insurance companies
operate continues to increase in complexity. In particular, in May
2017 "IFRS 17 Insurance Contracts" was issued, which is a
fundamental overhaul of the way in which insurance contracts are
accounted for under international accounting rules. We believe this
contributes to the factors that exist that will drive further
consolidation, namely larger financial organisations wishing to
re-focus on core activities and remove operating complexities, and
the desire to release capital or generate funds from potentially
capital intensive life and pension businesses.
Chesnara is a well-established life and pensions consolidator
with a proven track record. This, together with a good network of
contacts in the adviser community, who understand the Chesnara
acquisition model and are mindful of our track record and good
reputation with our regulators, ensures we are aware of most viable
opportunities in the UK and Western Europe.
Our financial foundations are strong, we have a proven and
stringent acquisition assessment model, and we continue to have
strong support from shareholders and lending institutions to
progress our acquisition strategy. In addition, our operating model
which consists of well established outsource arrangements plus
efficient, modern in-house solutions, means we have the flexibility
to accommodate a wide range of potential target books. With all the
above in mind, we are confident that we are well positioned to
continue the successful acquisition track record in the future.
CAPITAL MANAGEMENT | Solvency II
What is solvency and capital surplus?
- Solvency is a measure of how much the value of the company
exceeds the level of capital it is required to hold.
- The value of the company is referred to as its "own funds"
(OF) and this is measured in accordance with the rules of the
Solvency II regime.
- The capital requirement is again defined by Solvency II rules
and the primary requirement is referred to as the Solvency Capital
Requirement (SCR).
- Solvency is expressed as either a ratio: OF/SCR % or as an absolute surplus OF less SCR
Solvency surplus to cash generation
Subject to ensuring other constraints are managed, surplus
capital is a useful proxy measure for liquid resources available to
fund matters such as dividends, acquisitions or business
investment. As such Chesnara defines cash generation as the
movement in surplus, above management buffers, during the
period.
GROUP SOLVENCY AT 30 JUNE 2017
Group solvency remains strong and the impact of the Scildon
acquisition, after taking into account the equity de-risking
programme, has had a positive impact. During the period all
divisions have contributed positively to the absolute levels of
surplus capital available.
Solvency position
GBPm 30 Jun 31 Dec 2016 31 Dec
2017 2016
(excl.
LGN impact*)
--------------------------- ------- ------------ ---------------
Own funds (post dividend) 606 505 443
SCR 425 321 309
Buffer 42 32 31
Surplus 139 153 104
Solvency ratio % 143% 158% 144%
Analysis
- Surplus: The group remains well capitalised at 143%, equating
to an absolute level of surplus own funds above SCR of GBP181.9m.
Removing the impact of the equity raise, which relates to the
Scildon acquisition, the closing solvency surplus has increased by
GBP47.3m. Further detail on the solvency surplus movement has been
provided in the table below.
- Dividends: The solvency position is stated after deducting
GBP10.5m proposed dividend (31 December 2016: GBP19.0m).
- Own funds: Own funds have increased by GBP111.6m, before the
impact of the interim dividend. This includes underlying own funds
growth across the divisions and holding company of GBP57.6m,
coupled with a net increase in own funds of GBP54.0m arising on
completion of the Scildon acquisition, representing the difference
between the purchase price of GBP137.6m and the own funds acquired
of GBP191.6m.
- SCR: The group's underlying SCR, before the impact of the
Scildon acquisition, has reduced by GBP8.3m. The Scildon
acquisition has, as expected, resulted in a large increase in the
group's SCR of GBP112.2m. This is made up of the underlying Scildon
SCR of GBP93.0m coupled with an increase in additional group SCR of
GBP19.2m.
Sensitivities
Impact (GBPm) 1% fall in 10% fall
yields in equity
values
--------------- ----------- -----------
Own funds (16.7) (34.4)
SCR 4.9 (39.2)
Surplus (21.6) 4.8
Solvency surplus movement
GBPm
----------------------------------------- -------
Group solvency 31 Dec 2016 - pre equity
raise impact 134.6
CA 28.8
Movestic 15.0
Waard 5.3
Scildon 17.6
Chesnara / consol adj (5.9)
Scildon acquisition impact (8.0)
Exchange rates 5.0
Interim dividends (10.5)
Total surplus 30 Jun 2017 181.9
----------------------------------------- -------
The table above provides some further analysis of how the
solvency surplus has developed over the first half of the year. To
provide an end to end impact of the Scildon acquisition, the
starting point reflects the solvency position of the group at the
start of the year before the impact of the equity that was raised
in November 2016 to fund the acquisition.
- All divisions have contributed positively to the level of solvency surplus available.
- The table shows that the Scildon acquisition has reduced the
solvency surplus available at a group level by GBP8.0m. This was
expected and does not include the impact of the equity de-risking,
which was delivered post acquisition. Adjusting for this, the "day
1" impact of the Scildon acquisition has resulted a small positive
contribution to the overall group solvency position by GBP4.7m.
- The overall closing surplus of GBP181.9m includes the impact
of the GBP10.5m interim dividend, due to be paid in October
2017.
Managing the group and subsidiaries' capital positions
appropriately is a critical part of ensuring we remain true to the
group's culture and values.
We are well capitalised at both a group and subsidiary level,
and we have not used any elements of the long term guarantee
package.
Note: 31 Dec 2016 figures restated in the charts at 30 Jun 2017
exchange rates for comparison
UK
Analysis
- Surplus: GBP65m above regulatory requirements and GBP41m above
board's capital management policy.
- Dividends: Dividend of GBP30m was paid to Chesnara in May 2017.
- Own funds: Positive growth driven by a transfer of GBP9m out
of the with profit funds, a reduction in the with profit cost of
guarantees and an increase in the spread of swap yields over gilt
yields and positive equity growth.
- SCR: Reduction of GBP8m driven by a reduction in spread risk
due to investment portfolio changes and a reduction in counterparty
default risk owing to a change in the assumed likelihood of
reinsurer default, offset by an increase in equity risk due to
equity growth.
Solvency position
GBPm 30 Jun 2017 31 Dec 2016
--------------------------- ------------ ------------
Own funds (post dividend) 187 166
SCR 122 130
Buffer 24 26
Surplus 41 11
Solvency ratio % 154% 128%
Sensitivities
Impact (GBPm) 1% fall in 10% fall
yields in equity
values
--------------- ----------- -----------
Own funds (6.9) (9.8)
SCR 2.1 (11.6)
Surplus (9.0) 1.8
SWEDEN
Analysis
- Surplus: GBP71m above regulatory requirements and GBP41m above
board's capital management policy.
- Dividends: Dividend of GBP2.7m was paid to Chesnara in June 2017.
- Own funds: Growth largely driven by positive economic
experience due to positive equity markets coupled with positive
operating experience on in force policies, offset by the negative
impact of lowering the assumption for future expected charge income
on certain investment funds.
- SCR: Increase of GBP12m is largely due to increased market
risk capital being held due to strong investment growth in year
increasing the risk on equities, corporate bonds and foreign
currencies.
Solvency position
GBPm 30 Jun 2017 31 Dec 2016
--------------------------- ------------ ------------
Own funds (post dividend) 218 193
SCR 148 138
Buffer 30 27
Surplus 41 28
Solvency ratio % 148% 140%
Sensitivities
Impact (GBPm) 1% fall in 10% fall
yields in equity
values
--------------- ----------- -----------
Own funds (6.4) (22.5)
SCR 0.1 (21.8)
Surplus (6.5) (0.6)
NETHERLANDS - WAARD GROUP
Analysis
- Surplus: GBP49m above regulatory requirements and GBP38m above
board's capital management policy.
- Dividends: A dividend of GBP32m was paid in April 2017 by the
insurance companies within the division to the Dutch holding
company and then subsequently used to part-fund the acquisition of
LGN.
- Own funds: Reduction driven by the dividend of GBP32m, offset
by modest economic variances, positive operating mortality
experience and the positive impact of changing mortality
assumptions in the modelling.
- SCR: Reduction of GBP2m over the period is primarily due to a
fall in counterparty default risk from a reduction in cash at bank
following the GBP32m transfer to part-fund the acquisition of
LGN.
Solvency position
GBPm 30 Jun 2017 31 Dec 2016
--------------------------- ------------ ------------
Own funds (post dividend) 59 89
SCR 11 12
Buffer 11 12
Surplus 38 64
Solvency ratio % 533% 712%
Sensitivities
Impact (GBPm) 1% fall in 10% fall
yields in equity
values
--------------- ----------- -----------
Own funds (0.5) (0.3)
SCR 0.4 (0.2)
Surplus (0.8) (0.1)
NETHERLANDS - SCILDON
Analysis
- Surplus: GBP119m above regulatory requirements and GBP34m
above board's capital management policy.
- Dividends: No dividends have been paid in the post acquisition period.
- Own funds: Increase since acquisition driven by positive
economic experience, including the weakening of sterling relative
to the Euro, offset by the negative impact of a change in the
assessment of persistency and mortality risk leading to an increase
in the risk margin.
- SCR: Reduction of GBP9m due to a substantial reduction in
equity risk owing to a sale of equities in the division, partially
offset by an increase in spread risk and counterparty default risk
following reinvestment of proceeds from the equity sale.
Solvency position
GBPm 30 Jun 2017 31 Mar 2017
--------------------------- ------------ ------------
Own funds (post dividend) 205 192
SCR 85 94
Buffer 85 94
Surplus 34 3
Solvency ratio % 240% 204%
Sensitivities
Impact (GBPm) 1% fall in 10% fall
yields in equity
values
--------------- ----------- -----------
Own funds (4.6) (1.8)
SCR 1.7 (1.3)
Surplus (6.3) (0.5)
FINANCIAL REVIEW
The key performance indicators below are a reflection of how we
have performed in delivering our three strategic objectives and our
core culture and values. The first half results of 2017 are
dominated by the impact of the completion of the acquisition of
Scildon. Looking through this impact, all divisions have performed
well across all financial metrics, resulting in a closing EcV of
over GBP700m.
Summary of each KPI:
IFRS
PRE-TAX PROFIT: GBP51.6M (30 Jun 2016: GBP0.2M)
TOTAL COMPREHENSIVE INCOME: GBP53.8M (30 Jun 2016: GBP15.7M)
What is it?
The presentation of the results in accordance with International
Financial Reporting Standards (IFRS) aims to recognise the profit
arising from the longer term insurance and investment contracts
over the life of the policy.
Why is it important?
IFRS profit is an indicator of the value that has been generated
within the long-term insurance funds of the divisions within the
group, and is a key measure used both internally and by our
external stakeholders in assessing the performance of the business.
IFRS profit is an indicator of how we are performing against our
stated strategic objective of "maximising value from the existing
business" and can also be impacted by one-off gains arising from
delivering against our stated objective of "acquiring life and
pensions businesses".
Risks
The IFRS profit can be affected by a number of our principal
risks and uncertainties as set out in the Risk Management section.
In particular, volatility in equity markets and bond yields can
result in volatility in the IFRS pre-tax profit, and foreign
currency fluctuations can affect total comprehensive income.
Highlights
----------------------- ------- -------
GBPm 30 Jun 30 Jun
17 16
----------------------- ------- -------
CA 8.4 14.3
S&P 14.7 (13.9)
Movestic 7.1 3.6
Waard 2.3 2.3
Scildon 7.0 -
Group & consol adj. (8.6) (6.1)
Profit on acquisition 20.7 -
Taxation (4.9) 0.2
Forex impact 7.1 15.3
----------------------- ------- -------
Total 53.8 15.7
- Strong pre-tax results across all segments.
- IFRS pre-tax profit of GBP51.6m significantly ahead of prior
year (2016: GBP0.2m). The underlying performance is supported by a
one off gain of GBP20.7m relating to the acquisition of Legal and
General Nederland.
- All territories have delivered results ahead of 2016,
supported by positive equity markets during the first half of the
year.
- Total comprehensive income includes a foreign exchange gain of
GBP7.1m (2016: GBP15.3m) relating to sterling's depreciation
against both the euro and Swedish krona.
CASH GENERATION
GROUP CASH GENERATION GBP46.2M* (30 Jun 2016: GBP13.6M)
DIVISIONAL CASH GENERATION GBP54.8M (30 Jun 2016: GBP9.8M)
What is it?
Cash generation is a measure of how much distributable cash has
been generated in the period. Cash generation is driven by the
change in solvency surplus in the period, taking into account
board-approved capital management policies.
Why is it important?
Cash generation is a key measure, because it is the net cash
flows to Chesnara from its life and pensions businesses which
support Chesnara's dividend-paying capacity and acquisition
strategy. Cash generation can be a strong indicator of how we are
performing against our stated objective of "maximising value from
the existing business". However, our cash generation is always
managed in the context of our stated value of maintaining strong
solvency positions within the regulated entities of the group.
Risks
The ability of the underlying regulated subsidiaries within the
group to generate cash is affected by a number of our principal
risks and uncertainties as set out in the Risk Management section.
Whilst cash generation is a function of the regulatory surplus, as
opposed to the IFRS surplus, they are impacted by similar drivers,
and therefore factors such as yields on fixed interest securities
and equity and property performance contribute significantly to the
level of cash generation within the group.
Highlights
------------------------------------ ------------
GBPm 30 Jun 2017
------------------------------------ ------------
UK 30.4
Sweden 13.8
Netherlands 10.6
------------------------------------ ------------
Divisional cash generation 54.8
Other group activities (2.2)
------------------------------------ ------------
Group cash pre-Scildon acquisition 52.6
Impact of Scildon acquisition (6.4)
------------------------------------ ------------
Total group cash generation 46.2
------------------------------------ ------------
Divisional cash
- Significant cash contributions from all divisions in the first half of the year.
- UK cash generation underpins the result, with favourable
movements in both own funds and capital requirements.
- Positive economic experience, primarily equity markets, have
driven the growth in own funds and ultimately cash generation in
Sweden and the Netherlands.
Total cash generation
- At group level, the impact of the outflow of funds utilised in
facilitating the purchase of Scildon, and the addition of the
associated capital requirement on completion, have resulted in a
negative cash generation for the period.
* Includes the end to end impact of the Scildon acquisition
ECONOMIC VALUE (EcV)
GBP700.4M (30 Jun 2016: GBP459.9M)
What is it?
Economic value (EcV) was introduced in 2016 by Chesnara as a
replacement metric for European Embedded Value. This was introduced
following the introduction of Solvency II at the start of 2016 with
EcV being derived from Solvency II own funds. Conceptually EcV is
broadly similar to EEV in that both reflect a market-consistent
assessment of the value of existing insurance business, plus
adjusted net asset value of the non-insurance business within the
group.
Why is it important?
EcV aims to reflect the market-related value of in-force
business and net assets of the non-insurance business and hence is
an important reference point by which to assess Chesnara's
intrinsic value. A life and pensions group may typically be
characterised as trading at a discount or premium to its economic
value. Analysis of EcV provides additional insight into the
development of the business over time.
The EcV development of the Chesnara group over time can be a
strong indicator of how we have delivered to our strategic
objectives, in particular the value created from acquiring life and
pensions businesses and enhancing our value through writing
profitable new business. It ignores the potential of new business
to be written in the future (the franchise value of our Movestic
and Scildon businesses) and the value of the company's ability to
acquire further businesses.
Risks
The economic value of the group is affected by economic factors
such as equity and property markets and yields on fixed interest
securities. In addition to this, whilst the other KPIs (which are
all "performance measures") remain relatively insensitive to
exchange rate movements, the EcV position of the group can be
materially affected by exchange rate fluctuations. For example a
10.0% weakening of the Swedish krona and euro against sterling
would reduce the EcV of the group by 3.1% and 3.6% respectively,
based on the composition of the group's EcV at 30 June 2017.
GBPm
---------------- -------
2016 Group EcV 602.6
EcV earnings 40.4
Acquisition 65.4
Dividends (19.0)
Forex gain 11.0
2017 Group EcV 700.4
---------------- -------
- Economic value at the end of June exceeds GBP700m for the
first time, having increased by GBP98m since the start of the
year.
- Strong underlying earnings achieved in the period of GBP40m.
- Total growth includes the gain delivered upon the acquisition of Scildon.
- Foreign exchange gains also contribute to the overall growth,
offset by the payment of the final dividend in relation to
2016.
- Pre tax EcV earnings of GBP105.8m in the first half of the
year, driven by a combination of strong underlying economic
earnings supported by the substantial gain realised on the
acquisition of Legal & General Nederland in April.
ECV EARNINGS NET OF TAX
GBP105.8M (30 Jun 2016: GBP(3.5)M)
What is it?
In recognition of the longer-term nature of the group's
insurance and investment contracts, supplementary information is
presented that provides information on the economic value of our
business.
The principal underlying components of the economic value result
are:
- The expected return from existing business (being the effect
of the unwind of the rates used to discount the value
in-force).
- Value added by the writing of new business.
- Variations in actual experience from that assumed in the opening valuation.
- The impact of restating assumptions underlying the determination of expected cash flows.
- The impact of acquisitions.
Why is it important?
By recognising the market-related value of in-force business
(in-force value), a different perspective is provided in the
performance of the group and on the valuation of the business.
Economic value earnings are an important KPI as they provide a
longer-term measure of the value generated during a period. The
economic value earnings of the group can be a strong indicator of
how we have delivered against all three of our core strategic
objectives. This includes new business profits generated from
writing profitable new business, economic value profit emergence
from our existing businesses, and the economic value impact of
acquisitions.
Risks
The EcV earnings of the group can be affected by a number of
factors, including those highlighted within our principal risks and
uncertainties as set out in the Risk Management section. In
addition to the factors that affect the IFRS pre-tax profit and
cash generation of the group, the EcV earnings can be more
sensitive to other factors such as the expense base and persistency
assumptions. This is primarily due to the fact that assumption
changes in EcV affect our long-term view of the future cash flows
arising from our books of business.
GBPm 2017
--------------------- ------
Operating earnings 5.3
Economic earnings 37.0
Gain on acquisition 65.4
Other (1.9)
Total EcV earnings 105.8
--------------------- ------
- Pre tax EcV earnings of GBP105.8m in the first half of the
year, driven by a combination of strong underlying economic
earnings supported by the substantial gain realised on the
acquisition of LGN in April.
- Operating results were adversely affected by two non-recurring
items. The expense assumptions now include the impact of the LGN
acquisition on group overheads and we have made provision to adopt
a more attractive pricing strategy in Movestic which has resulted
in lower assumed fees on certain white label funds. Underlying
operating profits include new business profits of GBP7.1m and are
in line with expectations.
- Economic earnings primarily driven by strong equity market
performance across Europe in the period.
IFRS PRE-TAX PROFIT
GBP51.6M (30 Jun 2016: GBP0.2M)
IFRS TOTAL COMPREHENSIVE INCOME
GBP53.8M (30 Jun 2016: GBP15.7M)
Executive summary
The group IFRS results reflect the natural dynamics of the
segments of the group, which can be characterised in three major
components:
(1) Stable core: At the heart of surplus, and hence cash
generation, are the CA and Waard group segments. The requirements
of these books are to provide a predictable and stable platform for
the financial model and dividend strategy. As closed books, the key
is to sustain this income source as effectively as possible. The
IFRS results below show that, despite some period on period
movements, the long term trend of material positive results
indicates that the stable core continues to deliver against these
requirements.
(2) Variable element: The S&P component within the UK
division can bring an element of short-term earnings volatility to
the group, with the results being particularly sensitive to
investment market movements. Hence the split of the UK division
results showing S&P separately is shown below.
(3) Growth operation: The long-term financial model of Movestic
is based on growth, with levels of new business and premiums from
existing business being targeted to more than offset the impact of
policy attrition, leading to a general increase in assets under
management and, hence, management fee income.
IFRS results
The financial dynamics of Chesnara, as described above, are
reflected in the following IFRS results:
Unaudited Year
6 months ended ended
30 Jun 17 30 Jun 16 31 Dec 16
GBPm GBPm GBPm Note
============================================ ========= ========= ========= ====
CA 8.4 14.3 28.4 1
S&P 14.7 (13.9) 14.3 2
Movestic 7.1 3.6 8.7 3
Waard Group 2.3 2.3 6.2 4
Scildon 7.0 - - 5
Chesnara (6.6) (2.9) (9.7) 6
Consolidation adjustments (2.0) (3.2) (7.2) 7
============================================ ========= ========= ========= ====
Profit before tax and profit on acquisition 30.9 0.2 40.7
Profit on acquisition of Scildon 20.7 - - 5
============================================ ========= ========= ========= ====
Profit before tax 51.6 0.2 40.7
Tax (4.9) 0.2 (5.4)
============================================ ========= ========= ========= ====
Profit after tax 46.7 0.4 35.3
Foreign exchange 7.1 15.3 20.1 8
============================================ ========= ========= ========= ====
Total comprehensive income 53.8 15.7 55.4
Unaudited Year
6 months ended ended
30 Jun 17 30 Jun 16 31 Dec 16
GBPm GBPm GBPm Note
============================================ ========= ========= ========= ====
Operating profit 16.6 9.5 34.9 9
Economic profit 14.3 (9.3) 5.8 10
Profit before tax and profit on acquisition 30.9 0.2 40.7
Profit on acquisition of Scildon 20.7 - - 5
============================================ ========= ========= ========= ====
Profit before tax 51.6 0.2 40.7
Tax (4.9) 0.2 (5.4)
============================================ ========= ========= ========= ====
Profit after tax 46.7 0.4 35.3
Foreign exchange translation differences 7.1 15.3 20.1 8
============================================ ========= ========= ========= ====
Total comprehensive income 53.8 15.7 55.4
Note 1: The CA segment continues to deliver material and stable
IFRS profits in line with plans. Prior year result benefitted from
significant increases in bond values.
Note 2: The S&P segment has reported an increase in profits
on the prior year. Positive economic profits of cGBP12m arise from
the net impact of positive equity markets.
Note 3: Movestic has continued to generate strong results in the
period, principally driven by strong growth in assets under
management and increased fund performance fee income
generation.
Note 4: The Waard Group has reported a profit which is slightly
improved from the prior year and in line with profit generation
expectations. The mortgage portfolio acquired in 2016 continues to
generate favourable returns.
Note 5: The Scildon result represents profit generation for the
three months from the date of acquisition and is broadly in line
with expectations. The profit arising from the acquisition
represents the difference between the value of the net assets
acquired (post acquisition accounting fair value adjustments) and
the purchase consideration paid. Scildon's IFRS reserving basis,
whilst technically compliant, does not align to the Chesnara
reserving approach. Scildon's current book reserving approach
creates a level of volatility which is greater than commercial
reality. In light of this, we plan to align Scildon's IFRS
reserving policy during the second half of 2017. We do not
anticipate that this change in reserving methodology will
materially alter the reported profit arising on acquisition.
Note 6: The Chesnara result represents holding company expenses.
The year to date loss includes a foreign currency re-translation
loss of cGBP1.8m in respect of the euro denominated loan facility
taken out in the year, to part fund the Scildon acquisition. The
result also reflects increased financing costs of cGBP0.8m due to
the higher level of bank debt carried in the period.
Note 7: Consolidation adjustments relate to items such as the
amortisation of intangible assets. The current year figures reflect
the introduction of adjustments relating to the Scildon
acquisition.
Note 8: As a result of sterling weakening against both the euro
and Swedish krona in the period the IFRS result includes a large
foreign exchange gain.
Note 9: The operating result demonstrates the strength and
stability of the underlying business, driving the generation of
profit. Product based income and favourable movements in operating
experience, offset by assumption changes, specifically expenses,
have supported performance in the UK. Strong fund performance
growth contributes to the Movestic operating result, whilst the
Waard result continues to benefit from the investment in its
mortgage portfolio. The introduction of Scildon as a source of
profit generation adds further strength to the underlying business
model.
Note 10: Economic profit represents the components of the
earnings that are directly driven by movements in economic
variables, e.g. the impact of yield movements on the cost of
guarantees reserves. During 2017 the economic profit is generally
driven by the net impact of positive equity markets, offset by
falling bond yields in the year.
Note: Movestic, Waard Group and Scildon economic surplus is not
readily determinable. While there is an element of movement due to
economic conditions, they are immaterial in comparison to
non-economic items, therefore all surplus is treated as derived
from operating activities.
GROUP CASH GENERATION GBP46.2M
(30 Jun 2016: GBP13.6M)
DIVISIONAL CASH GENERATION GBP54.8M
(30 Jun 2016: GBP9.8M)
The three territories have generated GBP54.8m cash in the
period, with all four businesses making positive contributions to
the cash generation.
Cash in the business is generated from increases in the group's
surplus funds. Surplus funds represent the excess of assets held
over management's internal capital needs, as in the capital
management policies across the group. These are based on regulatory
capital requirements, with the inclusion of additional "management
buffers".
HIGHLIGHTS
GROUP
- Before taking into account the impact of the acquisition of
Scildon, cash has been generated across the group, with total cash
generation in the period of GBP52.6m. As highlighted in the
divisional commentary below, this includes the positive impact of
some non-recurring management actions in the period amounting to
GBP16.0m.
- Other group activities also reflected the residual group
expenses and the impact of consolidation routines, specifically
movements in capital requirements determined at a group level.
- From a capital requirement perspective, this is driven by
movements in required capital at a Chesnara holding company level
coupled with consolidation adjustments. At a Chesnara holding
company level capital is principally required to be held for the
currency risk associated with the Movestic, Scildon and Waard Group
surplus assets.
- The end to end impact of the acquisition of Legal &
General Nederland is to reduce surplus cash by GBP6.4m. This was in
line with expectations. The GBP6.4m cash reduction consists of an
increase in own funds of GBP116.2m (GBP62.1m of equity raised and
deal costs; GBP191.6m of own funds acquired; less purchase price of
GBP137.6m) offset by an increase in capital requirement of
GBP122.6m (GBP88.4m of capital required in Scildon itself,
including management group buffer, plus additional capital at group
level of GBP34.3m). The GBP88.4m of capital required for Scildon
includes the positive impact of the equity de-risk in the period,
which amounted to GBP12.7m.
UK
- The UK continues to generate significant levels of cash to support the dividend payment.
- Own funds growth is the main driver of cash generation in the
UK, which has benefitted from a reduction in the cost of
guarantees.
- There has also been a reduction in required capital due to
changes in investment portfolio and reduced counterparty default
risk.
- Cash generation includes the benefit of a GBP9.0m release of
previously trapped surplus from the with profit funds.
SWEDEN
- Sweden had a positive cash generation in the period of
GBP13.8m primarily due to own funds growth.
- Own funds have benefitted from growth in equity markets during the period.
- Growth in equity has also had an adverse impact on the level
of capital the business is required to hold, driving the increase
in management capital requirement.
- Cash generation includes a one off benefit of enhancing our
modelling for commission clawbacks amounting to GBP7.0m.
NETHERLANDS - WAARD GROUP
- The Waard Group has continued the solid cash generation
witnessed in the prior year with positive underlying movements in
both own funds and capital requirements.
- Movement in own funds was driven by mortality experience and assumption changes.
- Fall in counterparty default risk underpins the reduction in the capital requirement.
NETHERLANDS - SCILDON
- Scildon has reported positive cash generation of GBP3.2m in
the three months since the acquisition of the business.
- Positive economic experience, including euro exchange gains
against sterling, support increase in own funds.
30 June 2017 Movement in Movement Forex Cash generated
in management's
capital
(GBPm) own funds requirement impact
UK 20.7 9.7 - 30.4
Sweden 24.4 (11.3) 0.7 13.8
Waard
Netherlands Group 3.6 3.5 0.3 7.4
Scildon 7.2 (4.9) 0.9 3.2
================================ =========== ================ ======= ==============
Divisional cash 55.9 (3.0) 1.9 54.8
Other group activities (8.7) 6.5 - (2.2)
================================= =========== ================ ======= ==============
Group cash pre-
Scildon acquisition 47.2 3.5 1.9 52.6
Impact of Scildon
acquisition 116.2 (122.6) - (6.4)
================================= =========== ================ ======= ==============
Total group cash 163.4 (119.1) 1.9 46.2
EcV EARNINGS
GBP105.8M
(30 Jun 2016: GBP(3.5)M)
Driven by generally beneficial investment markets in the first
half of the year, with sterling depreciation and volatile yet
growing equity markets, the group has reported significant
underlying EcV earnings, reflecting the resilience and diversity of
the business. This performance and the acquisition of Legal &
General Nederland have delivered comprehensive EcV earnings for the
period.
Analysis of the EcV result in the period by earnings source:
Note
30 Jun 30 Jun 31 Dec
2017 2016 2016
GBPm GBPm GBPm
============================== ====== ====== ======== ====
Expected movement in period 11.7 4.3 6.0
New business 7.1 4.0 11.9
Operating variances 4.4 3.2 22.7
Operating assumption changes (17.9) (8.5) 0.6 2
Other operating variances - (3.2) (7.3)
============================== ====== ====== ======== ====
Total operating earnings 5.3 (0.2) 33.9
Economic experience variances 29.0 34.2 77.9 1
Economic assumption changes 7.6 (39.7) (38.3)
============================== ====== ====== ======== ====
Total economic earnings 36.6 (5.5) 39.6
Other non-operating variances 5.0 (4.1) (3.0)
Gain on acquisition 65.4 - -
Tax (6.5) 6.3 2.0
============================== ====== ====== ======== ====
Total EcV earnings 105.8 (3.5) 72.5
Analysis of the EcV result in the year by business segment:
Note
30 Jun 30 Jun 31 Dec
2017 2016 2016
GBPm GBPm GBPm
============================ ====== ====== ======== ====
UK 26.2 (5.5) 42.2 3
Sweden 15.8 (3.8) 30.8 4
Netherlands 14.8 0.6 5.9 5
Gain on acquisition 65.4 - -
Group and group adjustments (9.9) (1.1) (8.4) 6
============================ ====== ====== ======== ====
EcV earnings before tax 112.3 (9.8) 70.5
Tax (6.5) 6.3 2.0 7
============================ ====== ====== ======== ====
EcV earnings after tax 105.8 (3.5) 72.5
Note 1 - Economic conditions: As with our previously reported
EEV metric, the EcV result is sensitive to investment market
conditions. Key investment market conditions in the period are as
follows:
- The FTSE All share index has increased by 3.3%;
- The Swedish OMX all share index has increased by 7.2%; and
- 10 year UK gilt yields remain at 1.28%.
Note 2 - Operating assumptions: Provision has been made to adopt
a slightly more attractive pricing strategy on certain white label
funds in Movestic should the business model benefit from such a
change and the expense assumptions now include the impact of the
LGN acquisition on group overheads.
Note 3 - UK: The UK reported strong pre tax earnings of GBP26.2m
for the period. The result was mainly driven by Economic profits of
GBP15.9m which was the result of positive equity market growth.
Note 4 - Sweden: The Swedish division has also reported a strong
EcV movement in the year. Operating earnings were underpinned by
strong new business performance, which generated positive earnings
of GBP6.5m owing to transfer in volumes and increased average
policy premiums. These new business earnings are offset by the
negative effect of assuming a more attractive pricing strategy on
certain white label funds. An economic profit of GBP13.9m was also
reported, driven by improving equity markets in the first half of
the year.
Note 5 - Netherlands: The Dutch division has reported earnings
of GBP14.8m in the period. This is primarily all economic earnings
within the newly acquired Scildon supported investment returns.
Note 6 - Group: A loss has been reported in the group component.
This is includes the impact of a foreign exchange loss incurred in
relation to a Euro denominated loan taken out for the LGN
acquisition, increased loan financing costs and also underlying
group level expenses and consolidation activities.
Note 7 - Tax: The business is reporting a tax expense of GBP6.5m
in the period. This is driven by a combination of current tax on
the profit in the period and movements in deferred tax relating to
group level activities.
EcV
GBP700.4M
(30 Jun 2016: GBP459.9M)
The economic value of Chesnara represents the present value of
future profits of the existing insurance business, plus the
adjusted net asset value of the non-insurance business within the
group. EcV is an important reference point by which to assess
Chesnara's intrinsic value.
Value movement: 1 Jan 2017 to 30 Jun 2017:
GBPm
---------------- -------
2016 Group EcV 602.6
EcV earnings 40.4
Acquisition 65.4
Dividends (19.0)
Forex gain 11.0
2017 Group EcV 700.4
---------------- -------
EcV earnings: Strong EcV earnings have been reported in the year
to date, a result of strong operating profits and positive economic
profits, driven by the equity market growth.
Acquisition: In April 2017 the group successfully completed the
purchase of LGN, delivering an underlying GBP65m economic value
gain on acquisition upon day one. This is reflected in the group
closing EcV at the end of June.
Dividends: Under EcV, dividends are recognised in the period in
which they are paid. Dividends of GBP19.0m were paid during the
2017, being the final dividend from 2016.
FX gain: The EcV of the group benefited from foreign exchange
gains that were reported in the period as a result of sterling
deprecation against both the euro and Swedish krona.
EcV by segment at 30 Jun 2017
GBPm
------------------------ -------
UK 231.5
Sweden 242.7
Netherlands 277.5
Other group activities (51.3)
The above table shows that the EcV of the group is diversified
across its different markets, demonstrating that we are
well-balanced and not over-exposed to one particular geographic
market.
EcV to Solvency II:
GBPm
------------------------ -------
2017 Group EcV 700.4
Risk margin (53.9)
Contract boundaries (16.5)
Own funds restrictions (13.1)
Dividends (10.5)
SII own funds 606.5
------------------------ -------
Our reported EcV is based on a Solvency II assessment of the
value of the business, but adjusted for certain items where it is
deemed that Solvency II does not reflect the commercial value of
the business. The above table shows the key difference between EcV
and SII, with explanations for each item below.
Risk margin: Solvency II rules require a significant 'risk
margin' which is held on the Solvency II balance sheet as a
liability, and this is considered to be materially above a
realistic cost. We therefore reduce this margin for risk for EcV
valuation purposes from being based on a 6% cost of capital to a 3%
cost of capital.
Contract boundaries: Solvency II rules do not allow for the
recognition of future cash flows on certain in-force contracts,
despite the high probability of receipt. We therefore make an
adjustment to reflect the realistic value of the cash flows under
EcV.
Ring-fenced fund restrictions: Solvency II rules require a
restriction to be placed on the value of certain ring-fenced funds.
These restrictions are reversed for EcV valuation purposes as they
are deemed to be temporary in nature.
Dividends: The proposed interim dividend of GBP10.5m is
recognised for SII regulatory reporting purposes. It is not
recognised within EcV until it is actually paid.
Replacement of EEV:
During 2016 we replaced the previous group valuation metric,
European Embedded Value, with a new metric, economic value (EcV).
This has been introduced to align our valuation metric with
Solvency II, with EcV being derived from the Solvency II balance
sheet.
As expected, the new valuation metric gives a broadly similar
value of the Chesnara plc group. At 31 December 2015 our previously
reported EEV was GBP455.2m, compared with an opening EcV for 2016
of GBP453.4m.
Our Embedded Value figures have historically been subject to an
external audit opinion addressed to the directors of Chesnara plc.
This reflected the significance of the Embedded Value figures and
was consistent with industry best practice.
The Economic Value figures are at this stage not subject to
audit opinion other than to the extent the general audit opinion of
the Financial Statements considers their consistency with the
Financial Statements.
The annual external audit requirements cover Solvency II
disclosures and as such given the Economic Value figures are
derived from the Solvency II balance sheet the Economic Value
figures benefit from a degree of external audit comfort.
RISK MANAGEMENT
Managing risk is a key part of our business model. We achieve
this by understanding the current and emerging risks to the
business, mitigating them where appropriate and ensuring they are
appropriately monitored and managed at all times.
Chesnara adopts the "three lines of defence" model across the
group taking into account size, nature and complexity, with a
single set of risk and governance principles applying consistently
across the business.
PRINCIPAL RISKS AND UNCERTAINTIES
Risks and uncertainties are assessed by reference to the extent
to which they threaten, or potentially threaten, the ability of the
group to meet its core strategic objectives.
There are a number of potential risks and uncertainties which
could have a material impact on performance over the remaining
months of the financial year causing material fluctuation in actual
results from those expected.
Recent geopolitical events, such as the European Union
referendum result, have triggered an increase in economic
uncertainty.
Completion of the acquisition of Scildon during the first half
of the year has not materially changed the nature of the risks
facing the organisation. It has in some cases impacted the
sensitivity of the key financial metrics to those risks. The
'Capital Management: Solvency II' section provides further
information on the sensitivities.
A detailed explanation of the risks faced by Chesnara and how
they are mitigated can be found on pages 39 to 41 of the annual
report. These risks are summarised in the table below.
Risk Impact
Adverse mortality / morbidity / longevity experience In the event that actual mortality or morbidity rates vary
from the assumptions underlying
product pricing and subsequent reserving, more or less
profit will accrue to the group.
Adverse persistency experience If persistency is significantly lower than that assumed in
product pricing and subsequent
reserving, this will lead to reduced group profitability
in the medium to long-term. The business
is exposed to losses arising from "mass lapse" events
(i.e. a large number of customers terminating
their contracts early within a short period of time). This
risk is most prevalent for parts
of the business such as Movestic, where retention is to a
degree dependent on Broker relationships.
Expense overruns and unsustainable unit cost growth For the closed UK and Dutch businesses, the group is
exposed to the impact on profitability
of fixed and semi-fixed expenses with the potential to
increase per policy administration
costs as the book runs off and the costs remain fixed. For
the open life and pensions businesses
(Movestic and Scildon), the group is exposed to the impact
of expense levels varying adversely
from those assumed in product pricing.
Significant and prolonged reduction in the market value of A significant part of the company's income and, therefore,
asset holdings overall profitability derives from
fees received in respect of the management of policyholder
and investor funds. Fee levels
are generally proportional to the value of funds under
management and any material fall in
their value will impact on future income. In addition, for
with profits products with guarantees,
a sustained fall in the market value of assets can
increase the cost of meeting the guaranteed
benefits.
The most material risk is equity risk, as overall
investment funds comprise a significant
equity content. However, material market risks also exist
if there is a sustained fall in
the value of fixed interest holdings, a fall in the value
of property holdings and exchange
rate risk in respect of overseas investments held by
policyholders.
Income levels may also reduce if policyholders switch from
equity based funds to lower margin,
fixed interest funds, as a consequence of a material fall
in the market value of equities.
Adverse exchange rate movements against Sterling Exposure to adverse sterling:swedish krona and
sterling:euro exchange rate movements (Sterling
appreciating) arises from cash flows between Chesnara and
its overseas subsidiaries and from
the impact on reported IFRS and EcV results which are
expressed in sterling.
Financial counterparty failure The group carries significant inherent risk of
counterparty failure in respect of:
* its fixed interest security portfolio;
* cash deposits; and
* payments due from reinsurers.
Adverse movements in yields on fixed interest securities The group maintains portfolios of fixed interest
securities (i) in order to match its insurance
contract liabilities, in terms of yield and cash flow
characteristics, and (ii) as an integral
part of the investment funds it manages on behalf of
policyholders and investors. It is exposed
to mismatch losses arising from a failure to match its
insurance contract liabilities or from
the fact that sharp and discrete fixed interest yield
movements may not be associated fully
and immediately with corresponding changes in liability
valuation interest rates.
Failure of outsourced service providers to fulfil The group's business model includes outsourcing
contractual obligations arrangements with providers that deliver policyholder
administration and other key business functions,
particularly in the UK. In the event of failure
by any of the service providers to fulfil their
contractual obligations, in whole or in part,
to the requisite standards specified in the contracts, the
group may suffer losses, poor customer
outcomes, or reputational damage as its functions degrade
or underperform.
Key man dependency The nature of the group is such that it relies on a number
of key individuals who have particular
knowledge, experience and know how. The group is,
accordingly, exposed to the sudden loss
of the services of these individuals.
Adverse regulatory and legal changes The group operates in jurisdictions which are currently
subject to significant change arising
from regulatory and legal requirements. These may either
be of a local nature, or of a wider
nature, following from EU-based regulation and law. This
risk has been compounded by the increased
geopolitical political uncertainties particularly within
the EU but also on a global scale.
The group is therefore exposed to the one-off costs of
addressing regulatory change as well
as any permanent increases in the cost base in order to
meet enhanced standards. Further,
the group is exposed to the risk of fines or censure in
the event that it fails to deliver
changes to the required regulatory standards on a timely
basis.
Inconsistent regulation across territories Chesnara currently operates in three regulatory domains
and is therefore exposed to inconsistent
application of regulatory standards across divisions, such
as the imposition of higher Capital
Buffers over and above regulatory minimums.
Potential consequences of this risk for Chesnara include
constraining the efficient and fluid
use of capital within the group, or creating a non-level
playing field with respect to future
deal assessments.
Availability of future acquisitions Chesnara's inorganic growth strategy is dependent on the
availability of attractive future
acquisition opportunities. Hence, the business is exposed
to the risk of a reduction in the
availability of suitable acquisition opportunities in
Chesnara's current target markets, for
example arising as a result of a change in competition in
the consolidation market or from
regulatory change influencing the extent of life company
strategic restructuring.
Defective acquisition due diligence Through the execution of acquisitions, Chesnara is exposed
to the risk of erosion of value
or financial losses arising from risks inherent within
businesses or funds acquired which
are not adequately priced for or mitigated within the
transaction.
IT/data security risk and the risk of cyber crime Cyber crime is a growing risk affecting all companies,
particularly those who are custodians
of customer data. The most pertinent risk exposure relates
to information security (i.e. protecting
business sensitive and personal data) and can arise from
failure of internal processes and
standards, but increasingly companies are becoming exposed
to potential malicious cyber attacks,
organisation specific malware designed to exploit
vulnerabilities, phishing attacks etc. The
extent of Chesnara's exposure to such threats also
includes third party service providers.
The main potential impacts of this risk include financial
losses, inability to perform critical
functions, disruption to policyholder services, loss of
sensitive data and corresponding reputational
damage or fines.
Liquidity risk Chesnara and each of its subsidiaries have obligations to
make future payments, which are
not always known with certainty in terms of timing or
amounts, prior to the payment date.
This includes primarily the payment of policyholder
claims, reinsurance premiums, debt repayments
and dividends. The uncertainty of timing and amounts to be
paid gives rise to potential liquidity
risk, should the funds not be available to make payment.
Going concern
The directors have considered the ability of the group to
continue on a going concern basis. As such the board has performed
an assessment as to whether the group can meet its liabilities as
they fall due for a period of at least 12 months from which this
half year report has been signed.
In performing this work, the board has considered the current
cash position of the group and company, coupled with the group's
and company's expected cash generation as highlighted in its most
recent business plan, which covers a three year period. The
business plan considers the financial projections of the group and
its subsidiaries on both a base case and a range of stressed
scenarios, covering projected IFRS, EcV and solvency positions.
These projections also focus on the cash generation of the life
insurance divisions and how these flow up into the Chesnara parent
company balance sheet, with these cash flows being used to fund
debt repayments, shareholder dividends and the head office function
of the parent company.
The information set out in the 'Capital Management: Solvency II'
section indicates a strong Solvency II position as at 30 June 2017
as measured at both the individual regulated life company levels
and at the group level. As well as being well-capitalised the group
also has a healthy level of cash reserves to be able to meet its
debt obligations as they fall due, and does not rely on the renewal
or extension of bank facilities to continue trading. The group's
subsidiaries do, however, rely on cash flows from the maturity or
sale of fixed interest securities which match certain obligations
to policyholders, which brings with it the risk of bond default. In
order to manage this risk we ensure that our bond portfolio is
actively monitored and well diversified. Other significant
counterparty default risk relates to our principal reinsurers. We
monitor their financial position and are satisfied that any
associated credit default risk is low.
In light of this information, the board has concluded that the
group and company has adequate resources to continue in operational
existence for at least 12 months from the date of approval of this
half year report, and as a result the IFRS Financial Statements
have been prepared on a going concern basis.
SECTION C: IFRS FINANCIAL STATEMENTS
DIRECTORS' RESPONSIBILITIES STATEMENT
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting';
- the management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
- the management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Peter Mason John Deane
Chairman Chief Executive Officer
30 August 2017 30 August 2017
INDEPENT AUDITOR'S REVIEW REPORT TO THE MEMBERS OF CHESNARA
PLC
We have been engaged by the company to review the condensed set
of consolidated financial statements in the half-yearly financial
report for the six months ended 30 June 2017 which comprises the
condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of changes in equity, the condensed consolidated
statement of cash flows and related notes 1 to 9. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Manchester
United Kingdom
30 August 2017
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Note Unaudited
Six months ended
30 June Year ended 31 December
2017 2016 2016
GBP000 GBP000 GBP000
------------------------------------------------------------------ ---- --------- --------- ----------------------
Insurance premium revenue 91,643 55,524 109,450
Insurance premium ceded to reinsurers (25,274) (22,586) (44,900)
------------------------------------------------------------------ ---- --------- --------- ----------------------
Net insurance premium revenue 66,369 32,938 64,550
Fee and commission income 51,833 34,769 72,932
Net investment return 245,734 108,657 515,681
------------------------------------------------------------------ ---- --------- --------- ----------------------
Total revenue net of reinsurance payable 363,936 176,364 653,163
Other operating income 9,377 9,397 17,614
------------------------------------------------------------------ ---- --------- --------- ----------------------
Total income net of investment return 373,313 185,761 670,777
------------------------------------------------------------------ ---- --------- --------- ----------------------
Insurance contract claims and benefits incurred
Claims and benefits paid to insurance contract holders (204,085) (159,552) (346,117)
Net increase/(decrease) in insurance contract provisions 47,368 (8,485) 11,392
Reinsurers' share of claims and benefits 22,640 34,372 62,364
--------- --------- ----------------------
Net insurance contract claims and benefits (134,077) (133,665) (272,361)
--------- --------- ----------------------
Change in investment contract liabilities (156,783) (13,147) (274,724)
Reinsurers' share of investment contract liabilities 1,762 1,918 5,617
--------- --------- ----------------------
Net change in investment contract liabilities (155,021) (11,229) (269,107)
--------- --------- ----------------------
Fees, commission and other acquisition costs (10,600) (11,050) (23,838)
Administrative expenses (33,229) (20,253) (46,615)
Other operating expenses
Charge for amortisation of acquired value of in-force business (5,225) (4,645) (10,419)
Charge for amortisation of acquired value of customer
relationships (50) (114) (236)
Other (2,894) (2,911) (4,394)
------------------------------------------------------------------ ---- --------- --------- ----------------------
Total expenses net of change in insurance contract provisions and
investment contract liabilities (341,096) (183,867) (626,970)
------------------------------------------------------------------ ---- --------- --------- ----------------------
Total income less expenses 32,217 1,894 43,807
Share of profit/(loss) of associate 682 (428) 150
Profit recognised on business combination 20,742 - -
Financing costs (2,011) (1,226) (3,272)
------------------------------------------------------------------ ---- --------- --------- ----------------------
Profit before income taxes 4 51,630 240 40,685
Income tax (expense)/credit (4,878) 237 (5,405)
Profit for the period 3,4 46,752 477 35,280
Foreign exchange translation differences arising on the
revaluation of foreign operations 7,084 15,188 20,114
Revaluation of pension obligations 8 (71) - -
------------------------------------------------------------------ ---- --------- --------- ----------------------
Total comprehensive income for the period 53,765 15,665 55,394
------------------------------------------------------------------ ---- --------- --------- ----------------------
Basic earnings per share (based on profit for the period) 2 31.22p 0.38p 27.67p
------------------------------------------------------------------ ---- --------- --------- ----------------------
Diluted earnings per share (based on profit for the period) 2 31.04p 0.38p 27.56p
------------------------------------------------------------------ ---- --------- --------- ----------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
Note Unaudited
Six months ended
30 June Year ended 31 December
2017 2016 2016
GBP000 GBP000 GBP000
--------------------------------------------------------------- ----- --------- --------- ----------------------
Assets
Intangible assets
Deferred acquisition costs 55,281 43,083 48,318
Acquired value of in-force business 126,659 67,753 62,943
Acquired value of customer relationships 698 841 736
Software assets 7,123 7,133 6,560
Property and equipment 4,684 584 519
Investment in associates 6,221 4,721 5,433
Investment properties 1,255 245 245
Reinsurers' share of insurance contract provisions 244,459 276,304 254,859
Amounts deposited with reinsurers 38,147 34,642 37,437
Financial assets
Equity securities at fair value through income 497,569 479,452 485,165
Holdings in collective investment schemes at fair value
through income 5,043,537 3,682,362 4,104,602
Debt securities at fair value through income 1,611,176 494,774 474,091
Policyholders' funds held by the Group 245,687 209,073 229,397
Mortgage loan portfolio 52,624 - 54,756
Insurance and other receivables 86,383 55,775 39,646
Prepayments 21,143 6,079 5,271
Derivative financial instruments 2,414 3,443 2,773
--------- --------- ----------------------
Total financial assets 7,560,533 4,930,958 5,395,701
--------- --------- ----------------------
Defined benefit pension scheme surplus 416 - -
Reinsurers' share of accrued policyholder claims 18,026 21,367 19,307
Income taxes 3,497 1,693 3,352
Cash and cash equivalents 244,760 253,369 260,353
---------------------------------------------------------------- ---- --------- --------- ----------------------
Total assets 4 8,311,759 5,642,693 6,095,763
---------------------------------------------------------------- ---- --------- --------- ----------------------
Liabilities
Insurance contract provisions 3,971,521 2,260,524 2,242,446
Other provisions 1,857 925 823
Financial liabilities
Investment contracts at fair value through income 3,281,368 2,678,190 3,028,269
Liabilities relating to policyholders' funds held by the
Group 245,687 209,073 229,397
Borrowings 6 139,622 83,737 86,843
Derivative financial instruments 23,188 3,884 1,348
--------- --------- ----------------------
Total financial liabilities 3,689,865 2,974,884 3,345,857
--------- --------- ----------------------
Deferred tax liabilities 22,688 7,246 5,420
Reinsurance payables 5,461 6,743 6,899
Payables related to direct insurance and investment contracts 97,187 66,772 61,416
Deferred income 5,071 5,815 5,438
Income taxes 3,445 1,660 8,624
Other payables 84,511 21,203 23,657
Bank overdrafts 1,469 1,509 1,622
---------------------------------------------------------------- ---- --------- --------- ----------------------
Total liabilities 4 7,883,075 5,347,281 5,702,202
---------------------------------------------------------------- ---- --------- --------- ----------------------
Net assets 428,684 295,412 393,561
---------------------------------------------------------------- ---- --------- --------- ----------------------
Shareholders' equity
Share capital 43,766 42,600 43,766
Share premium 142,064 76,516 142,058
Treasury shares (157) (161) (161)
Other reserves 26,384 14,374 19,300
Retained earnings 3 216,627 162,083 188,598
---------------------------------------------------------------- ---- --------- --------- ----------------------
Total shareholders' equity 428,684 295,412 393,561
---------------------------------------------------------------- ---- --------- --------- ----------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Unaudited
Six months ended
30 June Year ended 31 December
2017 2016 2016
GBP000 GBP000 GBP000
---------------------------------------------------------------------- --------- --------- ----------------------
Profit for the period 46,752 477 35,280
Adjustments for:
Depreciation of property and equipment 203 93 173
Amortisation of deferred acquisition costs 5,228 5,233 12,162
Amortisation of acquired value of in-force business 5,225 4,645 6,797
Amortisation of acquired value of customer relationships 50 114 172
Amortisation of software assets 1,032 549 794
Share based payment 350 171 623
Tax paid /(recovery) 4,488 (53) 5,405
Interest receivable (4,400) (7,997) (20,882)
Dividends receivable (15,458) (18,076) (30,209)
Interest expense 2,011 1,226 3,272
Fair value gains on financial assets (209,345) (203,005) (205,870)
Profit arising on business combination (20,742) - -
Share of (profit)/loss of associate (682) 428 (150)
Interest received/(paid) 3,788 8,096 (16,448)
Dividends received 14,695 16,897 20,281
(Increase)/decrease in intangible assets related to insurance and
investment contracts (10,903) (8,848) 29,446
Changes in operating assets and liabilities:
Decrease/(increase) in financial assets 78,496 140,550 (280,333)
Decrease in reinsurers share of insurance contract provisions 14,111 9,400 34,177
Increase in amounts deposited with reinsurers (710) (701) (3,496)
(Increase)/decrease in insurance and other receivables (27,031) (9,589) 10,294
(Increase)/decrease in prepayments (2,851) 902 1,795
Decrease in defined benefit pension scheme surplus 765 - -
(Decrease)/increase in insurance contract provisions (61,584) 7,584 (16,530)
Increase in investment contract liabilities 220,932 46,916 362,641
Increase/(decrease) in provisions 1,020 (1,125) (1,306)
Decrease in reinsurance payables (1,515) (3,581) (3,660)
Increase/(decrease) in payables related to direct insurance and
investment contracts 2,738 3,233 (2,114)
Increase in other payables 46,069 4,978 2,808
---------------------------------------------------------------------- --------- --------- ----------------------
Cash generated from/(utilised by) operations 92,732 (1,483) (54,878)
Income tax paid (22,287) (3,498) (4,709)
---------------------------------------------------------------------- --------- --------- ----------------------
Net cash generated from/(utilised by) operating activities 70,445 (4,981) (59,587)
---------------------------------------------------------------------- --------- --------- ----------------------
Cash flows from investing activities
Business combination (117,993) - -
Development of software (462) (2,404) (3,502)
Purchases of property and equipment (220) (84) 948
Net cash utilised by investing activities (118,675) (2,488) (2,554)
---------------------------------------------------------------------- --------- --------- ----------------------
Cash flows from financing activities
Proceeds from issue of share capital 6 - 66,708
Net proceeds from borrowings 51,958 1,950 4,268
Sales of treasury shares 4 - -
Dividends paid (19,002) (15,586) (24,181)
Interest paid (1,834) (1,166) (3,095)
---------------------------------------------------------------------- --------- --------- ----------------------
Net cash generated/(utilised by) from financing activities 31,132 (14,802) 43,700
---------------------------------------------------------------------- --------- --------- ----------------------
Net decrease in net cash and cash equivalents (17,098) (22,271) (18,441)
Cash and cash equivalents at beginning of period 258,731 259,911 259,911
Effect of exchange rate changes on net cash and cash equivalents 1,658 14,220 17,261
---------------------------------------------------------------------- --------- --------- ----------------------
Cash and cash equivalents at end of the period 243,291 251,860 258,731
---------------------------------------------------------------------- --------- --------- ----------------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY(UNAUDITED)
Unaudited six months ended
30 June 2017
Share capital Share premium Other reserves Treasury shares Retained earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Equity shareholders' funds
at 1 January 2017 43,766 142,058 19,300 (161) 188,598 393,561
Profit for the period - - - - 46,752 46,752
Dividends paid - - - - (19,002) (19,002)
Foreign exchange
translation differences - - 7,084 - - 7,084
Revaluation of pension
obligations - - - - (71) (71)
Sale of treasury shares - 6 - 4 - 10
Share based payment - - - - 350 350
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Equity shareholders' funds
at 30 June 2017 43,766 142,064 26,384 (157) 216,627 428,684
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Unaudited six months ended
30 June 2016
Share capital Share premium Other reserves Treasury shares Retained earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Equity shareholders' funds
at 1 January 2016 42,600 76,516 (814) (161) 177,021 295,162
Profit for the period - - - - 477 477
Dividends paid - - - - (15,586) (15,586)
Foreign exchange
translation differences - - 15,188 - - 15,188
Share based payment - - - - 171 171
Equity shareholders' funds
at 30 June 2016 42,600 76,516 14,374 (161) 162,083 295,412
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Year ended 31 December
2016
Share capital Share premium Other reserves Treasury shares Retained earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Equity shareholders' funds
at 1 January 2016 42,600 76,516 (814) (161) 177,021 295,162
Profit for the year - - - - 35,280 35,280
Dividends paid - - - - (24,181) (24,181)
Foreign exchange
translation differences - - 20,114 - - 20,114
Share based payment - - - - 478 478
Sale of treasury shares 1,166 65,542 - - - 66,708
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
Equity shareholders' funds
at 31 December 2016 43,766 142,058 19,300 (161) 188,598 393,561
-------------------------- ------------- ------------- -------------- --------------- ----------------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS
(UNAUDITED)
1. Basis of presentation
This condensed set of consolidated financial statements has been
prepared in accordance with IAS 34 'Interim Financial Reporting' as
adopted by the EU. As required by the Disclosure and Transparency
Rules of the Financial Conduct Authority, the condensed set of
consolidated financial statements has been prepared applying the
accounting policies and presentation which were applied in the
preparation of the Group's published consolidated financial
statements for the year ended 31 December 2016.
The Group's published consolidated financial statements for the
year ended 31 December 2016 were prepared in accordance with IFRS
as adopted by the EU. Any judgements and estimates applied in the
condensed set of financial statements are consistent with those
applied in the preparation of the Group's published consolidated
financial statements for the year ended 31 December 2016.
The financial information shown in these interim financial
statements is unaudited and does not constitute statutory accounts
within the meaning of section 434 of the Companies Act 2006.
The comparative figures for the financial year ended 31 December
2016 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statements under section 498(2) or (3) of the Companies Act
2006.
Scildon reports under IFRS and its accounting policies have been
assessed as being in compliance with those of the Group. As part of
this assessment, it has been identified that the basis for
measuring insurance contract liabilities differs to other parts of
the Chesnara Group. In particular, Scildon measures the majority of
its insurance contract liabilities using historical market rates of
interest, as is customary in the Netherlands. This approach can
lead to increased volatility in IFRS profits by virtue of the
assets that back the insurance contract provisions being reported
on a fair value basis (i.e. incorporating current market rates of
interest) but with the liabilities using historical rates. Whilst
"IFRS 4 Insurance Contracts" permits this, the Group is planning on
aligning the current approach adopted by Scildon with those used in
other parts of the group as it believes that this will make the
financial statements more relevant to the economic decision-making
needs of users. This alignment is planned to be implemented prior
to reporting the Group financial statements for the year ending 31
December 2017. Note 5 Business combinations, has been prepared
using the current measurement basis adopted by Scildon. The Group
does not anticipate that this alignment of measurement bases will
materially impact the reported profit arising on acquisition as any
consequential change in insurance contract liabilities is expected
to result in an equal and opposite change to the "acquisition VIF",
as reported in note 5.
2. Earnings per share
Earnings per share are based on the following:
Unaudited
Six months ended
30 June Year ended 31 December
2017 2016 2016
GBP000 GBP000 GBP000
------------------------------------------------------------ ----------- ----------- ------------------------
Profit for the period attributable to shareholders (GBP000) 46,752 477 35,280
Weighted average number of ordinary shares 149,741,550 126,404,892 127,488,681
Basic earnings per share 31.22p 0.38p 27.67p
Diluted earnings per share 31.04p 0.38p 27.56p
The weighted average number of ordinary shares in respect of the
six months ended 30 June 2017 is based upon 149,885,761 shares in
issue, less 144,211 own shares held in treasury.
The six months ended 30 June 2016 is based upon 126,552,427
shares in issue, less 147,535 own shares held in treasury at the
beginning of the period, and 126,552,427 shares in issue less
147,535 own shares held in treasury at the end of the period.
The weighted average number of ordinary shares in respect of the
year ended 31 December 2016 is based upon 149,885,761 shares in
issue less 147,535 own shares held in treasury.
There were 876,926 share options outstanding at 30 June 2017 (30
June 2016: 526,648). Accordingly, there is dilution of the average
number of ordinary shares in issue in respect of 2017. There were
526,648 share options outstanding as at 31 December 2016.
3. Retained earnings
Unaudited
Six months ended
30 June Year ended 31 December
2017 2016 2016
GBP000 GBP000 GBP000
----------------------------------------------------------------------- --------- -------- ------------------------
Retained earnings attributable to equity holders of the parent company
comprise:
Balance at 1 January 188,598 177,021 177,021
Profit for the period 46,752 477 35,280
Revaluation of pension obligations (71) - -
Share based payment 350 171 478
Dividends
Final approved and paid for 2015 - (15,586) (15,586)
Interim approved and paid for 2016 - - (8,595)
Final approved and paid for 2016 (19,002) - -
----------------------------------------------------------------------- --------- -------- ------------------------
Balance at period end 216,627 162,083 188,598
----------------------------------------------------------------------- --------- -------- ------------------------
The interim dividend in respect of 2016, approved and paid in
2016 was paid at the rate of 6.80p per share.
The final dividend in respect of 2016, approved and paid in
2016, was paid at the rate of 12.69p per share so that the total
dividend paid to the equity shareholders of the Company in respect
of the year ended 31 December 2016 was made at the rate of 19.49p
per share.
An interim dividend of 7.00p per share in respect of the year
ending 31 December 2017 payable on 11 October 2017 to equity
shareholders of the Company registered at the close of business on
8 September 2017, the dividend record date, was approved by the
Directors after the balance sheet date. The resulting dividend of
GBP10.5m has not been provided for in these financial statements
and there are no income tax consequences.
The following table summarises dividends per share in respect of
the six month period ended 30 June 2017 and the year ended 31
December 2016:
Six months ended
30 June Year ended 31 December
2017 2016
p p
---------------------------- ---------------- ----------------------
Interim - approved and paid 7.00 6.80
Final - proposed/paid - 12.69
---------------------------- ---------------- ----------------------
Total 7.00 19.49
---------------------------- ---------------- ----------------------
4. Operating segments
The Group considers that it has no product or distribution-based
business segments. It reports segmental information on the same
basis as reported internally to the Chief Operating Decision Maker,
which is the Board of Directors of Chesnara plc.
The segments of the Group as at 30 June 2017 comprise:
CA: This segment is part of the Group's UK life insurance and
pensions run-off portfolio and comprises the original business of
Countrywide Assured plc, the Group's principal UK operating
subsidiary, and City of Westminster Assurance Company Limited which
was acquired in 2005 and the long-term business of which was
transferred to Countrywide Assured plc during 2006. This segment
also contains the business of Protection Life, which was purchased
on 28 November 2013. CA is responsible for conducting unit-linked
and non-linked business.
S&P: This segment, which was acquired on 20 December 2010,
comprises the business of Save & Prosper Insurance Limited and
its subsidiary Save & Prosper Pensions Limited. It is
responsible for conducting both unit-linked and non-linked
business, including a with-profits portfolio, which carries
significant additional market risk, as described in Note 6
'Management of financial risk' in the Chesnara plc 2014 Annual
Report and Accounts. On 31 December 2011 the whole of the business
of this segment was transferred to Countrywide Assured plc under
the provisions of Part VII of the Financial Services and Markets
Act 2000.
Movestic: This segment comprises the Group's Swedish life and
pensions business, Movestic Livförsäkring AB ('Movestic') and its
subsidiary and associated companies, which are open to new business
and which are responsible for conducting both unit-linked and
non-linked business.
Waard Group: This segment represents the Group's first Dutch
life and general insurance business, which was acquired on 19 May
2015 and comprises the three insurance companies Waard Leven N.V.,
Hollands Welvaren Leven N.V. and Waard Schade N.V., and a servicing
company, Waard Verzekeringen B.V.. During the period, the book of
business in Hollands Welvaren Leven was transferred to it's direct
parent company, Waard Leven. The Waard Group's policy base is
predominantly made up of term life policies, although also includes
unit-linked policies and some non-life policies, covering risks
such as occupational disability and unemployment. This segment is
closed to new business.
Scildon: This segment represents the Group's latest Dutch life
insurance business, which was acquired on 5 April 2017. Scildon's
policy base is predominantly made up of individual protection and
savings contracts. It is open to new business and sells protection,
individual savings and group pension contracts via a broker-led
distribution model.
Other Group Activities: The functions performed by the ultimate
holding company within the Group, Chesnara plc, are defined under
the operating segment analysis as Other Group Activities. Also
included therein are consolidation and elimination adjustments.
The accounting policies of the segments are the same as those
for the Group as a whole. Any transactions between the business
segments are on normal commercial terms in normal market
conditions. The Group evaluates performance of operating segments
on the basis of the profit before tax attributable to shareholders
and on the total assets and liabilities of the reporting segments
and the Group. There were no changes to the measurement basis for
segment profit during the six months ended 30 June 2017.
(i) Segmental income statement for the six months ended 30 June 2017
Other Group
CA S&P UK Total Movestic Waard Group Scildon Activities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- -------- ---------- ---------- ------------- -------- ---------------- ---------
Net insurance
premium revenue 18,364 1,995 20,359 7,681 1,303 37,026 - 66,639
Fee and commission
income 13,516 1,217 14,733 24,032 10 13,058 - 51,833
Net investment
return 53,181 62,339 115,520 125,026 3,309 1,831 48 245,734
-------------------- -------- -------- ---------- ---------- ------------- -------- ---------------- ---------
Total revenue (net
of reinsurance
payable) 85,061 65,551 150,612 156,739 4,622 51,915 48 363,936
Other operating
income/(expense) 1,366 5,748 7,114 2,393 36 (166) - 9,377
-------------------- -------- -------- ---------- ---------- ------------- -------- ---------------- ---------
Segmental income 86,427 71,299 157,726 159,132 4,658 51,749 48 373,313
-------------------- -------- -------- ---------- ---------- ------------- -------- ---------------- ---------
Net insurance
contract claims and
benefits incurred (42,174) (50,029) (92,203) (3,154) (674) (38,046) - (134,077)
Net change in
investment contract
liabilities (28,786) (1,496) (30,282) (124,739) - - - (155,021)
Fees, commission and
other acquisition
costs (713) (8) (721) (13,634) (168) 686 - (13,837)
Administrative
expenses:
Amortisation
charge on
software assets - - - (1,032) - (54) - (1,086)
Depreciation
charge on
property and
equipment - - - (84) (21) (118) - (223)
Other (5,864) (5,116) (10,980) (6,358) (1,479) (7,254) (5,849) (31,920)
Operating
(expenses)/income (473) 1 (472) (2,434) - - 12 (2,894)
Financing costs - (2) (2) (1,238) - - (771) (2,011)
Share of profit from
associates - - - 682 - - - 682
-------------------- -------- -------- ---------- ---------- ------------- -------- ---------------- ---------
Profit/(loss) before
tax and
consolidation
adjustments 8,417 14,649 23,066 7,141 2,316 6,963 (6,560) 32,926
-------------------- -------- -------- ---------- ---------- ------------- -------- ---------------- ---------
Other operating
expenses:
Charge for
amortisation of
acquired value of
in-force business (2,841) (271) (3,112) (1,739) (325) (49) - (5,225)
Charge for
amortisation of
acquired value of
customer
relationships - - - (50) - - - (50)
Fees, commission
and other
acquisition costs - - - 1,681 1,556 - - 3,237
Segmental income
less expenses 5,576 14,378 19,954 7,033 3,547 6,914 (6,560) 30,888
Profit arising on
business
combination - - - - 20,742 - - 20,742
Profit before tax 5,576 14,378 19,954 7,033 24,289 6,914 (6,560) 51,630
-------- --------
Income tax
(expense)/credit (3,235) (311) (838) (1,757) 1,263 (4,878)
Profit/(loss) after
tax 16,719 6,722 23,451 5,157 (5,297) 46,752
---------- ---------- ------------- -------- ---------------- ---------
(ii) Segmental balance sheet as at 30 June 2017
Other Group
CA S&P Movestic Waard Group Scildon Activities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ----------- ----------- ----------- ------------- ----------- ------------------ -----------
Total assets 1,763,109 1,237,283 2,991,394 227,898 2,019,490 72,585 8,311,759
Total liabilities (1,689,073) (1,160,852) (2,906,248) (129,627) (1,893,450) (103,825) (7,883,075)
------------------ ----------- ----------- ----------- ------------- ----------- ------------------ -----------
Net assets 74,036 76,431 85,146 98,271 126,040 (31,240) 428,684
------------------ ----------- ----------- ----------- ------------- ----------- ------------------ -----------
Investment in
associates - - 6,221 - - - 6,221
------------------ ----------- ----------- ----------- ------------- ----------- ------------------ -----------
Additions to
non-current
assets - - 11,525 134 1,360 - 13,019
------------------ ----------- ----------- ----------- ------------- ----------- ------------------ -----------
(iii) Segmental income statement for the six months ended 30
June 2016
CA S&P UK Total Movestic Waard Group Other Group Activities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ -------- -------- ---------- ---------- ------------- ---------------------- ---------
Net insurance premium
revenue 21,730 2,622 24,352 7,118 1,468 - 32,938
Fee and commission
income 14,431 1,326 15,757 19,000 12 - 34,769
Net investment return 92,909 43,364 136,273 (29,550) 1,822 112 108,657
------------------------ -------- -------- ---------- ---------- ------------- ---------------------- ---------
Total revenue (net of
reinsurance payable) 129,070 47,312 176,382 (3,432) 3,302 112 176,364
Other operating income 1,224 5,141 6,365 2,553 479 - 9,397
------------------------ -------- -------- ---------- ---------- ------------- ---------------------- ---------
Segmental
income/(expenses) 130,924 52,453 182,747 (879) 3,781 112 185,761
------------------------ -------- -------- ---------- ---------- ------------- ---------------------- ---------
Net insurance contract
claims and benefits
incurred (68,903) (61,287) (130,190) (3,851) 376 - (133,665)
Net change in investment
contract liabilities (40,343) (467) (40,810) 29,581 - - (11,229)
Fees, commission and
other acquisition costs (870) (14) (884) (11,581) (157) - (12,622)
Administrative expenses:
Amortisation charge on
software assets - - - (1,340) - - (1,340)
Depreciation charge on
property and
equipment (22) - (22) (180) - - (202)
Other (5,283) (4,607) (9,890) (4,909) (1,734) (2,178) (18,711)
Operating expenses (603) - (603) (2,308) - - (2,911)
Financing costs - (1) (1) (403) - (822) (1,226)
Share of profit/(loss)
from associates - - - (428) - - (428)
------------------------ -------- -------- ---------- ---------- ------------- ---------------------- ---------
Profit/(loss) before tax
and consolidation
adjustments 14,270 (13,923) 347 3,702 2,226 (2,888) 3,427
------------------------ -------- -------- ---------- ---------- ------------- ---------------------- ---------
Other operating
expenses:
Charge for
amortisation of
acquired value of
in-force business (2,324) (302) (2,626) (1,725) (294) - (4,645)
Charge for
amortisation of
acquired value of
customer
relationships - - - (114) - - (114)
Fees, commission and
other acquisition
costs - - - 1,572 - - 1,572
Segmental income less
expenses 11,946 (14,225) (2,279) 3,435 1,972 (2,888) 240
Profit before tax 11,946 (14,225) (2,279) 3,435 1,972 (2,888) 240
-------- --------
Income tax
credit/(expense) 144 (333) (684) 1,110 237
Profit after tax (2,135) 3,102 1,288 (1,778) 477
---------- ---------- ------------- ---------------------- ---------
(iv) Segmental balance sheet as at 30 June 2016
CA S&P Movestic Waard Group Other Group Activities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Total assets 1,835,090 1,187,101 2,380,344 204,527 35,631 5,642,693
Total liabilities (1,715,423) (1,145,106) (2,307,514) (125,701) (53,537) (5,347,281)
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Net assets 119,667 41,995 72,830 78,826 (17,906) 295,412
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Investment in associates - - 4,721 - - 4,721
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Additions to non-current
assets - - 11,894 7 - 11,901
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
(v) Segmental income statement for the year ended 31 December
2016
CA S&P UK Total Movestic Waard Group Other Group Activities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- --------- --------- ---------- ---------- ------------- ---------------------- ---------
Net insurance premium
revenue 42,103 4,886 46,989 14,903 2,658 - 64,550
Fee and commission
income 29,000 2,610 31,610 41,296 26 - 72,932
Net investment return 206,748 131,155 337,903 169,130 8,464 184 515,681
---------------------- --------- --------- ---------- ---------- ------------- ---------------------- ---------
Total revenue (net of
reinsurance payable) 277,851 138,651 416,502 225,329 11,148 184 653,163
Other operating income 2,568 10,792 13,360 3,751 503 - 17,614
---------------------- --------- --------- ---------- ---------- ------------- ---------------------- ---------
Segmental income 280,419 149,443 429,862 229,080 11,651 184 670,777
---------------------- --------- --------- ---------- ---------- ------------- ---------------------- ---------
Net insurance contract
claims and benefits
incurred (139,748) (123,454) (263,202) (7,695) (1,464) - (272,361)
Net change in
investment contract
liabilities (98,393) (2,206) (100,599) (168,508) - - (269,107)
Fees, commission and
other acquisition
costs (1,641) (23) (1,664) (25,089) (330) - (27,083)
Administrative
expenses:
Amortisation charge
on software assets - - - (1,243) - - (1,243)
Depreciation charge
on property and
equipment - - - (197) - - (197)
Other (11,017) (9,443) (20,460) (12,800) (3,664) (8,251) (45,175)
Operating expenses (1,203) (1) (1,204) (3,209) - 19 (4,394)
Financing costs - (2) (2) (1,629) - (1,641) (3,272)
Share of profit from
associates - - - 150 - - 150
---------------------- --------- --------- ---------- ---------- ------------- ---------------------- ---------
Profit before tax and
consolidation
adjustments 28,417 14,314 42,731 8,860 6,193 (9,689) 48,095
---------------------- --------- --------- ---------- ---------- ------------- ---------------------- ---------
Other operating
expenses:
Charge for
amortisation of
acquired value of
in-force business (5,643) (604) (6,247) (3,554) (618) - (10,419)
Charge for
amortisation of
acquired value of
customer
relationships - - - (236) - - (236)
Fees, commission and
other acquisition
costs - - - 3,245 - - 3,245
Segmental income less
expenses 22,774 13,710 36,484 8,315 5,575 (9,689) 40,685
Profit/(loss) before
tax 22,774 13,710 36,484 8,315 5,575 (9,689) 40,685
--------- ---------
Income tax
(expense)/credit (6,663) (7) (1,721) 2,986 (5,405)
Profit/(loss) after
tax 29,821 8,308 3,854 (6,703) 35,280
---------- ---------- ------------- ---------------------- ---------
(vi) Segmental balance sheet as at 31 December 2016
CA S&P Movestic Waard Group Other Group Activities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Total assets 1,829,944 1,217,546 2,718,156 207,160 122,957 6,095,763
Total liabilities (1,728,019) (1,155,556) (2,638,490) (122,655) (57,482) (5,702,202)
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Net assets 101,925 61,990 79,666 84,505 65,475 393,561
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Investment in associates - - 5,433 - - 5,433
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
Additions to non-current
assets - - 11,894 - - 11,894
--------------------------- ----------- ----------- ----------- ------------- ---------------------- -----------
5. Business combinations
On 5 April 2017, Chesnara plc acquired the entire issued share
capital (100%) of Legal & General Nederland Levensverzekering
Maatschappij N.V. (Legal & General Nederland) an open book life
assurance company based in Netherlands, from Legal & General
Group plc, a UK based financial services group for a total
consideration of EUR161,236,164 (approximately GBP137.5m),
comprising EUR160.0m base consideration plus interest for the
period to completion of EUR1.2m. On 11 April 2017, it was announced
that the newly acquired company was to be re-branded as Scildon.
Scildon's policy base is predominantly made up of individual
protection and savings contracts. It is open to new business and
sells protection, individual savings and group pension contracts
via a broker-led distribution model. The acquisition creates scale
and presence in the Dutch market and leaves us well positioned to
take advantage of any further value adding opportunities that may
arise.
The acquisition of this shareholding has given rise to a profit
on acquisition of GBP20.7m calculated as follows:
Book Value Provisional fair value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------------------------------- ---------- ---------------------------------- ------------
Assets
Intangible assets
Deferred acquisition costs 11,763 (11,763) -
Acquired value of in-force business - 66,296 66,296
Software assets 1,002 - 1,002
Property and equipment 4,022 - 4,022
Investment properties 981 - 981
Reinsurers' share of insurance contract provisions 1,314 - 1,314
Financial assets:
Holdings in collective investment schemes at fair
value through income 811,715 - 811,715
Debt securities at fair value through income 1,058,393 - 1,058,393
Insurance and other receivables 15,567 - 15,567
Prepayments 12,647 - 12,647
---------- ---------------------------------- ------------
Total financial assets 1,898,322 - 1,898,322
---------- ---------------------------------- ------------
Deferred tax asset 8,168 - 8,168
Defined benefit pension scheme surplus 1,056 - 1,056
Income taxes 127 - 127
Cash and cash equivalents 19,533 - 19,533
-------------------------------------------------------- ---------- ---------------------------------- ------------
Total assets 1,946,288 54,533 2,000,821
-------------------------------------------------------- ---------- ---------------------------------- ------------
Liabilities
Insurance contract provisions 1,736,389 - 1,736,389
Derivatives 23,725 - 23,725
Deferred tax liabilities 10,919 13,634 24,553
Payables related to direct insurance contracts 31,967 - 31,967
Income taxes 10,324 - 31,967
Other payables 15,595 - 10,324
-------------------------------------------------------- ---------- ---------------------------------- ------------
Total liabilities 1,828,919 13,634 1,842,553
-------------------------------------------------------- ---------- ---------------------------------- ------------
Net assets 117,369 40,899 158,268
-------------------------------------------------------- ---------- ---------------------------------- ------------
Net assets acquired 158,268
Total consideration, paid in cash (137,526)
Profit arising on business combination 20,742
-------------------------------------------------------- ---------- ---------------------------------- ------------
The assets and liabilities at the acquisition date in the table
above are stated at their provisional fair values and may be
amended for 12 months after the date of acquisition in accordance
with IFRS 3, Business Combinations. It should be noted that a
restatement of insurance contract provisions is planned to take
place in the second half of 2017, as reported in note 1 Basis of
preparation. The Group does not anticipate that this change in
measurement basis for insurance contract liabilities will
materially alter the overall reported profit arising on acquisition
as any consequential change in insurance contract liabilities is
expected to result in an equal and opposite change to the
"acquisition value of in-force business" intangible asset.
Acquired receivables: Within the net assets acquired are
reinsurance related and other receivable balances totalling
GBP16.9m, which are held at fair value. For all receivables other
than reinsurers' share of insurance contract provisions the gross
contractual amounts receivable are equal to fair value. The
reinsurers' share of insurance contract provisions receivable
balance of GBP1.3m is discounted as a result of the long-term
nature of this asset.
Acquired value of in-force business: The acquisition has
resulted in the recognition of net of tax intangible asset
amounting to GBP49.7m, which represents the present value of the
future post-tax cash flows expected to arise from policies that
were in force at the point of acquisition. The asset has been
valued using a discounted cash flow model that projects the future
surpluses that are expected to arise from the business. The model
factors in a number of variables, of which the most influential
are; the policyholders' ages, mortality rates, expected policy
lapses, expenses that are expected to be incurred to manage the
policies and future investment growth, as well as the discount rate
that has been applied. This asset will be amortised over its
expected useful life.
Gain on acquisition: As shown above, a gain of GBP20.7m has been
recognised on acquisition. Under IFRS 3, a gain on acquisition is
defined as being a "bargain purchase". At the point of price
negotiation and subsequent deal completion, Legal & General was
following a strategic plan to dispose of non-core businesses, which
included its Dutch operation. In the opinion of the Directors this
resulted in a disposal pricing strategy for Legal & General
Nederland that sought to offer an attractive investment opportunity
for potential buyers.
Acquisition-related costs: The costs in respect of the
transaction amounted to GBP8.1m. GBP4.1m of these costs have been
included in Administration Expenses, of which GBP3.8m was
recognised within the Consolidated Statement of Comprehensive
Income in 2016, with the remainder recognised in the current
period. Transaction costs of GBP3.3m were incurred in respect of
the equity fund-raising and were deducted from equity in 2016. Debt
fund-raising costs amounted to GBP0.8m and will be amortised over
the life of the loan using the effective interest rate method of
amortisation.
Results of Scildon: The results of Scildon have been included in
the consolidated financial statements of the Group with effect from
5 April 2017. Net insurance premium revenue for the period was
GBP37.0m, with contribution to overall consolidated profit before
tax of GBP7.0m, before the amortisation of the AVIF and deferred
acquisition cost intangible assets. Had Scildon been consolidated
from 1 January 2017, the Consolidated Statement of Comprehensive
Income would have included net insurance premium revenue of
GBP94.6m, and would have contributed GBP5.4m to the overall
consolidated profit before tax.
6. Borrowings
Unaudited
30 June 31 December
2017 2016 2016
GBP000 GBP000 GBP000
------------------------------------------------ -------- ------ -----------
Bank loan 101,665 52,580 52,697
Amount due in relation to financial reinsurance 37,957 31,157 34,146
------------------------------------------------ -------- ------ -----------
Total 139,622 83,737 86,843
------------------------------------------------ -------- ------ -----------
The bank loan subsisting at 30 June 2017 comprises the
following:
- on 3 April 2017 tranche one of a new facility was drawn down,
amounting to GBP40.0m. This facility is unsecured and is repayable
in ten six-monthly instalments on the anniversary of the draw down
date. The outstanding principal on the loan bears interest at a
rate of 2.00 percentage points above the London Inter-Bank Offer
Rate and is repayable over a period which varies between one and
six months at the option of the borrower. The proceeds of this loan
facility were utilised, together with existing Group cash, to repay
in full, the pre-existing loan facilities totalling GBP52.8m.
- on 3 April 2017 tranche two of the new loan facility was drawn
down, amounting to EUR71.0m. As with tranche one, this facility is
unsecured and is repayable in ten six-monthly instalments on the
anniversary of the draw down date. The outstanding principal on the
loan bears interest at a rate of 2.00 percentage points above the
European Inter-Bank Offer Rate and is repayable over a period which
varies between one and six months at the option of the
borrower.
The fair value of the sterling bank loan at 30 June 2017 was
GBP40,000,000 (31 December 2016: GBP52,800,000).
The fair value of the euro denominated bank loan at 30 June 2017
was EUR71,000,000 (GBP62,329,910).
The fair value of amounts due in relation to financial
reinsurance was GBP37,903,000 (31 December 2016:
GBP34,396,000).
Bank loans are presented net of unamortised arrangement fees.
Arrangement fees are recognised in profit or loss using the
effective interest rate method.
7. Financial instruments fair value disclosures
The table below shows the determination of the fair value of
financial assets and financial liabilities according to a
three-level valuation hierarchy. Fair values are generally
determined at prices quoted in active markets (Level 1). However,
where such information is not available, the Group applies
valuation techniques to measure such instruments. These valuation
techniques make use of market-observable data for all significant
inputs where possible (Level 2), but, in some cases it may be
necessary to estimate other than market-observable data within a
valuation model for significant inputs (Level 3).
The Group held the following financial instruments at fair value
at 30 June 2017. There have not been any transfers of assets or
liabilities between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Fair value measurement at 30 June 2017 using
Level 1 Level 2 Level 3 Total
Financial assets GBP000 GBP000 GBP000 GBP000
---------------------------------------------------------------- --------- --------- ------- ---------
Equities
Listed 497,569 - - 497,569
Holdings in collective investment schemes 5,032,115 11,422 - 5,043,537
Debt securities - fixed rate
Government Bonds 935,306 2,699 - 938,005
Corporate Bonds 667,169 - - 667,169
Debt securities - floating rate
Listed 6,002 - - 6,002
--------- --------- ------- ---------
Total debt securities 1,608,477 2,699 - 1,611,176
--------- --------- ------- ---------
Policyholders' funds held by the group 245,687 - - 245,687
Derivative financial instruments 418 1,996 - 2,414
---------------------------------------------------------------- --------- --------- ------- ---------
Total 7,384,266 16,117 - 7,400,383
---------------------------------------------------------------- --------- --------- ------- ---------
Current 4,862,206
Non-current 2,538,177
---------------------------------------------------------------- --------- --------- ------- ---------
Total 7,400,383
---------------------------------------------------------------- --------- --------- ------- ---------
Financial liabilities
Investment contracts at fair value through income - 3,281,368 - 3,281,368
Liabilities related to policyholders' funds held by the group 245,687 - - 245,687
Derivative financial instruments - 23,188 - 23,188
---------------------------------------------------------------- --------- --------- ------- ---------
Total 245,687 3,304,556 - 3,550,243
---------------------------------------------------------------- --------- --------- ------- ---------
Holdings in collective investment schemes
Included within Holdings in collective investment schemes are
amounts held by Scildon, which represents a unit-linked fund
containing a mixture of government bonds. The value of the fund is
calculated using an internal market model. These amounts have been
classified as level 2 in the above hierarchy table as the overall
fund price is not collectively quoted but is valued using
market-observable data.
Debt securities
The debt securities classified as Level 2 are Dutch government
bond-type products, held by our newly acquired Dutch subsidiary
Scildon. These assets are valued by the use of valuation models
maintained by the holding investment managers, using the Dutch
government interest rate curve plus an additional 20 basis point
margin to represent the illiquid nature of the assets.
These assets have been classified as Level 2 because the
third-party valuation models include observable inputs to the
valuation of these assets, including yield curves.
Derivative financial instruments
Within derivative financial instruments is a financial
reinsurance embedded derivative related to our Movestic operation.
The Group has entered into a reinsurance contract with a third
party that has a section that is deemed to transfer significant
insurance risk and a section that is deemed not to transfer
significant insurance risk. The element of the contract that does
not transfer significant insurance risk has two components and has
been accounted for as a financial liability at amortised cost and
an embedded derivative asset at fair value.
The embedded derivative represents an option to repay the
amounts due under the contract early at a discount to the amortised
cost, with its fair value being determined by reference to market
interest rate at the balance sheet date. It is, accordingly,
determined at Level 2 in the three-level fair value determination
hierarchy set out above.
The derivative balance classified as a Level 2 liability,
predominantly relates to interest rate swaps held within our
Scildon operation, to hedge some of the risk of changes in the
value of its obligations under insurance contract liabilities. The
valuation of these derivatives is modelled using market observable
variables and are hence classified as Level 2.
Investment contract liabilities
The Investment contract liabilities in Level 2 of the valuation
hierarchy represent the fair value of non-linked and guaranteed
income and growth bonds liabilities valued using established
actuarial techniques utilising market observable data for all
significant inputs, such as investment yields.
Except as detailed in the following table, the Directors
consider that the carrying value amounts of financial assets and
financial liabilities recorded at amortised cost in the financial
statements are approximately equal to their fair values:
Carrying amount Fair value
30 June 30 June 31 December 30 June 30 June 31 December
2017 2016 2016 2017 2016 2016
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
======================= ======= ======= =========== ======= ======= ===========
Financial liabilities:
Borrowings 139,622 83,737 86,843 140,233 84,536 87,196
Borrowings consist of bank loans and an amount due in relation
to financial reinsurance.
The fair value of the bank loans are taken as the principal
outstanding at the balance sheet date.
The amount due in relation to financial reinsurance is fair
valued with reference to market interest rates at the balance sheet
date.
There were no transfers between levels 1, 2 and 3 during the
period.
The Group holds no Level 3 liabilities as at the balance sheet
date.
8. Defined benefit pension scheme obligations
Scildon has a defined benefit plan, the costs of which are
calculated using the projected unit credit method. This means that
the cost of providing pensions charged to the profit and loss
account are placed over the service lives of employees, according
to actuarial calculations. The obligations are calculated as the
difference between the present value of pension obligations, net of
the fair value of the existing plan assets. The present value of
pension liabilities is determined by discounting the expected
future retirement benefits at the rate of return on high quality
corporate bonds in euros, which have a similar remaining period to
when the pension payments are expected to be incurred. Any
deficiency is recognised as a liability in the consolidated balance
sheet, and any surplus is recognised as an asset. Actuarial gains
and losses arising from deviations from expected outcomes are
recognised as revaluations through other comprehensive income and
are recognised directly in equity.
Scildon is required to contribute a cost covering premium. This
cost covering premium contains the actuarial cost of newly arising
unconditional benefits (using the pension fund's assumptions), the
related administration cost and related buffer requirements. The
pension fund does not guarantee the nominal benefits. In case of
underfunding the nominal benefits can be reduced. Scildon is not
obliged to pay for:
- Past service benefit increases due to wage increases;
- Past service benefit increases due to (full) indexation of
past service benefits to active participants;
- Past service benefit increases due to (full) indexation of
past service benefits to deferred participants and participants
receiving benefits;
- Catch up contributions (e.g. for a transitory plan); and
- Fund deficits.
Vested benefits have been funded with the pension fund which
manages the assets. Newly arising benefits are funded through
contributions to the pension fund. The agreement between Scildon
and the pension fund contains provisions that the pension fund may
grant discounts and/or restitutions to Scildon, if the funding
position of the pension fund exceeds a certain level and outlooks
are positive.
The assets and liabilities of the defined benefit scheme are
shown below.
30 June
2017
GBP000
==================================== ========
Total fair value of assets 46,217
Present value of scheme liabilities (45,802)
==================================== ========
Net surplus in the scheme 415
==================================== ========
The surplus at the date of acquisition was GBP1,056,000. The
movement to 30 June 2017 is primarily due to current service costs,
together with broadly offsetting asset and liability valuation
movements. There were no employer contributions into the scheme in
the period post acquisition.
9. Approval of consolidated report for the six months ended 30 June 2017
This condensed consolidated report was approved by the Board of
Directors on 30 August 2017. A copy of the report will be available
to the public at the Company's registered office, 2nd Floor,
Building 4, West Strand Business Park, West Strand Road, Preston,
PR1 8UY and at www.chesnara.co.uk.
SECTION D: ADDITIONAL INFORMATION
financial calendar
31 August 2017
Interim results for the six months ending 30 June 2017
announced.
7 September 2017
Ex dividend date.
8 September 2017
Interim dividend record date
11 October 2017
Interim dividend payment date.
29 March 2018
Results for the year ending 31 December 2017 announced.
KEY CONTACTS
Registered and Head Office
2(nd) Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
Tel: 01772 972050
www.chesnara.co.uk
Legal Advisors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2HA
Addleshaw Goddard LLP
One St Peter's Square
Manchester
M2 3DE
Auditor
Deloitte LLP
Chartered Accountants and Statutory Auditor
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2DB
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Joint Stockbrokers
Panmure Gordon
One New Change
London
EC4M 9AF
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
Bankers
National Westminster Bank plc
135 Bishopsgate
London
EC2M 3UR
The Royal Bank of Scotland
8(th) Floor, 135 Bishopsgate
London
EC2M 3UR
Lloyds Bank plc
3(rd) Floor, Black Horse House
Medway Wharf Road
Tonbridge
Kent
TN9 1QS
Public Relations Consultants
FWD
145 Leadenhall Street
London
EC3V 4QT
Corporate Advisors
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
GLOSSARY
AGM Annual General Meeting.
ALM Asset Liability Management - management of risks that arise due to mismatches between assets
and liabilities.
APE Annual Premium Equivalent - an industry wide measure that is used for measuring the annual
equivalent of regular and single premium policies.
CA Countrywide Assured plc.
CALH Countrywide Assured Life Holdings Limited and its subsidiary companies.
Cash Generation This represents the operational cash that has been generated in the period. The cash
generating
capacity of the group is largely a function of the movement in the solvency position of the
insurance subsidiaries within the group, and takes account of the buffers that management
has set to hold over and above the solvency requirements imposed by our regulators. Cash
generation
is reported at a group level and also at an underlying divisional level reflective of the
collective performance of each of the divisions prior to any group level activity.
DNB De Nederlandsche Bank is the central bank of the Netherlands and is the regulator of our
Dutch
subsidiaries,
DPF Discretionary Participation Feature - A contractual right under an insurance contract to
receive,
as a supplement to guaranteed benefits, additional benefits whose amount or timing is
contractually
at the discretion of the issuer.
Dutch Business Scildon and the Waard Group, consisting of Waard Leven N.V., Hollands Welvaren Leven N.V.,
Waard Schade N.V. and Waard Verzekeringen B.V.
EcV Economic Value is a financial metric that is derived from Solvency II own funds that is
broadly
similar in concept to European Embedded Value. It provides a market consistent assessment
of the value of existing insurance businesses, plus adjusted net asset value of the
non-insurance
business within the group.
FCA Financial Conduct Authority.
FI Finansinspektionen, being the Swedish Financial Supervisory Authority.
Form of Proxy The form of proxy relating to the General Meeting being sent to Shareholders with this
document.
FSMA The Financial Services and Markets Act 2000 of England and Wales, as amended.
Group The company and its existing subsidiary undertakings.
Group Own Funds In accordance with the UK's regulatory regime for insurers it is the sum of the individual
capital resources for each of the regulated related undertakings less the book-value of
investments
by the group in those capital resources.
Group SCR In accordance with the UK's regulatory regime for insurers it is the sum of individual
capital
resource requirements for the insurer and each of its regulated undertakings.
Group Solvency Group solvency is a measure of how much the value of the company exceeds the level of capital
it is required to hold in accordance with Solvency II regulations.
HCL HCL Insurance BPO Services Limited.
IFRS International Financial Reporting Standards.
IFA Independent Financial Adviser.
KPI Key performance indicator.
LGN LGN or Legal & General Nederland refers to the legal entity Legal & General Nederland
Levensverzekering
Maatschappij N.V acquired by Chesnara in April 2017.
London Stock Exchange London Stock Exchange plc.
LTI Long-Term Incentive Scheme - A reward system designed to incentivise executive directors'
long-term performance.
Movestic Movestic Livförsäkring AB.
Modernac Modernac SA, an associated company which is 49% owned by Movestic.
New business The present value of the expected future cash inflows arising from business written in the
reporting period.
Official List The Official List of the Financial Conduct Authority.
Ordinary Shares Ordinary shares of five pence each in the capital of the company.
Own Funds Own Funds - in accordance with the UK's regulatory regime for insurers it is the sum of the
individual capital resources for each of the regulated related undertakings less the
book-value
of investments by the company in those capital resources.
ORSA Own Risk and Solvency Assessment.
PRA Prudential Regulation Authority.
QRT Quantitative Reporting Template.
ReAssure ReAssure Limited.
Resolution The resolution set out in the notice of General Meeting set out in this document.
RMF Risk Management Framework.
Scildon Scildon.
Shareholder(s) Holder(s) of Ordinary Shares.
Solvency II A fundamental review of the capital adequacy regime for the European insurance industry.
Solvency
II aims to establish a set of EU-wide capital requirements and risk management standards and
has replaced the Solvency I requirements.
SICAV A type of open-ended investment fund in which the amount of capital in the fund varies
according
to the number of investors. Shares in the fund are bought and sold based on the fund's
current
net asset value.
STI Short-Term Incentive Scheme - A reward system designed to incentivise executive directors'
short-term performance.
SCR In accordance with the UK's regulatory regime for insurers it is the sum of individual
capital
resource requirements for the insurer and each of its regulated undertakings.
Swedish Business Movestic and its subsidiaries and associated companies.
S&P Save & Prosper Insurance Limited and Save & Prosper Pensions Limited.
TCF Treating Customers Fairly - a central PRA principle that aims to ensure an efficient and
effective
market and thereby help policyholders achieve fair outcomes.
TSR Total Shareholder Return, measured with reference to both dividends and capital growth.
UK or United Kingdom The United Kingdom of Great Britain and Northern Ireland.
UK Business CA and S&P.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR WGUMGRUPMGAU
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