TIDMCSN
RNS Number : 6960U
Chesnara PLC
30 March 2023
30 March 2023
LEI Number: 213800VFRMBRTSZ3SJ06
Chesnara plc (CSN.L)
("Chesnara" or "the Company")
INCREASED ACQUISITION MOMENTUM WITH STRONG CASH GENERATION,
SUPPORTING A PROPOSED 3% INCREASE IN FINAL DIVID
Chesnara reports its 2022 full year results. Key highlights
are:
-- Completion of the Sanlam Life & Pensions and Robein Leven
transactions, with the acquisition of Conservatrix's insurance
portfolio completed on 1 January 2023
-- Strong group commercial cash generation of GBP46.6m
-- Robust solvency of 197%, above normal 140-160% operating range
-- Economic value ("EcV") of GBP532.3m (354p per share), pro forma for Conservatrix acquisition
-- Proposed 3% increase to the full year dividend (total 2022 dividend of 23.28 p per share)
Commenting on the results, Steve Murray, Group CEO, said:
"The completion of three transactions over the past 12 months
has shown that we have real momentum behind our acquisition
strategy. The wider business has performed robustly despite the
high level of market volatility reducing the group's Economic
Value. We retain a strong and resilient solvency position with
substantial cash balances at the holding company level, supporting
our continued track record of growing our dividend. We remain
optimistic about our ability to participate in future M&A and
continue to be highly confident in our ability to finance and
execute such transactions on attractive terms for both vendors and
our shareholders."
A full year results presentation is being held at 9:30am on 30
March 2023 - participants can register here .
Further details on the financial results are as follows:
2022 FULL YEAR FINANCIAL AND STRATEGIC HIGHLIGHTS
CASH GENERATION AND DIVIDS - 18 YEARS OF DIVID GROWTH
-- Total divisional base cash generation (1) for FY 2022 was
GBP61.9m (FY 2021: GBP31.1m) despite volatile market conditions.
Divisional commercial cash generation(1) for FY 2022 was GBP25.9m
(FY 2021: GBP58.5m)
-- Group commercial cash(1) generation of GBP46.6m in FY 2022
(FY 2021: GBP53.0m) represents 133% dividend coverage.
-- The results during the year, combined with the group's
balance sheet strength, support a further year of dividend growth.
The Board has proposed a 2022 final dividend of 15.16p per share
(2022 total dividend of 23.28p), which is a 3% increase compared to
2021 and extends the period of uninterrupted dividend growth to 18
years.
FINANCIAL RESILIENCE - WELL POSITIONED FOR FUTURE M&A
-- Solvency II ratio of 197% as at 31 December 2022 (31 December
2021: 152%), materially above our normal operating range of between
140-160%. The increase has been driven in part by the issue of
GBP200m of Tier 2 subordinated debt in February 2022 and provides
significant headroom for future M&A activity.
-- Cash balances at group holding companies increased over the
period to GBP108.1m (31 December 2021: GBP46.1m), with resources of
over GBP100m available for future acquisitions and to support the
dividend strategy.
-- Management actions have remained a focus for the group during
the year, with the financial exposure to currency movements reduced
through the execution of an FX hedge.
-- Leverage ratio(2) of 37.6% as at 31 December 2022 (31
December 2021: 6.4%, 30.4% on a pro forma basis) has increased due
to the GBP200m Tier 2 debt issuance and IFRS losses during the
year.
DELIVERING VALUE - EXECUTING OUR RENEWED STRATEGY
-- The Sanlam Life & Pensions and Robein Leven transactions
completed in April 2022, adding further scale to the group's UK and
Dutch businesses respectively and increasing expected annual steady
state cash generation by GBP6m per annum.
-- The group also completed the acquisition of the insurance
portfolio of Conservatrix in the Netherlands in January 2023, with
the transaction expected to double Waard's steady state cash
generation to GBP8m per annum.
-- Total group capital deployed in the three acquisitions of
Sanlam Life & Pensions, Robein Leven and Conservatrix totalled
over GBP110m, of which GBP85m was funded from holding company cash
reserves, with day 1 EcV accretion estimated at GBP42m and
additional steady state cash generation of GBP10m per annum for
those completed.
-- Commercial new business profit(3) of GBP9.5m in FY 2022 (FY 2021: GBP9.6m).
-- In line with our FY 2021 sensitivities, Economic Value (EcV)
of GBP511.7m as at 31 December 2022 (31 December 2021: GBP624.2m),
has reduced over the year due to economic conditions, including the
fall in equity markets and widening of credit spreads, partly
offset by the positive impacts of the acquisitions of Sanlam Life
& Pensions and Robein Leven. Pro forma for the Conservatrix
acquisition, EcV is GBP532.3m (354p per share) as at 31 December
2022.
-- Multiple sources of growth create a long-term commercial
value which is significantly in excess of the reported Economic
Value.
COMMITMENT TO SUSTAINABILITY
-- The group has set new long term sustainability targets, with
the aim to have net zero financed emissions by 2050 and net zero
operational emissions by 2028. More detail can be found in the
group's inaugural Annual Sustainability Report, which has been
published today.
IFRS PRE-TAX PROFITS/LOSSES
-- IFRS pre-tax losses were GBP147m in FY 2022 (FY 2021 IFRS
pre-tax profits: GBP28.8m). These were driven by adverse investment
conditions which resulted in a fall in asset values, which due to
an inherent accounting mismatch under IFRS means assets are fair
valued through the P&L and liabilities are largely not. This
accounting mismatch means that IFRS results do not reflect the
commercial reality of how assets and movements in their values are
used to match liabilities. Insurers globally will be adopting a new
accounting standard from 2023 onwards - IFRS 17 - to overcome some
of these mismatches between the historical treatment of assets and
liabilities.
-- The group has today provided a separate update on the introduction of IFRS17.
DIVID DETAILS
-- The recommended final dividend of 15.16p per share is
expected to be paid on 26 May 2023. The ordinary shares will be
quoted ex-dividend on the London Stock Exchange as of 6 April 2023.
The record date for eligibility for payment will be 11 April
2023.
ANALYST PRESENTATION
-- A presentation for analysts will be held at 9.30am on 30
March 2023 at the offices of Panmure Gordon & Co, 40
Gracechurch Street, London, EC3V 0BT which will be available to
join online. A replay will subsequently be posted to the corporate
website at www.chesnara.co.uk.
-- To join the webcast, please register using the following link here .
Investor Enquiries
Sam Perowne
Head of Strategic Development & Investor Relations
Chesnara plc
E - sam.perowne@chesnara.co.uk
Media Enquiries
Roddy Watt
Director, Capital Markets
FWD
T - 020 7280 0651 / 07714 770 493
E - roddy.watt@fwdconsulting.co.uk
Notes to Editors
Chesnara (CSN.L) is a European life and pensions consolidator
listed on the London Stock Exchange. It administers approximately
one million policies and operates as Countrywide Assured and CASLP
in the UK, as The Waard Group and Scildon in the Netherlands, and
as Movestic in Sweden.
Following a three-pillar strategy, Chesnara's primary
responsibility is the efficient administration of its customers'
life and savings policies, ensuring good customer outcomes and
providing a secure and compliant environment to protect
policyholder interests. It also adds value by writing profitable
new business in Sweden and the Netherlands and by undertaking
value-adding acquisitions of either companies or portfolios.
Consistent delivery of the company strategy has enabled Chesnara
to increase its dividend for 18 years in succession. Further
details are available on the company's website
(www.chesnara.co.uk).
Notes
Note 1 Divisional cash generation represents the cash generated
by the operating divisions of Chesnara (UK, Sweden and the
Netherlands), exclusive of group level activity.
Commercial cash generation is used as a measure of assessing how
much dividend potential has been generated, subject to ensuring
other constraints are managed. It excludes the impact of technical
adjustments, modelling changes and corporate acquisition activity;
representing the group's view of the commercial cash generated by
the business.
Note 2 The leverage ratio is a financial measure that
demonstrates the degree to which the company is funded by debt
financing versus equity capital, presented as a ratio. It is
defined as debt divided by debt plus equity, as measured under
IFRS. This is consistent with how Fitch would assess us from a
leverage perspective.
Note 3 Commercial new business profit is a more commercially
relevant measure of new business profit than that recognised
directly under the Solvency II regime, allowing for a modest level
of return, over and above risk-free, and exclusion of the
incremental risk margin Solvency II assigns to new business. This
provides a fair commercial reflection of the value added by new
business operations and is more comparable with how new business is
reported by our peers, improving market consistency.
The Board approved this statement on 29 March 2023.
CAUTIONARY STATEMENT
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.
2022 HIGHLIGHTS
GROUP CASH GENERATION GBP82.7 M 2021 GBP20.3 M
COMMERCIAL CASH GENERATION GBP46.6 M 2021 GBP53.0 M
A strong cash result was delivered in 2022 with group cash
generation of GBP82.7m (excluding the day 1 impact of the two
acquisitions completed in the year), which includes GBP61.9m of
cash generation from our divisions. The result has benefitted from
the positive impact of the symmetric adjustment (which has been
beneficial as a result of falling equity prices in the year).
Commercial cash generation, which adjusts for items such as the
symmetric adjustment gives a view of the underlying cash generation
in Chesnara and is analysed in more detail in the financial review
section. Commercial cash generation of GBP46.6m more than covers
the 2022 dividend. Both cash metrics include the impact (GBP36.5m)
of having hedged an element of our FX exposure during the year.
GROUP SOLVENCY 197% 2021 152%
The group solvency improvement is largely due to the impact of
the Tier 2 debt raised, being significantly higher than the strains
from the acquisitions completed in the period. Looking through
these transaction impacts, the underlying solvency has increased by
10 percentage points.
FUNDS UNDER MANAGEMENT GBP10.6 BN 2021 GBP9.1 BN
FuM growth since the start of the year has been primarily
delivered through our two completed acquisitions. Volatile economic
conditions impacted asset values which has had an adverse impact on
FuM.
ECONOMIC VALUE GBP511.7 M 2021 GBP624.2 M
The EcV result was particularly affected by falls in equity
markets and bond prices in the year, moving in line with our
published sensitivities. Other negative factors include the impact
of dividend distributions (GBP34.3m). Acquisitions completed in the
year contributed GBP21.4m to EcV.
ECONOMIC VALUE EARNINGS GBP(106.1) M 2021 GBP57.8 M
The year-on-year swing is predominantly due to volatile economic
conditions in the period.
COMMERCIAL NEW BUSINESS PROFIT GBP9.5 M 2021 GBP9.6 M
Profits from Scildon remain stable but challenging equity market
conditions in Sweden have had a negative impact on their new
business result versus 2021.
IFRS PRE-TAX LOSS GBP146.9 M 2021 GBP28.8 M PROFIT
The result contains large losses arising from economic
conditions of GBP151.7m (2021: GBP11.8m), largely in our Dutch
businesses. Our reserving approach in Scildon means that the result
bears the full impact of interest rate increases on asset values
but no credit is recognised for the associated reduction in
liabilities.
IFRS TOTAL COMPREHENSIVE INCOME GBP(91.9) M 2021 GBP3.8 M
There was a relatively modest foreign exchange impact of GBP5.8m
in 2022 compared to the prior year (loss of GBP23.9m). Total
comprehensive income benefits from a GBP48.6m tax credit (2021:
GBP1.5m tax charge).
FULL YEAR DIVID INCREASED FOR THE 18(th) CONSECUTIVE YEAR
Total dividends for the year increased by 3% to 23.28p per share
(8.12p interim and 15.16p proposed final). This compares with
22.60p in 2021 (7.88p interim and 14.72p final). The two completed
acquisitions and one recently announced acquisition are expected to
positively support future cash generation.
2022 HAS SEEN VOLATILE ECONOMIC CONDITIONS WITH RISING INTEREST
RATES, FALLING EQUITY MARKETS AND INFLATIONARY PRESSURE
The financial results have been heavily impacted by the economic
conditions in 2022, particularly in the first half of the year. The
war in Ukraine and uncertainty in financial markets have been
reflected in falling equity values and rising interest rates which,
coupled with the impact of inflationary pressures, have led to
negative investment returns and economic losses across the
operating divisions. The impact of these economic factors has been
felt, to varying degrees, across all of our financial metrics.
THE GROUP CONTINUES TO EXPAND THROUGH M&A
In 2022, we completed the two acquisitions announced late in
2021 and announced a further acquisition in the Netherlands. The
acquisitions of Sanlam Life & Pensions (UK) Limited (now
renamed CASLP) and Robein Leven in the Netherlands, both completed
successfully during the second quarter of 2022, delivered a
combined c9% uplift in policies within the group portfolio and a
total day 1 EcV gain of GBP21.4m.
Expansion in the Netherlands has continued under the Waard Group
in 2022 following the announcement of the acquisition of the
insurance portfolio of Conservatrix NV, which subsequently
completed early in 2023. This transaction delivers a material
increase in Waard's policies under administration of c60%.
We remain optimistic about the outlook for future deals.
These financial highlights include the use of Alternative
Performance Measures (APMs) that are not required to be reported
under International Financial Reporting Standards.
1 - Economic profit is a measure of pre-tax profit earned from
investment market conditions in the period and any economic
assumption changes in the future.
2 - Operating profit is a measure of the pre-tax profit earned
from a company's ongoing core business operations, excluding any
profit earned from investment market conditions in the period and
any economic assumption changes in the future.
3 - Funds Under Management (FuM) represents the sum of all
financial assets on the IFRS balance sheet.
4 - Economic Value (EcV) is a financial metric derived from
Solvency II. 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.
5 - Economic Value earnings are a measure of the value generated
in the period, recognising the longer-term nature of the group's
insurance and investment contracts.
6 - Commercial new business represents the best estimate of cash
flows expected to emerge from new business written in the period.
It is deemed to be a more commercially relevant and market
consistent measurement of the value generated through the writing
of new business, in comparison to the restrictions imposed under
the Solvency II regime.
7 - Group cash generation represents the surplus cash that the
group has generated in the period. Cash generation is largely a
function of the movement in the solvency position, used by the
group as a measure of assessing how much dividend potential has
been generated, subject to ensuring other constraints are
managed.
8 - Divisional cash generation represents the cash generated by
the three operating divisions of Chesnara (UK, Sweden and the
Netherlands), exclusive of group level activity.
9 - Commercial cash generation is used as a measure of assessing
how much dividend potential has been generated, subject to ensuring
other constraints are managed. It excludes the impact of technical
adjustments, modelling changes and corporate acquisition activity;
representing the group's view of the Commercial cash generated by
the business.
MEASURING OUR PERFORMANCE
Throughout our Report & Accounts we use measures to assess
and report how well we have performed. The range of measures is
broad and includes many measures that are not based on IFRS. The
financial analysis of a life and pensions business also needs to
recognise the importance of Solvency II figures, the basis of
regulatory solvency. In addition, the measures aim to assess
performance from the perspective of all stakeholders.
FINANCIAL ANALYSIS OF A LIFE AND PENSION BUSINESS
The IFRS results form the core of the Report & Accounts and
hence retain prominence as a key financial performance metric.
However, this preliminary announcement also adopts several
Alternative Performance Measures (APMs).
These measures compliment the IFRS metrics and present
additional insight into the financial position and performance of
the business, from the perspective of all stakeholders.
The non-IFRS APMs have at their heart the Solvency II valuation
known as Own Funds and, as such, all major financial APMs are
derived from a defined rules-based regime. The list below shows the
core financial metrics that sit alongside the IFRS results,
together with their associated KPIs and interested parties.
FINANCIAL STATEMENT KPIS:
-- IFRS net assets
-- IFRS profits
ADDITIONAL METRICS:
-- Solvency
o Own Funds
o Solvency Capital Requirement (SCR)
o SCR plus management buffer
o Solvency position (absolute value)
o Solvency position ratio
-- Cash generation
o Group base and commercial cash generation
o Divisional base and commercial cash generation
-- Economic Value
o Balance sheet
o Earnings
-- New business
o EcV
o Commercial
SOLVENCY
Solvency is a fundamental financial measure which is of
paramount importance to investors and policyholders. It represents
the relationship between the value of the business as measured on a
Solvency II basis and the capital the business is required to hold
- the Solvency Capital Requirement (SCR). Solvency can be reported
as an absolute surplus value or as a ratio.
Solvency gives policyholders comfort regarding the security of
their provider. This is also the case for investors together with
giving them a sense of the level of potential surplus available to
invest in the business or distribute as dividends (subject to other
considerations and approvals).
ECONOMIC VALUE
Economic Value (EcV) is deemed to be a more meaningful measure
of the long-term value of the group than Own Funds. In essence, the
IFRS balance sheet is not generally deemed to represent a fair
commercial value of our business as it does not fully recognise the
impact of future profit expectations of long-term policies.
EcV is derived from Solvency II Own Funds and recognises the
impact of future profit expectations from existing business.
An element of the EcV earnings each period is the economic value
of new business. By factoring in real world investment returns and
removing the impact of risk margins, the group determines the value
of new business on a commercial basis.
CASH GENERATION
Cash generation is used by the group as a measure of assessing
how much dividend potential has been generated, subject to ensuring
other constraints are managed.
Group cash generation is calculated as the movement in the
group's surplus Own Funds above the group's internally required
capital, as determined by applying the group's capital management
policy, which has Solvency II rules at its heart.
Divisional cash generation represents the movement in surplus
own funds above local capital management policies within the three
operating divisions of Chesnara. Divisional cash generation is used
as a measure of how much dividend potential a division has
generated, subject to ensuring other constraints are managed.
Commercial cash generation excludes the impact of technical
adjustments, modelling changes and corporate acquisition activity;
representing the group's view of cash generated by the
business.
OPERATIONAL AND OTHER PERFORMANCE MEASURES
In addition to the financial performance measures, this Report
& Accounts includes measures that consider and assess the
performance of all our key stakeholder groups. The table below
summarises the performance measures adopted throughout the Report
& Accounts.
MEASURE WHAT IS IT AND WHY IS IT IMPORTANT?
Customer How well we service our customers is of paramount importance
service levels and so through various means we aim to assess customer service
levels. The business reviews within the Report & Accounts
refer to a number of indicators of customer service levels.
====================================================================
Broker satisfaction Broker satisfaction is important because they sell our new
policies, provide ongoing service to their customers and
influence book persistency. We include several measures
within the Report & Accounts, including direct broker assessment
ratings for Movestic and general assessment of how our brands
fare in industry performance awards in the Netherlands.
====================================================================
Policy investment This is a measure of how the assets are performing that
performance underpin policyholder returns. It is important as it indicates
to the customer the returns that their contributions are
generating, and options available to invest in funds that
focus on environmental, social and governance factors.
====================================================================
Industry This is a comparative measure of how well our investments
performance are performing against the rest of the industry, which provides
assessments valuable context to our performance.
====================================================================
Emissions Tracking our scope 1, 2 and 3 (non-financed) emissions is
and water/energy a core part of our transition to be a net zero and sustainable
usage group.
====================================================================
Funds under This shows the value of the investments that the business
management manages. This is important because scale influences operational
sustainability in run-off books and operational efficiency
in growing books. Funds under management are also a strong
indicator of fee income.
====================================================================
Policy count Policy count is the number of policies that the group manages
on behalf of customers. This is important to show the scale
of the business, particularly to provide context to the
rate at which the closed book business is maturing. In our
open businesses, the policy count shows the net impact of
new business versus policy attrition.
====================================================================
Total shareholder This includes dividend growth and yield and shows the return
returns that an investor is generating on the shares that they hold.
It is highly important as it shows the success of the business
in translating its operations into a return for shareholders.
====================================================================
New business This shows our ability to write profitable new business
profitability which increases the value of the group. This is an important
indicator given one of our core objectives is to "enhance
value through profitable new business".
====================================================================
New business This shows our success at writing new business relative
market share to the rest of the market and is important context for considering
our success at writing new business against our target market
shares.
====================================================================
Gearing The gearing is a ratio of debt to IFRS net assets and shows
ratio the extent to which the business is funded by external debt
versus internal resources (defined as debt divided by debt
plus equity). The appropriate use of debt is an efficient
source of funding.
====================================================================
Knowledge, This is a key measure given our view that the quality, balance
skills and and effectiveness of the Board of Directors has a direct
experience bearing on delivering positive outcomes to all stakeholders.
of the Board This includes holding the management teams accountable for
of Directors the delivery of set objectives and the proper assessment
of known and emerging risks and opportunities, e.g. those
arising from climate change.
====================================================================
For the purposes of this key performance indicator assessment
business partners refers to major suppliers and outsource
partners.
CHAIR'S STATEMENT
I am delighted to report that our divisions have continued to
deliver a strong level of cash generation despite significant
economic volatility during the year. This has supported an increase
in our dividend for an 18th consecutive year.
LUKE SAVAGE, CHAIR
CASH EMERGENCE, DIVID AND FINANCIAL STABILITY
Chesnara has a strong track record of delivering cash generation
across a variety of market conditions. 2022 has been no different,
with total divisional cash generation of GBP61.9m leaving us well
positioned to further extend our 18 years of continued dividend
growth. Our shareholders will receive 23.28p per share, an increase
of 3%.
Financial stability is at the heart of the Chesnara business and
its financial model. First and foremost, it is fundamental to
providing financial security to our customers. Strong and stable
solvency is also critical to the investment case for both our
equity and debt investors.
In light of this, I am pleased to report our solvency position
remains robust, with a closing Solvency II ratio of 197%,
significantly above our normal operating range, providing us with
considerable strategic optionality. Our solvency position remains
underpinned by a well-diversified business model, a focus on
responsible risk-based management and resilient and reliable cash
flows from our businesses. Our previously announced Tier 2 debt
raise in February 2022 was also a material contributor to our
improved solvency ratio.
PEOPLE AND DELIVERY
Following the initial impact from the pandemic, operating
conditions have stabilised and across the group we have settled
into effective and flexible hybrid working conditions. However,
while operating conditions have become less challenging we are
aware that our workforce is becoming increasingly challenged by the
wider cost of living crisis. With this in mind, we have supported
all UK staff whose salaries are below the higher rate tax threshold
with two one-off payments in August and December broadly in line
with the estimated increase in average household expenditure
witnessed to date. We have also offered pay increases which are
sympathetic to inflationary pressures our employees are exposed to.
Beyond financial reward we have rolled out a Wellness Support
programme. This offers tailored one-to-one lifestyle coaching
designed to help staff manage the challenges associated with
increasingly stressful but often sedentary lifestyles. The
programme initially covers the UK head office but delivery of
similar programmes will become a core requirement across the wider
group as a key objective of our Sustainability Programme.
Across the group our people have continued to deliver. We have
completed the acquisitions of Sanlam Life & Pensions (UK)
Limited in the UK and Robein Leven in the Netherlands. On both
deals our teams have been working hard integrating those new
businesses into the group. Positive progress has been made on the
Sanlam integration, including planning for the Part VII process.
The integration of Robein Leven is now largely complete.
Furthermore, we completed the acquisition of the insurance
portfolio of Conservatrix in the Netherlands on 1 January 2023.
This transaction transforms our Dutch closed life business, Waard,
increasing its policies under administration by over 60% and
creating a second material closed book consolidation business
alongside Chesnara's existing UK platform.
In Sweden, there has been a strong focus on improving the
transfer ratio with a marked reduction in the rate at which
business transfers out from our portfolio. There are also positive
early signs of improved new business as local management focus on
maximising the expected opportunity from recent regulatory changes
in Sweden.
Staff have also been working hard to ensure we can meet the
requirements of IFRS 17 which became effective from the start of
2023. Our programme is progressing well and we are on track to
produce the half year 2023 figures as required. We retain our view
that the transition to IFRS 17 will have minimal commercial impact
on how we manage the business, the risks it is exposed to or the
financial outcomes we expect. This, together with the successful
Tier 2 debt raise in February 2022, leaves us well placed to fund
future acquisition activity.
One final action I wanted to highlight is the implementation of
a foreign currency hedge during the second half of the year. This
has materially reduced our exposure to FX movements between
sterling and both the euro and Swedish krona. In addition to
reducing the real world exposure, the hedge has also materially
reduced the level of currency risk capital we have to hold thereby
increasing the headline solvency ratio by c11 percentage
points.
Of course, these major developments are in addition to
continuing to deliver all customer and regulatory business-as-usual
responsibilities.
In short, it has been a period of significant operational
delivery and I would like to take this opportunity to thank staff
for their continued commitment and efforts.
PURPOSE
At Chesnara, we help protect customers and their dependents
through the provision of life, health, and disability cover or by
providing savings and pensions to meet future financial needs.
These are very often customers that have come to us through
acquisition, and we are committed to ensuring that they are
positively supported by us.
We have always managed our business in a responsible way and
have a strong sense of acting in a fair manner, giving full regard
to the relative interests of all stakeholders.
Our equity investors are a key stakeholder, and I am pleased
that we have announced a 3% increase in the 2022 dividend to 23.28
pence per share. Our debt investors have also received their first
full year's worth of debt coupon payments since the Tier 2 raise in
February 2022.
We have also been fully respectful of Environmental, Social and
Governance ('ESG') matters. In particular, we have positioned
governance as being a core foundation to the business model and
have a well-established governance framework.
Over recent years we have increased our focus on environmental
matters and we have accelerated and deepened this focus during the
year. As we take stock of our environmental status, we continue to
believe that our current position is relatively strong across all
divisions and there are many examples of positive environmental
actions. That said, we are also extremely conscious that we need to
more formally substantiate our environmental footprint and, based
on this assessment, agree and report targets for how we commit to
reduce to net zero.
A group wide sustainability programme has been initiated during
the period which is building on the excellent work done in the
divisions thus far. The programme has Executive and Non-Executive
sponsorship, with David Rimmington leading executive oversight of
the programme and Jane Dale chairing our new Group Sustainability
Committee. This work will look to transform Chesnara into a
sustainable business. The scale of the task for us and the rest of
the industry is huge and an initial priority for the programme will
be to formally measure our scope 3 financed emissions, to go with
our understanding of the impact of our operating framework. This
will allow us to establish a formal road map to the ultimate net
zero target and an action-based transition plan to demonstrate how
we will deliver the associated real world change. We have produced
our inaugural Annual Sustainability Report (available on the
Chesnara website) which provides details on our commitments and
long term targets, as well as key activities for the wider
sustainability strategy.
OUTLOOK
Sources of future growth remain strong. The reduction in
Economic Value during the period has been driven largely by the
impact of the war in Ukraine and wider geopolitical factors have
had on equity markets. However, we retain our view that, despite
such short-term market volatility, equities continue to offer a
source of long term value enhancement. Furthermore, with the
completion of the Conservatrix acquisition, we expect a level of
value recovery during the first quarter of 2023.
In addition, the outlook for acquisitions is positive. We
continue to expect the market to be active and we have taken
actions to enhance our ability to participate in that market,
including the issuance of our inaugural Tier 2 bond in February
2022.
Luke Savage,
Chair
29 March 2023
CHIEF EXECUTIVE OFFICER'S REPORT
The acquisition of the Conservatrix insurance portfolio was the
third transaction Chesnara has announced over the past year,
highlighting the renewed growth momentum behind our M&A
strategy
STEVE MURRAY, CEO
INTRODUCTION & RESULTS
As I look back on 2022, it is hard to underestimate the extreme
and volatile economic and geopolitical backdrop we have all
witnessed and operated in. As part of my annual 2021 report, I
highlighted Chesnara's track record of delivering through a very
wide range of market conditions over its history and we have done
so yet again in 2022, both in terms of cash generation and
acquisitions. We have generated GBP46.6m of Commercial cash,
representing 133% coverage of the 2022 total dividend. Commercial
cash provides good insight into the underlying cash generation
dynamics of the group. The symmetric adjustment (a feature of our
capital model which means we hold more capital when equity markets
rise sharply and can then release capital if we see corresponding
falls) and the implementation of a FX hedge have generated
additional cash, resulting in total group cash generation of
GBP82.7m (excluding the impact of acquisitions). This level of cash
generation against such a negative external market backdrop clearly
demonstrates the resilience of our business model and is expected
to enable our divisions to pay cGBP74m of dividends to Chesnara plc
in early 2023. Our solvency position remains strong and well above
our normal operating range of 140%-160%, leaving us well positioned
to fund our M&A strategy and withstand future financial
volatility.
In 2022, we have re-energised our strategy whilst remaining
focused on doing three things:
1. Running in-force insurance and pensions books efficiently and
effectively.
- We now look after c1 million policyholders and customers who
have cGBP11.0bn of their assets with us, following the acquisition
of Conservatrix's insurance portfolio which completed on 1 January
2023.
- We have seen the benefits of positive retention activity. In
Sweden, we have seen a marked reduction in the rate at which
policies have been transferring out from the Movestic
portfolio.
- Our business model has meant there has been a relatively
immaterial impact on our balance sheet from the high inflationary
backdrop across the UK and Europe.
2. Seeking out and delivering value enhancing M&A
opportunities:
- This is an area where we have seen extensive activity across
the group compared to recent years. During 2022, we completed the
acquisitions of CASLP and Robein Leven and the integration of these
businesses within the group is well underway.
- In July 2022, we also announced the acquisition of the
insurance portfolio of Conservatrix in the Netherlands and the deal
completed on 1 January 2023. A capital contribution of GBP35m has
been provided by the group to support the solvency position of the
Conservatrix business, ensuring that Conservatrix customers will
benefit from becoming part of a well-capitalised group after a
significant period of uncertainty. Our updated expectation is the
transaction will add cGBP21m to Economic Value and deliver steady
state cash generation of cGBP4m each year, supporting our dividend
strategy. As a reminder, CASLP and Robein Leven combined added
GBP21.4m in EcV and should deliver additional steady state cash
generation of cGBP6m each year.
- Our February Tier 2 debt raise of GBP200m proved to be very
well timed to support this activity, with capital resources
required to support our three announced transactions totalling over
GBP110m, of which GBP85m was funded from holding company cash
reserves. And it provides financial flexibility to support further
acquisitions where we continue to have material resources of over
GBP100m.
3. Writing focused, profitable new business where we are
satisfied an appropriate return can be made.
- During the period we have delivered record market shares of
term new business in Scildon. Against a backdrop where the overall
term market shrank in 2022, we have seen a 3.5% period on period
increase in total volumes. In Movestic we have seen increments
return to pre COVID-19 levels plus an encouraging trend in new
transfer business. The inflated levels of transfers out we have
seen over the last 24 months are also now back in line with our
longer term assumptions.
Remaining focussed on these three strategic aims has had a
positive impact on the results in the period and importantly
enhanced the outlook for the group. However, these positive impacts
have been more than offset by the adverse short term impacts of
very volatile economic and market conditions on the IFRS and
Economic Value (EcV) results during the period, where we have
reported losses of GBP146.9m and GBP106.1m respectively.
CONTINUED DELIVERY OF RESILIENT CASH GENERATION AND ROBUST
SOLVENCY
At the heart of the Chesnara financial model and investment case
is resilient cash generation and stable solvency.
RESILIENT CASH GENERATION
The total group cash generation (excluding the impact of
acquisitions) during the year was GBP82.7m (2021: GBP20.3m). As a
reminder, we define cash as the movement in the group's surplus Own
Funds above the group's internally required capital. The surplus
can be impacted by equity markets and currency movements in the
near term and by consolidation adjustments. The divisional results
pre-consolidation give a good reflection of the dividend potential
rather than looking at the consolidated group figures in
isolation.
The total divisional cash generation for the year was GBP61.9m
(2021: GBP31.1m) and creates significant future dividend paying
capacity. The headline divisional cash generation was positively
impacted by GBP36.0m through technical factors such as the
symmetric adjustment*. As I mentioned above, this is a feature of
the Solvency II Standard Formula whereby reduced capital levels
need to be held following periods of sharp equity market falls,
such as we have seen this year.
To get a further sense of the inherent cash generation in
Chesnara, our alternative Commercial cash metric looks through the
symmetric adjustment and foreign exchange translation impacts,
along with other less material technical impacts (see Financial
Review section for more detailed cash generation analysis).
At a total divisional level, we have generated GBP25.9m of
Commercial cash. We have options to complement any base cash
generation by taking capital enhancing management actions. During
the latter part of the year, we triggered one such management
action and took out a hedge to reduce our exposure to foreign
exchange rate movements which created cGBP26m of additional
solvency surplus. This, together with the divisional results,
provides coverage well in excess of the shareholder dividend.
*Symmetric adjustment: the Solvency II capital requirement
calculation includes an adjusting factor that reduces or increases
the level of the equity capital required depending on historical
market conditions. Following periods of market growth, the factor
tends to increase the level of capital required and conversely, in
falling markets the capital requirement becomes less onerous.
Cash generation by territory:
Divisional cash generation
GBPm 2022
============= =====
UK 40.8
Sweden 16.1
Netherlands 5.0
============= =====
Total 61.9
Commercial cash generation
GBPm
============= ======
UK 22.0
Sweden (1.1)
Netherlands 5.0
============= ======
25.9
Other group 20.8
============= ======
Total 46.6
TOTAL COMMERCIAL CASH GENERATION REPRESENTS 133% COVERAGE OF THE
2022 SHAREHOLDER DIVID
The Chesnara parent company cash and instant access liquidity
fund balance at 31 December 2022 has increased to cGBP108m (31
December 2021: GBP46.1m), which provides future acquisition funding
capacity and further supports the sustainable funding of the group
dividend. Cash reserves have increased largely as a result of the
GBP200m Tier 2 debt raise in February 2022. This has been offset by
the repayment of the pre-existing RCF balances of GBP31.2m,
GBP62.9m funding for the Sanlam Life & Pensions (UK) Limited
(now renamed CASLP) acquisition and a GBP21.5m capital injection to
Waard to support the Conservatrix acquisition. Waard were able to
fund the acquisition of Robein Leven without additional capital
support from the group. Excluding these items, the underlying
balance has remained largely constant as divisional dividend
receipts have broadly matched the shareholder dividend payment and
other working capital outflows.
Looking forward, we continue to have a strong line of sight to
future cash generation over the medium and longer term from the
unwind of risk margin and SCR, investment returns above risk free
rates, wider synergies and management actions. And that's before
further potential benefits from new business and further
acquisitions.
STRONG SOLVENCY
During the year we have seen a sharp increase in the group
solvency ratio to 197%. The table that follows illustrates that
this increase is largely due to the Tier 2 debt issuance, partly
offset by the capital resources (mainly the payment of
consideration) required to complete the CASLP and Robein Leven
acquisitions, together with the impact of a swing in the scale and
direction of the symmetric adjustment. Excluding these individually
material movements the ratio has continued to remain stable.
Solvency ratio %* Solvency surplus GBPm
======= =================== =======================
2018 158 202.4
2019 155 210.8
2020 156 204.0
2021 152 190.7
2022 197 298.4
*Normal operating solvency range = 140% to 160%
The closing headline solvency ratio of 197% is significantly
above our normal operating range of between 140% and 160%. The
solvency ratio does not adopt any of the temporary benefits
available from Solvency II transitional arrangements (though we do
apply the volatility adjustment in our UK and Dutch divisions).
However, the ratio is impacted by the symmetric adjustment; a
feature of the Solvency II Standard Formula whereby additional
capital needs to be held following periods of strong equity growth.
At the end of 2021, the symmetric adjustment was suppressing the
solvency ratio by 8%. We noted that this supressing impact was
likely to reverse out over time. This is indeed exactly what we
have observed during 2022 when equity markets have fallen, with the
symmetric adjustment shifting to a position where it is now
enhancing the headline ratio by 10 percentage points.
Solvency ratio %
============================= =================
SII % 31 Dec 2021 152
Tier 2 impact 49
Robein impact (1)
SLP impact (13)
FX hedge 11
Symmetric adjustment impact 10
Annual dividend payments (10)
Normal business (1)
SII % 31 Dec 2022 197
We expect to utilise this additional capital surplus as we
undertake acquisitions, which should result in the ratio reverting
back within the robust and stable 140% to 160% historical range.
The recently completed Conservatrix acquisition is expected to
reduce the solvency ratio by approximately 15 percentage points to
182% on a pro forma basis as at 31 December 2022. Strategically, it
is our intention to deploy further capital in support of value
enhancing acquisitions in the future.
THE LONG TERM OUTLOOK FOR GROWTH REMAINS POSITIVE, PARTICULARLY
THROUGH M&A
In our 2021 full year accounts, we introduced the concept of the
Chesnara 'fan' which illustrates the additional areas of growth
potential the group may benefit from that aren't reflected in our
Economic Value metric.
We also stated that "Over the medium term, we expect all
components of the growth model to be positive, although there can
be a level of shorter-term volatility in each element."
Although a one year time period is short, it is worth looking at
how the results for 2022 map against the value growth components of
the Chesnara 'fan'.
A key element of the growth model is real world investment
returns. The reported EcV of the group assumes risk free returns on
shareholder and policyholder assets. Given the direct link to
external market performance this source of value is the most
volatile of the growth sources. In 2021, real world returns
represented growth of cGBP110m. A large proportion of this has
reversed with a corresponding loss in 2022 of cGBP109m. Despite
this volatility in the short term, over the long term we expect
average returns in excess of risk free, as we have seen
historically. Valuing the group assuming relatively conservative
returns above the risk free yield, for example using an average of
5% total equity returns per annum, would add significantly upwards
of GBP150m of incremental EcV. In addition, we might reasonably
expect a significant proportion of the recent losses to be reversed
in the event that markets recovered.
Over time, we expect improvements to operational effectiveness
to be a source of value creation, be that through M&A
synergies, scale or other positive management actions. During the
first half of the year, Countrywide Assured in particular has
benefitted from synergies from the CASLP acquisition. Over recent
years, including 2021, we have suffered some operational losses
particularly relating to investments made in IT systems in Scildon,
some regulatory changes, and higher than expected pension transfer
outflows in Sweden. It is hugely encouraging to report that there
has been a marked reduction in the rate at which business has
transferred from the Swedish portfolio in 2022 and we start 2023
with outflow rates being back in line with the long term
assumption. The Countrywide Assured expense synergies together with
the positive transfer experience in Sweden mean the outlook for
operational value growth is much improved.
The other value growth components have all been a source of
actual growth during the period. The Own Funds of the group have
increased by cGBP20m directly as a result of risk margin
reductions. Acquisitions completed in the period have also added
GBP21.4m of EcV on a marginal costing basis and the Conservatrix
deal completed on 1 January 2023 is expected to add a further
cGBP21m of EcV.
FOCUSSED WRITING OF NEW BUSINESS
Writing new business is the third area of focus in the Chesnara
strategy. Not only is new business value adding in its own right,
importantly it adds scale which in turn enhances operational
effectiveness and improves the sustainability of the financial
model. During 2022, we have seen steady commercial new business
profits of GBP9.5m.
EQUITY MARKET PERFORMANCE HAS DRIVEN A MARKED REDUCTION IN
EcV
Despite a degree of recovery towards the end of the year, we
have seen falls in equity markets over the period, particularly in
Sweden, and this has been the primary reason why we are reporting a
group EcV loss of GBP106.1m for the year. The overall movement in
the group's EcV over the period includes a GBP21.4m positive impact
of the two acquisitions that we completed in the year.
We have grown our Funds Under Management (FuM) in 2022, largely
through the completion of CASLP and Robein Leven. This growth was
largely offset by the negative effects of increasing yields and
falling equity markets on the value of funds.
Growth in FuM
Funds Under Management GBPbn GBPbn
============================= ====== ======
2018 7.1
2019 7.7
2020 8.5
2021 9.1
2022 7.5
2022 acquisitions 3.1
2022 pro forma Conservatrix 0.4
============================= ====== ======
2022 total 11.0
Growth in policies in force
Policies 000's 000's
============================= ====== ======
2019 891
2020 894
2021 877
2022 853
2022 acquisitions 81
2022 pro forma Conservatrix 70
============================= ====== ======
2022 total 1,004
AN INCREASED FOCUS ON ACQUISITION ACTIVITY
The primary purpose of Chesnara when it was formed back in 2004
was to acquire other closed book businesses and acquisition
activity has been a core component of our historical EcV growth. As
well as the immediate benefit from any price discount to EcV,
acquisitions also improve the future growth outlook by enhancing
the potential from the other value elements of the Chesnara
'fan'.
Successful acquisitions have been key to Chesnara's development
historically and will remain so in the future. During 2022, we
completed two acquisitions, Robein Leven in the Netherlands and
CASLP in the UK. Robein Leven added further scale to Waard, the
group's Dutch closed book operations, and CASLP increased the UK
Funds Under Management by GBP2.9bn. Together they added GBP21.4m of
EcV on a marginal cost basis and are expected to create additional
steady cash generation potential of cGBP6m per annum.
In July 2022, we announced the acquisition of Conservatrix in
the Netherlands. This deal completed on 1 January 2023 and our
updated expectation is that this deal will deliver an immediate
increase of cGBP21m of EcV, with further value generated from
future real world investment returns and the run-off of the risk
margin. The new portfolio is expected to generate cGBP4m of steady
state incremental cash per annum meaning the enlarged Waard
business will generate cGBP8m of cash per year, covering about one
quarter of the shareholder dividend. Taken together, accessing
these value enhancing acquisitions required us to deploy over
GBP110m of capital resources (of which GBP85m was funded from
holding company cash reserves), primarily from the GBP200m
inaugural Tier 2 debt raise we executed in February 2022.
CONFIDENCE IN OUR ABILITY TO EXECUTE FUTURE M&A
We remain optimistic about the prospect of future acquisitions
and believe that we can deliver further value accretive deals. Even
relatively small transactions can have a material positive
cumulative impact, as the group delivers synergies from integrating
businesses and portfolios into its existing operations.
2022 has continued to see an active M&A market across
European insurance with sources of capital readily available to
support transactions, large international insurance groups
refocusing their strategies away from legacy businesses and
management teams that actively managed their business portfolios
being rewarded by shareholders.
Even with the current market volatility, we expect positive
activity levels in insurance M&A to continue. A market with
plenty of activity provides opportunities for Chesnara as a
consolidator. We continue to believe there is also likely to be a
little less competition in the sub GBP250m deal valuation end of
the market that we currently participate in. The three deals that
we have announced in recent times should provide positive reference
points for sellers and their advisors about our renewed ability to
execute M&A.
We continue to have material cash resources to deploy following
the GBP200m Tier 2 debt issue and, after paying down existing debt,
funding the CASLP deal and Conservatrix capital injection, we hold
cash balances of GBP108m at a group level (of which a good
proportion is readily available for deployment). Our revolving
credit facility creates an additional level of working capital
flexibility. For more transformational deals, we retain the ability
to raise equity and are mindful of the potential benefits from
other funding arrangements such as joint ventures or vendor
part-ownership.
Our assessment of the market potential, our track record of
delivery and the actions we have taken to enhance our ability to
execute M&A (including the people changes highlighted below)
mean we are confident that acquisitions will continue to contribute
to Chesnara's success in the future.
PEOPLE CHANGES
We announced that Sam Perowne was joining our executive team
early in 2022. Sam, along with two new Independent NED appointments
in February, Karin Bergstein and Carol Hagh, has extensive M&A
experience. In August, we announced two further changes to our
senior leadership team, with Al Lonie moving from Company Secretary
to become my Chief of Staff and Amanda Wright joining from abrdn to
become General Counsel and Company Secretary.
These changes further enhance the capacity, capability and
experience we have available to pursue further strategic
opportunities.
In February this year, we also announced that our Scildon CEO,
Gert-Jan Fritzsche will be leaving the business as we enter the
next phase of Scildon's strategic development. I want to thank him
for all his efforts over the past 6 years as Scildon CEO. Our
market search for his replacement is well under way.
A SUSTAINABLE CHESNARA
We are committed to becoming a sustainable group. As a steward
and a safe harbour for our c1 million policyholders and cGBP11bn of
policyholder and shareholder assets, we have a real responsibility
to help drive the change needed to deliver decarbonisation and a
sustainable society and economy. As a business, we are still at the
beginning of our journey and our principles are: "Do no harm. Do
good. Act now for later." We're determined to get there and we know
that speed is of the essence.
To drive our sustainability agenda, we have established our
Group Sustainability Committee chaired by our Senior Independent
Director, Jane Dale, which will help oversee our group
sustainability programme that is being led by Dave Rimmington. The
committee consists of senior management from across the group,
including myself. Our inaugural Annual Sustainability Report (ASR),
which we've published alongside this annual report and accounts,
details our vision and commitments. This first ASR positions what
we're going to do and how we're going to do it, alongside why being
sustainable is so important to us. Simply put, we will make
decisions based on all of our stakeholders, including the planet
and its natural resources. Positive outcomes for any particular
stakeholder at the cost of inappropriate outcomes for other
stakeholders is not acceptable. Based on this, we're committed
to:
1. Supporting a sustainable future, including our net zero transition plans
2. Making a positive impact, including our plans to invest in positive solutions
3. Creating a fairer world, ensuring our group is an inclusive
environment for all employees, customers and stakeholders
These commitments will shape what we do and how we do it. We are
working to put sustainability at the heart of everything we do and
2023 will further embed this. Our reporting will evolve as our
plans and targets become more established so please take a look at
our first ASR and we look forward to updating you on our
progress.
OUTLOOK
Chesnara has an excellent track record of sustainable long term
cash generation over its history through recessions, pandemics,
global financial crisis and other variable market conditions. 2022
has seen us continue this impressive record of cash generation in
difficult markets.
The war in Ukraine played a large role in the volatile start to
2022 that we saw across global markets. The Chesnara business model
has delivered positive cash generation in uncertain markets before,
and we have confidence it will continue to do so in future. We are
not dismissive of the material reduction in Economic Value that
equity market falls and interest rate rises have created during
2022 but equally, we do not see the value loss in the period as
being a factor that at all compromises the medium to longer term
outlook. In fact, we start 2023 with even greater optimism about
the prospects we see in relation to potential acquisitions.
We have ambitious plans to grow the business and the
achievements during 2022 leave us well positioned to do so.
Finally, I want to thank our people across the UK, Sweden and
the Netherlands for all their remarkable efforts during an
exceptionally busy period. Their efforts, the robustness of our
business model and positive outlook for M&A give me every
confidence that the future remains bright for Chesnara.
Steve Murray,
Chief Executive Officer
29 March 2023
STRATEGIC REPORT
OVERVIEW OF STRATEGY
Our strategy focuses on delivering value to customers and
shareholders through our three strategic pillars, executed across
our three territories.
STRATEGIC OBJECTIVES
1. 2. 3.
MAXIMISE THE VALUE FROM ACQUIRE LIFE AND PENSIONS ENHANCE VALUE THROUGH
EXISTING BUSINESS BUSINESSES PROFITABLE NEW BUSINESS
Managing our existing Acquiring and integrating Writing profitable new
customers fairly and companies into our business business supports the
efficiently is core model is key to continuing growth of our group and
to delivering our overall our growth journey. helps mitigate the natural
strategic aims. run-off of our book.
===================================== ====================================
KPIs KPIs KPIs
Cash generation Cash generation EcV growth
EcV earnings EcV growth Customer outcomes
Customer outcomes Customer outcomes
Risk appetite
===================================== ====================================
OUR CULTURE AND VALUES -
RESPONSIBLE RISK BASED MANAGEMENT
RESPONSIBLE FAIR TREATMENT MAINTAIN PROVIDE A ROBUST A JUST
RISK BASED OF CUSTOMERS ADEQUATE COMPETITIVE REGULATORY TRANSITION
MANAGEMENT FINANCIAL RETURN TO COMPLIANCE TO A
FOR THE RESOURCES OUR SHAREHOLDERS SUSTAINABLE
BENEFIT GROUP
OF ALL OUR
STAKEHOLDERS
BUSINESS REVIEW | UK
The UK division is made up of Countrywide Assured plc and Sanlam
Life & Pensions (UK) Limited (now renamed CASLP). CASLP was
acquired by Chesnara on 28 April 2022 following the announcement to
purchase the company in September 2021. The combined businesses
manage c272,000 policies covering linked pension business, life
insurance, endowments, annuities and some with-profit business.
Countrywide Assured follows an outsourcer-based operating model,
whereas CASLP's is currently largely delivered through internal
resources.
MAXIMISE VALUE FROM EXISTING BUSINESS
CAPITAL AND VALUE MANAGEMENT
BACKGROUND INFORMATION
As a closed book, the division creates value through managing
the following key value drivers: costs; policy attrition;
investment return; and reinsurance strategy.
In general, surplus regulatory capital emerges as the book runs
off. The level of required capital is closely linked to the level
of risk to which the division is exposed. 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 2022
- The acquisition of Sanlam Life & Pensions (UK) Limited
(now renamed CASLP) was completed on 28 April 2022. This increased
the number of policies by over 68,000 and added EcV of GBP54.5m to
the division.
- Combined UK division delivered cash generation of GBP40.8m in
the year, and combined foreseeable dividends of GBP56.0m.
- As a result of the acquisition, central overheads can now be
shared across a wider policy base, which has resulted in a benefit
to CA Own Funds of GBP8.1m.
- Work is progressing well on integrating CASLP into the
division which includes preparing the business for moving to the
division's target operating model for CASLP. The planned activity
of transferring the policies of CASLP into CA is progressing in
line with plans.
- CA completed net transfers of capital out of its with-profit
funds which increased solvency surplus by GBP7.8m
- Investment markets have influenced the results of the division
over the year. Falls in equity prices and rises in yields have
generally been positive to solvency, but less favourable to the
division's EcV.
- CA solvency has increased during the period, largely driven by
the aforementioned group cost sharing exercise, the with-profit
capital extraction and the positive benefits from increasing yields
and the fall in the equity symmetric adjustment
FUTURE PRIORITIES
- Move to the planned longer-term target operating model for CASLP.
- Continue with the work that is required to deliver the planned
transfer of the insurance business of CASLP into the UK's principal
operating company, Countrywide Assured plc.
- Continue to focus on maintaining an efficient and cost-effective operating model.
- Identify potential management actions with a focus on those
that have the potential to accelerate cash generation.
- Support Chesnara in identifying and delivering UK acquisitions.
KPIs
Economic Value - UK
GBPm 2018 2019 2020 2021 2022
====================== ====== ====== ====== ====== ======
EcV 214.7 204.6 187.4 181.9 209.3
Cumulative dividends 59.0 88.0 121.5 149.0
====================== ====== ====== ====== ====== ======
Total 214.7 263.6 275.4 303.4 358.3
====================== ====== ====== ====== ====== ======
Note: The 2022 closing value includes the additional EcV from
the acquisition of CASLP, which includes the value of the acquired
business plus a capital injection from Chesnara plc. There is a
corresponding value outflows of GBP62.9m at the parent company.
Cash generation
GBPm 2018 2019 2020 2021 2022
----------------- ----- ----- ----- ----- -----
Cash generation 55.8 33.6 29.5 27.4 40.8
CUSTOMER OUTCOMES
BACKGROUND INFORMATION
Delivering good customer outcomes is one of our primary
responsibilities. 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.
INITIATIVES AND PROGRESS IN 2022
- Following the acquisition of CASLP, their customer-facing
website was developed and we have ensured customers continue to
receive the same high quality standard of service. The process of
aligning, where appropriate, CASLP's and CA's customer governance
framework is progressing in line with plans.
- The UK's operational resilience programme has remained a key
focus. All regulatory deadlines have been met and work is now in
progress on the next phase of the work, which includes identifying
and remediating any weaknesses identified through the journey
mapping phase of work.
- Throughout the year, the activity of seeking to stay in
contact with customers and to reunite customers with unclaimed
assets has continued, as has the activity on product reviews with
remediation undertaken where required.
- The FCA published their final paper on Consumer Duty in July
2022. An assessment of actions needed to meet the requirements of
the paper has been undertaken for the division, and a plan is being
implemented.
FUTURE PRIORITIES
- Continued focus on the operational resilience programme to
ensure the regulatory deadline of March 2025 is achieved.
- Execute the board agreed plans and progress any actions needed
to meet the requirements of the Consumer Duty for CA and CASLP.
KPIs
Policyholder fund performance
2022 2021
CA Pension Managed (7.9)% 10.8%
CWA Balanced Managed Pension (7.9)% 10.8%
S&P Managed Pension (8.4)% 10.4%
Benchmark - ABI Mixed Inv 40%-85% shares (9.8)% 10.8%
Throughout the year our main managed funds performed ahead of
industry benchmarks.
GOVERNANCE
BACKGROUND INFORMATION
Maintaining effective governance and a constructive relationship
with regulators underpins the delivery of the division's strategic
plans.
Having 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 2022
- The integration of CASLP into the existing UK governance
framework has been a focus and is largely complete.
- The division's IFRS 17 project has remained a priority over
2022. The project has progressed well for both the existing CA
business as well as integrating CASLP's programme. The division is
well placed to apply IFRS 17 which went live on 1 January 2023.
FUTURE PRIORITIES
- Finalise the transition of CASLP to align with the UK division's governance framework.
- Deliver IFRS 17 reporting for the division, which became effective from 1 January 2023.
- Deliver the UK aspect of the group-wide sustainability programme.
KPIs
SOLVENCY RATIO: CA 205 %
SOLVENCY RATIO: CASLP 167 %
Solvency is strong in both businesses with surplus generated in
the year increasing the pre-dividend solvency ratio from 130% to
205% and from 112% to 167% in CA and CASLP respectively.
CA GBPm Solvency
Ratio
==================================== ======= =========
31 Dec 2021 surplus 30.5 130%
Surplus generation 37.5
31 Dec 2022 surplus (pre-dividend) 67.9 205%
2022 dividend (46.0)
======================================= ======= =========
31 Dec 2022 surplus 21.9 134%
======================================= ======= =========
CASLP GBPm Solvency
Ratio
===================== ======= =========
31 Mar 2022 surplus 4.6 112%
Surplus generation 19.2
31 Dec 2022 surplus
(pre-dividend) 23.8 167%
2022 dividend (10.0)
======================== ======= =========
31 Dec 2022 surplus 13.8 139%
======================== ======= =========
BUSINESS REVIEW | SWEDEN
Our Swedish division consists of Movestic, a life and pensions
business which is open to new business. It offers personalised
unit-linked pension and savings solutions through brokers and is
well-rated within the broker community.
S derberg & Partners have, in their recent annual report,
named Movestic as insurance company of the year for unit linked
insurance, ahead of competition from 12 other insurance providers
in the Swedish market.
MAXIMISE VALUE FROM EXISTING BUSINESS
CAPITAL AND VALUE MANAGEMENT
BACKGROUND INFORMATION
Movestic creates value predominantly by generating growth in
unit-linked Funds Under Management (FuM), whilst assuring a
high-quality customer proposition and maintaining an efficient
operating model. FuM 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 2022
- 2022 has seen uncertainty in the Swedish and global financial
markets, resulting in rising Swedish interest rates and inflation
and falling equity markets.
- These events were reflected in the lower returns on the
policyholders' investment assets as well as Movestic's own
investments.
- Movestic's solvency ratio has strengthened over the year and
it has an expected year end 2022 dividend of GBP12.0m.
- The division has continued to strengthen its offering and
distribution within its relatively new custodian business.
- Over 2022, incoming volumes have been in line with the prior
year despite the financial markets' dampening effect.
- Pension transfers continue to be a feature of the market
through new regulations, particularly those introduced in July
2022, along with digitalisation, transparency, lower fees, and new
working processes. The net transfer outflow has improved
significantly due to the removal of competitors' aggressive pricing
activities, coupled with the impact of Movestic's retention
initiatives.
- Favourable claims development in the risk insurance segment has also been seen.
FUTURE PRIORITIES
- Continue to build solid and long-term sustainable value
creation for customers and owners through a diversified business
model with continued profitable growth of volumes and market shares
in selected segments.
- Focus on building digital leadership in the industry through
the development of digitalised and tailored customer propositions
and experience. Movestic will also continue the journey to digital
and automated processes to further improve efficiency and
control.
- Remain focused on customer loyalty and providing attractive
offerings to both retain customers and reach more volumes on the
transfer market.
- Provide a predictable and sustainable dividend to Chesnara.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
Economic Value
GBPm 2018 2019 2020 2021 2022
====================== ====== ====== ====== ====== ======
Reported value 208.0 247.7 220.0 239.4 199.3
Cumulative dividends 2.7 8.7 14.0 17.0
---------------------- ------ ------ ------ ------ ------
Total 208.0 250.4 228.7 253.3 216.3
---------------------- ------ ------ ------ ------ ------
CUSTOMER OUTCOMES
BACKGROUND INFORMATION
Movestic provides personalised long-term savings, insurance
policies and occupational pensions for individuals and business
owners. We believe that recurring independent financial advice
increases the likelihood of a solid and well-planned financial
status, hence we are offering our products and services through
advisors and licenced brokers.
INITIATIVES AND PROGRESS IN 2022
- A third party survey completed during 2022 demonstrated the
importance of occupational pension as the most important benefit
when choosing a new employer, hence an important tool for employers
to stay attractive.
- A new concept "Movestic Frihet", which includes personal
advice on savings and insurance for customers approaching
retirement, was launched during the year with positive response
from the market.
- A new partnership with Lexly was also entered into, which
gives Movestic customers access to online legal advisory
services.
- A new concept for onboarding of individuals within the direct
market segment was launched during the first half year.
- The processing of policy transfers was further digitalised
during the year, both from the perspective of brokers and
individual customers.
- Launch of an opportunity for both existing and new individual
customers to engage in new savings by subscribing to an endowment
policy on the Movestic website.
FUTURE PRIORITIES
- Continued development of new digital self-service solutions
and tools to support the brokers' value enhancing customer
proposition, and to facilitate smooth administrative processes
making Movestic a partner that is easy to do business with.
- Further strengthen the relationship with brokers through
increased presence, both physical and digital.
- Seek to capitalise on the new rules that came into effect in
July 2022 that enhances our ability to transfer policies onto our
platform where it is in the interest of customers to do so.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
Broker assessment rating (out of 5)
2018 2019 2020 2021 2022
======== ===== ===== ===== ===== =====
Rating 3.8 3.5 3.3 3.6 3.8
POLICYHOLDER AVERAGE INVESTMENT RETURN:
-14.6%
The total average fund performance needs to be assessed in light
of the reduction in value of wider equity markets, especially the
main Swedish OMX index that fell by 25%. Against this backdrop, the
performance is seen as a positive outcome. This is supported by the
fact S derberg and Partners, a major Swedish distributer, cited
improved fund payout rates as a key factor in selecting Movestic as
'Insurance Company of the Year'.
GOVERNANCE
BACKGROUND INFORMATION
Movestic operates to exacting regulatory standards and adopts a
robust approach to risk management.
Maintaining strong governance is a critical platform to
delivering the various value-enhancing initiatives planned by the
division.
INITIATIVES AND PROGRESS IN 2022
- The IFRS 17 programme has continued during the year and
Movestic remains on track with its implementation.
- Sustainability has remained a focus area. Efforts have been
made to integrate sustainability risk in various internal processes
in order to be compliant with changes in the Solvency II delegated
regulation which entered into force in August 2022. Movestic has
also been playing a strong role in the group's wider sustainability
programme.
- Further implementation on the EU sustainability regulation
(the SFDR and the EU Taxonomy) was carried out during the year,
including integrating sustainability as a parameter in the advisory
process.
- During the year, a new Swedish NED, Marita Odélius Engström,
joined the Movestic board and A&RC, with Karin Bergstein, a plc
NED, also joining the Movestic board.
FUTURE PRIORITIES
- Deliver the remaining aspects of the division's IFRS 17 programme.
- Continue implementation of sustainability regulations.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
SOLVENCY RATIO: 162%
Solvency remains strong post a foreseeable dividend of
GBP12m
GBPm Solvency
Ratio
===================== ======= =========
31 Dec 2021 surplus 74.1 148%
Surplus generation 4.4
31 Dec 2022 surplus
(pre-dividend) 78.5 173%
2022 dividend (12.0)
======================== ======= =========
31 Dec 2022 surplus 66.5 162%
======================== ======= =========
ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS
BACKGROUND INFORMATION
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
attractive dividend. Movestic has a clear sales focus and targets a
market share of 6% -10% of the advised occupational pension market.
This focus ensures we are able to adopt a profitable pricing
strategy.
INITIATIVES AND PROGRESS IN 2022
- Sales volumes developed positively in 2022 and are 14% above
2021 for the unit-linked segment. The custodian sales volumes were
on par with the previous year despite the unfavourable financial
market conditions. Sales volumes in early 2023 also appear
positive.
- The division delivered new business profit of GBP3.4m (2021:
GBP4.2m). The prior year included higher pension increments profit,
largely due to salary and bonus processes being postponed in 2020
to 2021, which is not the case in 2022.
- Movestic will continue to develop its offering to increase
competitiveness and build customer loyalty. A special focus was
also put on new volumes that became available on the Swedish
transfer market from the second half of 2022.
- The intense competition in the unit-linked market continues,
resulting in Movestic's market share of new business currently
being below the long-term target. Movestic saw some positive sales
development in the broker channel during the year. In the custodian
market, Movestic is well within the target range for custodian
market share achieving 9.5% on a rolling 12 month basis.
FUTURE PRIORITIES
- Launch new risk product offerings in the broker channel,
including a new technical solution for administration.
- Strengthen distribution capacity within the direct business
area, as a complement to the broker channel and partner distributed
custodian business.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
Occupational pension market share %
% 2018 2019 2020 2021 2022
============== ===== ===== ===== ===== =====
Market share 6.6 7.0 4.7 3.6 4.1
New business profit
GBPm 2018 2019 2020 2021 2021
===================== ===== ===== ===== ===== =====
New business profit 10.6 6.6 1.5 4.1 3.4
BUSINESS REVIEW | NETHERLANDS
Our Dutch businesses aim to deliver growth and earnings through
our closed book business Waard, which seeks to acquire and
integrate portfolios and our open book business Scildon, which
seeks to write profitable term, investments and savings
business.
MAXIMISE VALUE FROM EXISTING BUSINESS
CAPITAL AND VALUE MANAGEMENT
BACKGROUND INFORMATION
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 differ:
- Waard is in run-off and has the benefit that the capital
requirements reduce in-line with the attrition of the book.
- 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.
INITIATIVES AND PROGRESS IN 2022
- Waard completed the acquisition of Robein Leven in April 2022
with the integration largely complete by the end of the year.
- Waard also entered into an agreement to acquire the insurance
portfolio of Conservatrix, a specialist provider of life insurance
products in the Netherlands that was declared bankrupt on 8
December 2020. The transaction completed on 1 January 2023 adding
70,000 policies and GBP0.4bn of assets under management. These
acquisitions further strengthen Waard's position as an acquirer of
business and portfolios in the Netherlands.
- Despite market pressures during 2022, both businesses continue
to have strong solvency positions, inclusive of the use of the
volatility adjustment: Scildon at 188% at 31 December 2022; and
Waard at 591%.
- Scildon launched an IT system improvement project for
individual products that is expected to run until 2024 and generate
cost efficiencies.
FUTURE PRIORITIES
- Integrate the Conservatrix business and continue to support
Chesnara in identifying and delivering Dutch acquisitions.
- Effective management of the closed book run-off in Waard to
enable ongoing divided payments to Chesnara.
- Continue to progress the ongoing IT projects to generate capital efficiencies.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
Economic Value - The Netherlands
GBPm 2018 2019 2020 2021 2022
====================== ====== ====== ====== ====== ======
EcV 221.1 229.7 216.0 224.6 223.4
Cumulative dividends 8.3 13.4 13.4 18.7
====================== ====== ====== ====== ====== ======
Total 221.1 237.9 229.4 238.0 242.1
====================== ====== ====== ====== ====== ======
Note: The 2022 closing value includes the additional EcV in
Waard relating to the capital injection from Chesnara plc in
respect of the Conservatrix acquisition. There is a corresponding
value outflows of GBP21.5m at the parent company.
CUSTOMER OUTCOMES
BACKGROUND INFORMATION
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 2022
- Scildon's focus has been on providing flexible solutions and
offerings to our clients, including sustainable options, and
continuing to meet the needs of our customers during the impacts of
the war in Ukraine and the cost of living crisis.
- Work has continued on the Scildon pension portal and work also
started to improve the existing system that services all other
products providing improved functionality for customers.
- Waard has provided certainty to the policyholders and staff of
both Robein Leven and Conservatrix through its acquisition
activity.
FUTURE PRIORITIES
- Regular engagement with customers to improve service quality
and to enhance and develop existing processes, infrastructure and
customer experiences.
- Continue to progress the IT development programme in Scildon
to enhance functionality for customers.
- Maintain stability to customers of Conservatrix during the integration process.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
Scildon client satisfaction rating (out of 10)
2018 2019 2020 2021 2022
======== ===== ===== ===== ===== =====
Rating 7.6 7.7 7.8 8.1 8.3
(Source MWM(2) market research agency, Netherlands)
GOVERNANCE
BACKGROUND INFORMATION
Waard 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 2022
- The IFRS 17 and IFRS 9 work has continued to progress, with
significant strides being made during the year. Work has continued
with our auditors on the technical decisions and the operational
processes underpinning the implementation. Both businesses remain
on track to deliver IFRS 17 reporting for half year 2023.
- Further implementation on the EU sustainability regulation
(the SFDR and the EU Taxonomy) was carried out during the year.
- Waard has implemented a new actuarial tool during the year to
strengthen its systems and controls.
- The 2022 results have been audited by the newly appointed
local auditor, EY, following a tender process for both Waard and
Scildon during 2021.
FUTURE PRIORITIES
- Finalising the preparation for IFRS 17 and IFRS 9 financial
reporting, which are live as of 1 January 2023.
- Continue implementation of sustainability regulations.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
SOLVENCY RATIO: SCILDON 188%; WAARD 591%
Solvency is robust in both businesses, with post-dividend
solvency ratios (inclusive of the volatility adjustment) of 188%
and 591% for Scildon and Waard respectively. Note, the increase in
Waard solvency includes the benefit of the GBP21.5m capital
injection from group in respect of the Conservatrix acquisition,
completed 1 January 2023.
S cildon
GBPm Solvency
Ratio
===================== ======= =========
31 Dec 2021 surplus 74.0 192%
Surplus generation (11.9)
31 Dec 2022 surplus 62.1 188%
======================== ======= =========
Waard
GBPm Solvency
Ratio
==================================== ====== =========
31 Dec 2021 surplus 35.2 399%
Surplus generation 36.3
31 Dec 2022 surplus (pre-dividend) 71.5 630%
2022 dividend (5.3)
======================================= ====== =========
31 Dec 2022 surplus 66.2 591%
======================================= ====== =========
ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS
BACKGROUND INFORMATION
Scildon brings a "New business" dimension to the Dutch division.
Scildon sell protection, individual savings and group pensions
contracts via a broker-led distribution model. 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 2022
- Despite significant market turmoil over the course of 2022,
Scildon continue to generate commercial new business profits, with
GBP6.1m earned in the year. The overall volume of business
increased by c3% versus 2021 against a term market that materially
shrank during the year.
- Underpinning this, Scildon APE and policy count continue to
increase, now with more than 230,000 policies. The market share for
the Scildon term lifestyle product is 18.2% (YTD to December
2022).
- Scildon were awarded a 5 star rating for its lifestyle product
by independent trade body, Moneyview.
FUTURE PRIORITIES
- Continue to deliver product innovation and cost management actions.
- Consider alternative routes to market that do not compromise
our existing broker relationships, such as further product white
labelling.
KPIs ( all comparatives have been presented using 2022 exchange
rates)
Scildon - term assurance market share %
% 2018 2019 2020 2021 2022
============== ===== ===== ===== ===== =====
Market share 7.6 11.6 14.2 16.1 18.2
Scildon - new business profit
GBPm 2018 2019 2020 2021 2022
===================== ===== ===== ===== ===== =====
New business profit 4.6 7.5 8.4 5.2 6.1
BUSINESS REVIEW | acquire life and pension businesses
During 2022 we completed the acquisitions of Sanlam Life &
Pensions (UK) Limited (now renamed CASLP) and Robein Leven and
announced the purchase of the insurance portfolio of Conservatrix.
Well considered acquisitions create a source of value enhancement
and sustain the cash generation potential of the group.
HOW WE DELIVER OUR ACQUISITION STRATEGY
- Identify potential deals through an effective network of own
contacts and advisers and industry associates, utilising both group
and divisional management expertise as appropriate.
- We primarily focus on acquisitions in our existing
territories, although we will consider other territories should the
opportunity arise and this is supportive of our strategic
objectives.
- We assess deals by applying well established criteria which
consider the impact on cash generation and Economic Value under
best estimate and stressed scenarios.
- We work cooperatively with regulators.
- The financial benefits are viewed in the context of the impact
the deal will have on the enlarged group's risk profile.
- Transaction risk is reduced through stringent risk-based due
diligence procedures and the senior management team's acquisition
experience and positive track record.
- We fund deals with a combination of own resources, debt or
equity depending on the size and cash flows of each opportunity and
commercial considerations.
HOW WE ASSESS DEALS
Cash generation
- Collectively our future acquisitions must be suitably cash
generative to continue to support Chesnara delivering attractive
dividends.
Value enhancement
- Acquisitions are required to have a positive impact on the
Economic Value per share in the medium term under best estimate and
certain more adverse scenarios.
Customer outcomes
- Acquisitions must ensure we protect, or ideally enhance, customer interests.
Risk appetite
- Acquisitions should normally align with the group's documented
risk appetite. If a deal is deemed to sit outside our risk appetite
the financial returns must be suitably compelling.
INITIATIVES AND PROGRESS IN 2022
In July 2022, Chesnara announced the acquisition of the
insurance portfolio of Conservatrix, a specialist provider of life
insurance products in the Netherlands that was declared bankrupt on
8 December 2020. The transaction completed on 1 January 2023.
The insurance portfolio has increased Waard's number of policies
under administration by over 50%, transforming Waard into a second
material closed book consolidation business alongside Chesnara's
existing UK platform.
This is the seventh transaction undertaken in the Dutch market.
Conservatrix's savings, annuity and funeral plan products are well
aligned with Chesnara's existing life and pension liability mix in
the Netherlands, and adds approximately 70,000 additional policies
and GBP0.4bn of assets to the group.
A capital contribution of GBP35m was provided by the group
(GBP21.5m from the parent and the remaining GBP13.5m funded by
Waard) to support the solvency position of the Conservatrix
business and Conservatrix customers will benefit from becoming part
of a well capitalised group, after a significant period of
uncertainty.
Future cash generation from the acquisition under steady state
conditions is expected to be cGBP4 million per annum, supporting
Chesnara's progressive dividend strategy. Waard will become a
material contributor to the group's dividends, with expected total
annual cash generation of GBP8 million.
The Conservatrix transaction is expected to increase the group's
EcV by cGBP21m on a pro forma basis and provides further EcV
accretion potential from future real world investment returns and
the run-off of the risk margin.
In addition, we also completed two transactions during April
2022 that were originally announced in 2021: Robein Leven in the
Netherlands (announced in November 2021) and CASLP in the UK
(announced in September 2021). These acquisitions added GBP21.4m
day 1 EcV and are expected to add cGBP6m of steady state cash
generation.
Total group capital deployed in the three acquisitions of CASLP,
Robein Leven and Conservatrix totalled over GBP110m, of which
GBP85m was funded from holding company cash reserves. Including
Conservatrix this is expected to add cGBP42m of EcV to the group
and GBP10m of steady state cash generation.
ACQUISITION OUTLOOK
- We continue to see a healthy flow of acquisition activity
across European insurance including UK and the Netherlands.
- We recognise that the consolidation markets in these countries
are mature but the key drivers for owners to divest portfolios
continue to remain relevant and create a strong pipeline. These
include better uses of capital (e.g. return to investors or
supporting other business lines), operational challenges (e.g. end
of life systems), management distraction, regulatory challenges,
business change (e.g. IFRS 17) and wider business and strategic
needs.
- Our expectation is that sales of portfolios will continue and
our strong expertise and knowledge in the markets, good regulatory
relationships and the flexibility of our operating model means that
Chesnara is very well placed to manage the additional complexity
associated with these portfolio transfers and provide beneficial
outcomes for all stakeholders. These transactions may not be
suitable for all potential consolidators, in particular those who
do not have existing licences in these territories.
- Chesnara will continue its robust acquisition assessment model
which takes into account; (a) the strategic fit; (b) the cash
generation capability; (c) the medium term impact on EcV per share;
and (d) the risks within the target. We will also continue to
assess the long-term commercial value of acquisitions as part of
our objective to maximise the value from in-force business.
- The GBP200m Tier 2 subordinated debt issue in February 2022,
together with the existing GBP100m Revolving Credit Facility
arrangement (with an additional GBP50m accordion option), provides
funding capability on commercially attractive terms. Whilst we
deployed cGBP85m of capital in support of M&A (GBP110m
including capital from Waard), we continue to have immediately
available acquisition firepower of over GBP100m. We will continue
to explore how we can increase our funding capability further,
including consideration of partnerships.
- Our strong network of contacts including the corporate finance
adviser community, who understand the Chesnara acquisition model,
supported by our engagement activity with potential targets,
ensures that we are aware of viable opportunities in the UK and
Western Europe. With this in mind, we are confident that we are
well positioned to continue our successful acquisition track record
in the future.
CAPITAL MANAGEMENT | Solvency II
Subject to ensuring other constraints are managed, surplus
capital is a useful proxy measure for liquid resources available to
fund items 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
SOLVENCY POSITION
GBPm 31 Dec 2022 31 Dec 2021
================== ============ ============
Own funds 605 558
SCR 307 367
Surplus 298 191
Solvency ratio % 197% 152%
SOLVENCY SURPLUS
GBPm
======================================= =======
Group solvency surplus at 31 Dec 2021 190.7
CA 37.4
SLP (5.1)
Movestic 7.5
Waard 3.6
Scildon (11.4)
Chesnara / consol adj (10.6)
Tier 2 153.3
Acquisition (37.4)
Exchange rates 4.7
Dividends (34.3)
======================================= =======
Group solvency surplus at 31 Dec 2022 298.4
======================================= =======
Surplus:
The group has GBP268m of surplus over and above the group's
internal capital management policy requirements, compared to
GBP154m at the end of 2021. The group solvency ratio has increased
from 152% to 197%.
Dividend:
The closing solvency position is stated after deducting the
GBP22.8m proposed dividend (31 December 2021: GBP22.1m) and
reflects the payment of an interim dividend of GBP12.2m.
Own Funds:
Own Funds have risen by GBP82m (pre-dividends). The most
material driver is the introduction of GBP200m Tier 2 debt of which
GBP153m is recognised as eligible Own Funds. This is offset by a
reduction in divisional Own Funds, largely due to the fall in
equity markets.
SCR:
The SCR has fallen by GBP60m, owing mainly to a material falls
in equity risk (caused by the fall in equity markets) and in
currency risk (following the introduction of the group currency
hedge).
What is solvency and capital surplus?
- Solvency surplus is a measure of how much the value of the
company (Own Funds) 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 newly
adopted 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
WHAT ARE OWN FUNDS?
A valuation which reflects the net assets of the company and
includes a value for future profits expected to arise from in-force
policies.
The Own Fund valuation is deemed to represent a commercially
meaningful figure with the exception of:
- Contract boundaries: Solvency II rules do not allow for the
recognition of future cash flows on certain policies despite a high
probability of receipt.
- Risk margin: The Solvency II rules require a "risk margin"
liability which is deemed to be above the realistic cost.
- Restricted with profit surpluses: Surpluses in the group's
with-profit funds are not recognised in Solvency II Own Funds
despite their commercial value.
We define Economic Value (EcV) as being the Own Funds adjusted
for the items above. As such our Own Funds and EcV have many common
characteristics and tend to be impacted by the same factors.
Transitional measures, introduced as part of the long-term
guarantee package when Solvency II was introduced, are available to
temporarily increase Own Funds. Chesnara does not take advantage of
such measures, however we do apply the volatility adjustment within
our Dutch and UK divisions.
How do Own Funds change?
Own Funds (and Economic Value) are sensitive to economic
conditions. In general, positive equity markets and increasing
yields lead to OF growth and vice versa. Other factors that improve
OF include writing profitable new business, reducing the expense
base and improvements to lapse rates.
WHAT IS CAPITAL REQUIREMENT?
The solvency capital requirement can be calculated using a
"standard formula" or "internal model". Chesnara adopts the
"standard formula".
There are three levels of capital requirement:
Minimum dividend paying requirement/risk appetite
requirement
The board sets a minimum solvency level above the SCR which
means a more prudent level is applied when making dividend
decisions.
Solvency Capital Requirement
Amount of capital required to withstand a 1 in 200 event. The
SCR acts as an intervention point for supervisory action including
cancellation or the deferral of distributions to investors.
Minimum Capital Requirement
The MCR is between 45% and 25% of the SCR. At this point
Chesnara would need to submit a recovery plan which if not
effective within three months may result in authorisation being
withdrawn.
How does the SCR change?
Given the largest component of Chesnara's SCR is market risk,
changes in investment mix or changes in the overall value of our
assets has the greatest impact on the SCR. For example, equity
assets require more capital than low risk bonds. Also, positive
investment growth in general creates an increase in SCR. Book
run-off will tend to reduce SCR, but this will be partially offset
by an increase as a result of new business.
A review of the UK's application of Solvency II is currently
underway, led by HM Treasury. In April 2022, the PRA published a
statement indicating its agreement with the view that the risk
margin and matching adjustment can be reformed so as to reduce
overall capital levels for life insurers by around 10% to 15% in
current economic conditions. In November 2022, the UK government
announced plans to legislate the reforms to Solvency II. We
continue to monitor this closely and future financial statements
will report on the UK specific application of Solvency II as it
diverges from the EU's regime. We see no specific reason to expect
the PRA to use their enhanced freedoms take a route that
systemically makes it harder to do business in the UK.
We are well capitalised at both a group and subsidiary level. We
have applied the volatility adjustment in Scildon, Waard Leven, CA
and CASLP, but have not used any other elements of the long-term
guarantee package within the group. The Volatility Adjustment is an
optional measure that can be used in solvency calculations to
reduce volatility arising from large movements in bond spreads.
UK - CA
GBPm 2022 2021
=========================== ===== =====
Own funds (post dividend) 87 131
SCR 65 100
Buffer 13 20
Surplus 9 11
Solvency ratio % 134% 130%
Surplus: GBP9m above board's capital management policy.
Dividends: Solvency position stated after GBP46m foreseeable
dividend (2021: GBP28m).
Own Funds: Risen by GBP2m (pre-dividend) due to an extraction of
restricted with-profit capital, reduced expense assumptions, offset
by the fall in equity markets.
SCR: Decreased by GBP35m due to sharp fall in equity risk and
moderate fall in spread and expense risks.
UK - CASLP
GBPm 2022 Mar 2022
=========================== ===== =========
Own funds (post dividend) 49 59
SCR 36 43
Buffer 7 9
Surplus 6 7
Solvency ratio % 139% 137%
Surplus: GBP4m above board's capital management policy.
Dividends: Solvency position stated after GBP10m foreseeable dividend.
Own Funds: Since acquisition, Own Funds fell by GBP10m, largely
due to an increase in expense assumptions and fall in equity
markets.
SCR: Fallen by GBP7m in the post-acquisition period, due to
reductions in equity, spread, counterparty, longevity and lapse
risks.
SWEDEN
GBPm 2022 2021
=========================== ===== =====
Own funds (post dividend) 173 229
SCR 107 155
Buffer 21 31
Surplus 45 43
Solvency ratio % 162% 148%
Surplus: GBP45m above board's capital management policy.
Dividends: Solvency position stated after GBP12m foreseeable dividend (2021: GBP3m).
Own Funds: Decreased by GBP44m (pre-dividend) largely due to
fall in equity markets, although slightly offset by the rise in
yields.
SCR: Decreased by GBP48m due to sharp fall in equity risk and
moderate falls in currency, lapse and expense risks, due to the
market movements.
NETHERLANDS - WAARD
GBPm 2022 2021
=========================== ===== =====
Own funds (post dividend) 80 47
SCR 14 12
Buffer 5 4
Surplus 61 31
Solvency ratio % 591% 399%
Surplus: GBP61m above board's capital management policy.
Dividends: Solvency position stated after GBP5m foreseeable dividend (2021: GBP6m).
Own Funds: Increased by GBP33m, due to receipt of GBP22m from
Chesnara and GBP5m from Scildon to support acquisition activity.
There is also a gain on revaluation of Robein Leven.
SCR: Risen by GBP1m, mainly due to acquisition of Robein Leven,
which has mostly impacted equity, expense and concentration
risk.
NETHERLANDS - SCILDON
GBPm 2022 2021
=========================== ===== =====
Own funds (post dividend) 132 155
SCR 70 81
Buffer 53 61
Surplus 9 13
Solvency ratio % 188% 192%
Surplus: GBP9m above board's capital management policy.
Dividends: No foreseeable dividend is expected (2021: GBP5m).
Own Funds: Decreased by GBP23m due to the rise in interest rates
and adverse mortality and lapse experience.
SCR: Decreased by GBP11m, largely due to falls in equity and
lapse risk, due to the fall in equities and rising yields,
respectively. Other insurance risks have fallen moderately.
The tables above present the divisional view of the solvency
position which may differ to the position of the individual
insurance company(ies) within the consolidated numbers. Note that
year end 2021 figures have been restated using 31 December 2022
exchange rates in order to aid comparison at a divisional
level.
CAPITAL MANAGEMENT | Sensitivities
The group's solvency position can be affected by a number of
factors over time. As a consequence, the group's EcV and cash
generation, both of which are derived from the group's solvency
calculations, are also sensitive to these factors.
The table below provides some insight into the immediate impact
of certain sensitivities that the group is exposed to, covering
solvency surplus and Economic Value. As can be seen, EcV tends to
take the 'full force' of adverse conditions whereas solvency is
often protected in the short term and, to a certain extent, the
longer term due to compensating impacts on required capital.
The Tier 2 debt raise in February 2022 has had a material impact
on the reported sensitivities because, as capital requirements
move, the amount of the Tier 2 debt able to be recognised in the
Own Funds also moves. For example, where FX movements reduce the
SCR, we now also experience a corresponding reduction in base Own
Funds and also Own Funds relating to Tier 2 capital. The total
surplus is now more exposed to downside risks but, importantly, the
Tier 2 itself has created more than sufficient additional headroom
to accommodate this. The group also implemented a currency hedge in
December 2022 which materially reduces the impact of currency
movements on surplus.
Whilst cash generation has not been shown in the table below,
the impact of these sensitivities on the group's solvency surplus
has a direct read across to the immediate impact on cash
generation. For illustrative purposes, several sensitivities are
reported solely showing the downside exposure. For all of these,
there is a corresponding upside sensitivity.
Solvency ratio Solvency surplus EcV
Impact % Impact range GBPm Impact range GBPm
============================ ========================== ============================= =============================
20% sterling 11.8% (31.9) to (21.9)
appreciation (68.6) to (58.6)
20% sterling (7.8)% 35.0 to 45.0
depreciation 78.6 to 88.6
25% equity fall 0.9% (56.7) to (26.7) (81.3) to (61.3)
25% equity rise (10.2)% 26.6 to 56.6 72.8 to 92.8
10% equity fall 0.4% (22.9) to (12.9) (33.6) to (23.6)
10% equity rise (3.9)% 10.1 to 20.1 25.5 to 35.5
1% interest rate 3.2% (5.8) to 4.2
rise (15.7) to (5.7)
1% interest rate (4.2)% (12.7) to 7.3
fall 2.9 to 17.9
50bps credit (4.2)% (20.9) to (10.9)
spread rise (20.1) to (15.1)
25bps swap rate (4.7)% (16.2) to (6.2)
fall (16.8) to (6.8)
10% mass lapse (2.0)% (31.5) to (21.5) (46.2) to (36.2)
1% inflation (7.4)% (26.8) to (16.8) (26.5) to (16.5)
10% mortality (5.2)% (20.7) to (15.7) (21.9) to (16.9)
increase
INSIGHT*
Currency sensitivities: A sterling appreciation reduces the
value of surplus in our overseas divisions and any overseas
investments in our UK entities, however this is mitigated by the
group currency hedge. so the overall impact on solvency surplus is
small. The impact of a sterling depreciation is not symmetrical
because the currency hedge only removes a limited amount of upside
potential.
Equity sensitivities: The equity rise sensitivities cause both
Own Funds and SCR to rise, as the value of the funds exposed to
risk is higher. The increase in SCR can be larger than Own Funds,
resulting in an immediate reduction in surplus, depending on the
starting point of the symmetric adjustment. The converse applies to
an equity fall sensitivity, although the impacts are not fully
symmetrical due to management actions and tax. The Tier 2 debt
value also changes materially in these sensitivities. The change in
symmetric adjustment can have a significant impact (25% equity
fall: -GBP12m to the SCR, 25% equity rise: +GBP39m to SCR). The
EcV impacts are more intuitive as they are more directly linked
to Own Funds impact. CA and Movestic contribute the most due to
their large amounts of unit-linked business, much of which is
invested in equities.
Interest rate sensitivities: An interest rate rise currently has
a more adverse effect on group economic value than an interest rate
fall. This is a change in exposure following the rise in interest
rates over 2022. However, group solvency is still less exposed to
rising interest rates as a rise in rates causes capital
requirements to fall, increasing solvency.
50bps credit spread rise: A credit spread rise has an adverse
impact on surplus and future cash generation, particularly in
Scildon due to corporate and non-local government bond holdings
that form part of the asset portfolios backing non-linked insurance
liabilities. The impact on the other divisions is less severe.
25bps swap rate fall: This sensitivity measures the impact of a
fall in the swap discount curve with no change in the value of
assets. The result is that liability values increase in isolation.
The most material impacts are on CA and Scildon due to the size of
the non-linked book.
10% mass lapse: In this sensitivity Own Funds fall as there are
fewer policies on the books, thus less potential for future
profits. This is largely offset by a fall in SCR, although the
amount of eligible Tier 2 capital also falls. The division most
affected is Movestic as it has the largest concentration of
unit-linked business.
1% inflation rise: This sensitivity measures a permanent
increase in inflation in every future year over and above our
modelled assumptions. Such a rise in inflation increases the amount
of expected future expenses. This is capitalised into the balance
sheet and hits the solvency position immediately.
10% mortality increase: This sensitivity has an adverse impact
on surplus and cash generation, particularly for Scildon due to
their term products.
*BASIS OF PREPARATION ON REPORTING:
Although it is not a precise exercise, the general aim is that
the sensitivities modelled are deemed to be broadly similar (with
the exception that the 10% equity movements are naturally more
likely to arise) in terms of likelihood. Whilst sensitivities
provide a useful guide, in practice, how our results react to
changing conditions is complex and the exact level of impact can
vary due to the interactions of events and starting position.
FINANCIAL REVIEW
The key performance indicators are a reflection of how the
business has performed in delivering its three strategic
objectives.
Summary of each KPI:
CASH GENERATION
GROUP CASH GENERATION GBP82.7 M (2021: GBP20.3 M )
DIVISIONAL CASH GENERATION GBP61.9 M (2021: GBP31.1 M )
excluding the day 1 impact of acquisitions
What is it?
Cash generation is calculated as being the movement in Solvency
II Own Funds over the internally required capital, excluding the
impact of tier 2 debt. The internally required capital is
determined with reference to the group's capital management
policies, which have Solvency II rules at their heart. Cash
generation is used by the group as a measure of assessing how much
dividend potential has been generated, subject to ensuring other
constraints are managed.
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
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. Whilst cash generation is a function of
the regulatory surplus, as opposed to the IFRS surplus, it is
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 .
GBPm 2022
============================ ======
UK 40.8
Sweden 16.1
Netherlands - Waard 8.4
Netherlands - Scildon (3.4)
============================ ======
Divisional cash generation 61.9
Other group activities 20.8
Group cash generation 82.7
============================ ======
- Strong total cash generation of GBP82.7m is the combined
impact of good divisional performance and a positive contribution
at the central plc level.
- The divisional result of GBP61.9m is dominated by the positive
impact of investment market driven reductions in capital
requirements including cGBP28m from the symmetric adjustment. The
good surplus emergence at a divisional level has enabled total
expected divisional dividends of GBP74m.
- The central contribution of GBP20.8m benefits from the impact
of a FX currency hedge taken out toward the end of the year which
reduced our currency capital requirement (including buffer) by
GBP36m. The balancing central loss of cGBP15m relates to
consolidation adjustments, central develop expenditure and central
recurring overheads.
IFRS
PRE-TAX LOSS: GBP146.9 M (2021: GBP28.8 M PROFIT )
TOTAL COMPREHENSIVE LOSS: GBP91.9 M (2021: GBP3.8 M PROFIT )
What is it?
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?
The IFRS results form the core of reporting and hence retain
prominence as a key financial performance metric. There is however
a general acceptance that the IFRS results in isolation do not
recognise the wider financial performance of a typical life and
pensions business, hence the use of supplementary Alternative
Performance Measures to enhance understanding of financial
performance.
Risks
The IFRS profit/(loss) can be affected by a number of our
principal risks and uncertainties. Volatility in equity markets and
bond yields can result in volatility in the IFRS pre-tax
profit/(loss), and foreign currency fluctuations can affect total
comprehensive income. The IFRS results of Scildon can be relatively
volatile from interest rate and spread changes, in part, due to the
different approach used by the division for valuing assets and
liabilities, as permitted under IFRS 4. The dynamics of our IFRS
results will change once IFRS 17 comes in force, which will be
effective from 1 January 2023
GBPm 2022
================================= ========
Operating profit (10.5)
Economic profit (151.8)
Profit on portfolio acquisition 15.4
--------------------------------- --------
Profit before tax (146.9)
Tax 48.6
Forex impact 5.8
Other 0.7
Total comprehensive income (91.9)
- The loss in the year is dominated by the Scildon result, which
reported a pre-tax loss of GBP103.7m. This has arisen as a result
of an accounting mismatch between assets and liabilities, with
yield increases in the year being the key factor causing this.
- The loss on economic activities was GBP151.8m for the year,
with all adversely impacted by factors such as rising yields,
coupled with falling equity markets.
- The result includes profit on acquisitions of GBP15.4m,
comprising gains arising on the CASLP and Robein Leven deals in the
UK and Netherlands.
- Total comprehensive income includes a positive movement in tax
liability (owing to the operating losses) and a small foreign
exchange gain on translation of the Dutch and Swedish divisional
results.
ECONOMIC VALUE (EcV)
GBP511.7 M ( 2021: GBP624.2 M )
What is it?
Economic value (EcV) was introduced following the introduction
of Solvency II at the start of 2016, with EcV being derived from
Solvency II Own Funds. EcV reflects a market-consistent assessment
of the value of the existing insurance business, plus the adjusted
net asset value of the non-insurance businesses 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 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 Swedish and
Dutch 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, yields on fixed interest
securities and bond spreads. In addition, the EcV position of the
group can be materially affected by exchange rate fluctuations. For
example, a 20.0% weakening of the Swedish krona and euro against
sterling would reduce the EcV of the group within a range of
GBP59m-GBP69m, based on the composition of the group's EcV at 31
December 2022.
GBPm
================== ========
2021 EcV 624.2
EcV earnings (106.1)
Forex 6.5
Acquisitions 21.4
------------------ --------
Pre-dividend EcV 546.0
Dividends (34.3)
================== ========
2022 EcV 511.7
================== ========
- The 12.5% fall in Economic Value pre-dividend is broadly in
line with expectations given the backdrop of widening credit
spreads and sharp equity value reductions, particularly in Sweden
where the primary OMX index fell by 25%. Equity impacts and spread
impacts of cGBP65m and cGBP20m respectively account for the vast
majority of the fall.
- Despite the overall reduction, new business profits and
acquisitions did manage to cover 88% of the total dividend payment.
This gives confidence that under more beneficial economic
conditions the prospect of post dividend Economic Value growth is a
realistic expectation.
ECV EARNINGS
GBP(106.1) M 2021: GBP57.8 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; and
- The impact of acquisitions.
Why is it important?
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 and sensitivities analysis. 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
business.
GBPm 2022
========================== ========
Total operating earnings (26.8)
Economic earnings (109.1)
Other 29.9
========================== ========
Total EcV earnings (106.1)
========================== ========
- The majority of the earnings loss is due to economic
conditions. Equity market falls have materially impacted unit
linked policyholder funds and future fee related positive cashflows
are rebased from the closing fund value. There have also been
notable losses resulting from credit spreads widening and more
modest yield related losses.
- Whilst operating losses are a real source of value
deterioration they do include items more positive in nature. For
example, overheads and one-off costs associated with the M&A
strategy are within this total as are certain non-recurring costs
associated with the Tier 2 raise and IFRS 17. The loss includes a
much reduced impact from Movestic outward transfers which is a
significant positive development with closing transfer levels being
back in line with our long term assumption. We have strengthened
mortality and expense assumption in Scildon
- The "Other" category includes reduction in risk margin,
positive tax impacts and the cost of the Tier 2 coupon
payments.
CASH GENERATION
GROUP CASH GENERATION
GBP82.7 M (2021: GBP20.3 M )
DIVISIONAL CASH GENERATION
GBP61.9 M (2021: GBP31.1 M )
With positive contributions in each territory the divisional
cash generation exceeds GBP60m and, looking through the impact of
acquisitions, total cash generation for 2022 was GBP82.7m . Cash is
generated from increases in the group's solvency surplus, which is
represented by the excess of own funds held over management's
internal capital needs. These are based on regulatory capital
requirements, with the inclusion of additional 'management
buffers'.
Definition: Defining cash generation in a Life and Pensions
business is complex and there is no reporting framework defined by
the regulators. This can lead to inconsistency across the sector.
We define cash generation as being the movement in Solvency II
surplus own funds over and above the group's internally required
capital, which is based on Solvency II rules.
Implications of our cash definition:
Positives
- Creates a strong and transparent alignment to a regulated framework.
- Positive cash results can be approximated to increased dividend potential.
- Cash is a factor of both value and capital and hence
management are focused on capital efficiency in addition to value
growth and indeed the interplay between the two.
Challenges and limitations
- In certain circumstances the cash reported may not be
immediately distributable by a division to group or from group to
shareholders.
- Brings the technical complexities of the SII framework into
the cash results e.g. symmetric adjustment, with-profit fund
restrictions, model changes etc, and hence the headline results do
not always reflect the underlying commercial or operational
performance.
2022 GBPm 2021 GBPm
Movement Movement in Forex Cash generated Cash generated
in management's impact / (utilised) / (utilised)
Own Funds capital requirement
============================= ========== ==================== ======== ============== ==============
UK (10.0) 50.8 - 40.8 27.4
Sweden (40.8) 57.9 (1.0) 16.1 (14.4)
Netherlands - Waard Group (2.0) 7.6 2.9 8.4 2.9
Netherlands - Scildon (21.4) 17.4 0.5 (3.4) 15.2
============================= ========== ==================== ======== ============== ==============
Divisional cash generation
/ (utilisation) (74.2) 133.7 2.4 61.9 31.1
Other group activities (15.0) 33.2 2.6 20.8 (10.8)
============================= ========== ==================== ======== ============== ==============
Group cash generation
/ (utilisation) (89.2) 166.9 5.0 82.7 20.3
============================= ========== ==================== ======== ============== ==============
GROUP
- Other group activities includes consolidation adjustments as
well as central costs and central SCR movements.
- Central costs of approximately GBP15m include a large
proportion of exceptional non-recurring expenditure and Tier 2
interest costs.
- Central SCR movements have minimal real cash flow
implications, but they do have meaningful solvency impacts. The
movement in the year largely relates to a GBP36.5m reduction as a
result of a currency hedge taken out in the final quarter of
2022.
UK
- The UK again delivered strong cash generation, driven by
capital requirement reductions (and symmetric adjustment impact)
following a significant decline in equity values and increase in
yields, which offset the negative impact of investment conditions
on Own Funds. Economic conditions and their associated impact,
primarily markets risks, drove the positive movement in capital
requirements. Conversely, Own Funds suffered the effect of a
corresponding reduction in asset values. Own Funds also include a
GBP7.8m gain as a result of a capital transfer from the with-profit
funds.
SWEDEN
- Movestic has reported a solid cash result for 2022, with a
substantial reduction in capital requirements offsetting a large
fall in the value of Own Funds. The division is particularly
sensitive to investment market movements and economic conditions
during the period underpin the cash result. Own Funds bear the
impact of economic conditions and negative investment returns
(particularly equity driven).
NETHERLANDS - WAARD
- Waard delivered improved cash generation, following a
reduction in capital requirements that exceeded a fall in Own
Funds. Economic losses, largely due to the negative effect of
rising interest rates on yields and bond values and mortgage
portfolio, were the main component of the value reduction. This
also had a positive impact on capital requirements, driving a
material decrease in market risks.
NETHERLANDS - SCILDON
- The Scildon result was dominated by economic factors that were
key to the decline in both Own Funds and required capital. Rising
interest rates, falling bond values and widening spreads had a
negative impact on Own Funds, resulting in significant economic
losses. Operational losses also contributed to the value reduction.
The reduction in SCR was driven by economic factors, particularly
market risks, as well as lapse risk with lower exposure to the cost
of guarantees. Overall, Scildon posted a loss for 2022.
CASH GENERATION - ENHANCED ANALYSIS
The format of the analysis draws out components of the cash
generation results relating to technical complexities, modelling
issues or exceptional corporate activity (e.g. acquisitions). The
results excluding such items are deemed to better reflect the
inherent commercial outcome (commercial cash generation).
COMMERCIAL CASH GENERATION
GBP46.6 M (2021: GBP53.0 M )
UK SWEDEN NETHERLANDS NETHERLANDS DIVISIONAL GROUP TOTAL
WAARD SCILDON TOTAL ADJ
===================== ====== ====== =========== =========== ========== ===== ======
Base cash generation 40.8 16.1 8.4 (3.4) 61.9 20.8 82.7
===================== ====== ====== =========== =========== ========== ===== ======
Symmetric adjustment (10.9) (17.2) - - (28.2) - (28.2)
WP restriction look
through (7.8) - - - (7.8) - (7.8)
Commercial cash
generation 22.0 (1.1) 8.4 (3.4) 25.9 20.8 46.6
===================== ====== ====== =========== =========== ========== ===== ======
The group's closed book businesses (UK and Waard) continue to be
the dominant source of commercial cash generation with a total
commercial result of cGBP30.4m which in itself represents 87%
coverage of the full year dividend. The open to new business
divisions (Movestic and Scildon) have reported modest commercial
cash losses, resulting in a total divisional result of GBP25.9m.
This result has been further enhanced by the implementation of an
FX hedge to reduce the group balance sheet exposure to FX
movements. This delivered GBP36.5m of commercial cash which in turn
contributes to a total commercial cash generation of GBP46.6m,
representing 133% coverage of the full year dividend. We have
consistently reported the existence of potential management actions
to enhance cash emergence. We deemed the time was right and the
financial case was suitably compelling to implement one of these in
the shape of an FX hedge.
UK
The UK result, which includes the post-acquisition results for
CASLP, relates to a combination of operating and economic gains.
The economic result includes the benefits from the increased yield
environment in part offset by losses from equity falls and widening
credit spreads.
The commercial cash outcome illustrates that UK remains at the
heart of the cash generation model. The acquisition of CASLP will
positively contribute to the longevity of this core source of
cash.
SWEDEN
The Swedish result, which excludes the large benefits from the
symmetric adjustment, is largely a direct consequence of the sharp
decline in equity values and a widening of credit spreads during
the period, which are partially offset by benefits from yield
increases. The underlying operating result is broadly in line with
expectation.
WAARD
The Waard commercial cash gain includes both operating and
economic profits. The operating gains are largely due to post
acquisition synergies from the Robein Leven acquisition which
completed in Q2. Economic gains have arisen as a result of FX
movements and rising yields.
SCILDON
The Scildon result includes modest benefits from the increasing
interest rates during the period. Operating losses, largely due to
strengthening operating assumptions, together with new business
strains have more than offset any economic profits.
GROUP ADJ
The central group cash generation includes a GBP36.5m gain from
a FX hedge taken out in the year . This is partially offset by
central expenses and consolidation adjustments. The central
expenses include coupon payments of the Tier 2 debt raised in the
year, central overheads and centrally incurred business development
investments e.g. M&A activity, IFRS 17, Tier 2 debt raise
process.
EcV EARNINGS
GBP(106.1) M (2021: GBP57.8 M )
The EcV earnings of the group reflect the economic conditions
over the course of the year, with negative equity returns, rising
interest rates and falling bond values, delivering economic losses
across the operating divisions.
Analysis of the EcV result in the period by earnings source:
GBPm 31 Dec 31 Dec
2022 2021
=============================== ========== =========
Expected movement in period (1.3) (1.7)
New business 8.0 2.4
Operating experience variances (20.7) (19.2)
Operating assumption changes (14.5) (13.9)
Other operating variances 1.7 (26.4)
Total operating earnings (26.8) (58.8)
Total economic earnings (109.1) 109.6
Other non-operating variances (2.6) 4.5
Risk margin movement 20.4 10.8
Tax 12.0 (8.2)
=============================== ========== =========
EcV earnings (106.1) 57.8
=============================== ========== =========
Analysis of the EcV result in the year by business segment:
GBPm 31 Dec 31 Dec
2022 2021
============================ ========== =========
UK (24.6) 28.0
Sweden (37.1) 26.1
Netherlands (29.4) 8.3
Group and group adjustments (15.0) (4.6)
============================ ========== =========
EcV earnings (106.1) 57.8
============================ ========== =========
Total economic earnings: The large economic loss of GBP109.1m
dominates the EcV result in the year. The result is in line with
our reported sensitivities and is driven by the following market
movements:
Reduction in equity indices:
- CPI (UK consumer price index) increased by 5.1% to 10.5% (year
ended 31 December 2021: increased by 4.7% to 5.4%);
- FTSE All Share index decreased by 3% (year ended 31 December 2021: increased by 15%);
- Swedish OMX all share index decreased by 25% (year ended 31
December 2021: increased by 35%); and
- The Netherlands AEX all share index decreased by 15% (year
ended 31 December 2021: increased by 23%).
Widening credit spreads:
- UK AA corporate bond yields increased to 1.04% (31 December 2021: 0.69%).
- European AA credit spreads increased to 0.29% (31 December 2021: 0.16%).
Increased yields:
- 10-year UK gilt yields have increased from 0.98% to 3.78%.
The following table illustrates the approximate relative impacts
of these market factor on the EcV economic loss:
Split of economics
Equities 67%
----
Spreads 18%
----
Yields 5%
----
Other 10%
----
The EcV results over the past two years illustrate how sensitive
the results are to economic factors. The fact that the loss in 2022
is the same as an equally large gain in 2021 demonstrates that, to
an extent, there is a lack of permanence to such market driven
value movements. Short term volatility has limited commercial
impact on the business and of more importance is the fact that
steady state, over the longer term, we expect EcV growth in the
form of real world investment returns.
Total operating earnings: Although we report an operating loss,
it is encouraging to see the marked reduction compared to 2021. The
result includes many different components including items that
represent positive investment in the future and items that are
non-recurring in nature. The most significant items in 2022
are:
- Recurring central development overheads including those
associated with the M&A strategy. Whilst the cost of this
development investment is recognised, EcV does not recognise the
potential returns we expect from it.
- Non-recurring development expenditure such as IFRS 17.
- Operating losses in Movestic mainly relating to transfers.
Over previous years, aggressive pricing from a competitor resulted
in a period of high transfer-out losses. The position has
stabilised in 2022 and transfer rates have returned to our long
terms assumed level by the end of the year. The resultant transfer
related operating loss is greatly reduced and not expected to be a
feature in 2023 based on current transfer levels.
- We have strengthened mortality and expense assumptions in
Scildon. An element of the expense related loss covers process
enhancement work for which the expected cost reduction benefits are
not yet recognised in the closing valuation.
Risk Margin: the risk margin has reduced as in force books have
run off. Increasing interest rates have also been a key driver of
risk margin reduction.
Looking at the results by division:
UK: the UK division reported a small operating loss, primarily
as a result of some expenses pressure. This was overshadowed by
economic factors, with the division reporting a combined economic
loss of GBP28.7m. The widening of bond spreads, alongside equity
market falls, resulted in material economic losses being reported,
although this was off-set somewhat by the net positive impact of
the large yield rises that were witnessed during 2022.
Sweden: Movestic recorded a large loss, with the division being
heavily impacted by external economic factors. Investment market
conditions, particularly falling equity values (the Swedish OMX
decreased 25% in 2022), resulted in negative economic returns
(GBP43.0m). Operating earnings were suppressed by a reduction in
fund rebate income and some adverse experience in transfers,
although it is pleasing to report that the latter was to a much
lesser extent than in the prior year. Modest new business profits
(on an EcV basis) of GBP1.8m were reported (20221: GBP2.9m),
reflecting difficult market conditions and margin pressures, with
lower rebate income and equity falls having a negative impact.
Netherlands: The Dutch division has reported a combined loss of
GBP29.4m in 2022, with economic losses of GBP34.3m dominating the
result. In Scildon, economic losses of GBP29.7m were primarily the
consequence of rising interest rates and widening bond spreads
adversely impacting bond and property values. As outlined earlier,
Scildon also reported an operational loss, which includes the
impact of guarantee related costs and higher mortality driven
outgoings than anticipated, alongside an element of one-off expense
assumption strengthening. Waard has reported an EcV loss of
GBP3.1m, with economic experience being the main component. The
impact of rising yields has resulted in falls in the value of our
bond and mortgage portfolio, outweighing the positive impact of
discounting the division's liabilities at a higher rate.
Group: This component includes various group-related costs and
includes: non-maintenance related costs (such as acquisition
costs); the costs of the group's IFRS 17 programme; and some
material economic-related items such as financing costs, primarily
in relation to the Tier 2 debt interest costs, and negative
investment returns.
EcV
GBP511.7 M (2021: GBP624.2 M )
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 2022 to 31 Dec 2022:
GBPm
================== ========
2021 EcV 624.2
EcV earnings (106.1)
Forex 6.5
Acquisitions 21.4
------------------ --------
Pre-dividend EcV 546.0
Dividends (34.3)
================== ========
2022 EcV 511.7
================== ========
EcV earnings: A loss of GBP106.1m has been reported in 2022.
Significant economic losses arising from the adverse economic
investment market conditions witnessed in the first half of year,
drive the result.
Dividends: Under EcV, dividends are recognised in the period in
which they are paid. Dividends of GBP34.3m were paid during the
year, being the final dividend from 2021 and the 2022 interim
dividend.
Foreign exchange: The closing EcV of the group reflects a
foreign exchange gain in the period, a consequence of the sterling
appreciation against Swedish krona being offset by depreciation
versus the euro.
EcV by segment at 31 Dec 2022:
GBPm
======================== ========
UK 209.3
Sweden 199.3
Netherlands 223.4
Other group activities (120.3)
------------------------ --------
2022 EcV 511.7
------------------------ --------
The above table shows that the EcV of the group is diversified
across its different markets.
EcV to Solvency II:
GBPm
===================== =======
2022 EcV 511.7
Risk margin (33.4)
Contract boundaries (3.8)
Tier 2 200.0
Tier 2 restrictions (46.7)
Dividends (22.8)
===================== =======
2022 SII Own Funds 605.1
===================== =======
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 waterfall 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
3.25% 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 surpluses that exist
within certain ring-fenced funds. These restrictions are reversed
for EcV valuation purposes as they are deemed to be temporary in
nature.
Dividends: The proposed final dividend of GBP22.8m is recognised
for SII regulatory reporting purposes. It is not recognised within
EcV until it is actually paid.
Tier 2: The tier 2 debt is treated as "quasi equity" for
Solvency II purposes. For EcV, consistent with IFRS, we continue to
report this is debt.
IFRS
IFRS PRE-TAX LOSS
GBP146.9 M (2021: GBP28.8 M PROFIT )
IFRS TOTAL COMPREHENSIVE INCOME
GBP(91.9) M (2021: GBP3.8 M )
The group's IFRS results reflect the differing dynamics of the
reserving methods adopted across the group under IFRS 4. We will be
applying IFRS 17 for the first time in 2023.
Analysis of IFRS result by segment:
2022 2021
GBPm GBPm
=========================================== ======== =======
UK (11.7) 35.6
Movestic 2.3 12.1
Waard Group (10.0) 0.1
Scildon (103.7) (0.5)
Chesnara (27.3) (12.6)
Consolidation adjustments (11.9) (5.8)
=========================================== ======== =======
(Loss)/profit before tax and acquisitions (162.3) 28.9
Gain/(loss) on acquisitions 15.4 (0.1)
=========================================== ======== =======
(Loss)/profit before tax (146.9) 28.8
Tax 48.6 (1.5)
=========================================== ======== =======
(Loss)/profit after tax (98.3) 27.3
Foreign exchange 5.8 (23.9)
Other comprehensive income 0.6 0.4
=========================================== ======== =======
Total comprehensive income (91.9) 3.8
=========================================== ======== =======
Analysis of IFRS result between operating and economic
factors:
Operating (loss)/profit (10.5) 40.7
Economic loss (151.8) (11.8)
============================================= ======== =======
(Loss)/profit before tax and acquisitions (162.3) 28.9
Post completion gain/(loss) on acquisitions 15.4 (0.1)
============================================= ======== =======
(Loss)/profit before tax (146.9) 28.8
============================================= ======== =======
Tax 48.6 (1.5)
============================================= ======== =======
(Loss)/profit after tax (98.3) 27.3
Foreign exchange 5.8 (23.9)
Other comprehensive income 0.6 0.4
============================================= ======== =======
Total comprehensive income (91.9) 3.8
============================================= ======== =======
The group has reported a large pre-tax IFRS loss for the year,
which is dominated by the result reported by Scildon. Scildon's
IFRS results are particularly sensitive to yield changes, which
increased significantly over 2022, largely as a result of the
accounting mismatch between its insurance contract liabilities and
the assets that back them. Scildon's insurance contract liabilities
are largely valued using the observed yield curve at the point of
sale of the underlying contract. As yields move over time, the
liability value does not change, but the fair values of the assets
that back the liabilities do. Consequently, with significant rises
in yields having been observed over the course of 2022, Scildon has
seen large fair value falls in its fixed interest assets, which has
not been offset by a decrease in the associated liabilities. This
dynamic will be different under IFRS 17, where insurance contract
liabilities will be valued more consistently across the group.
Whilst other segments of the group also display a level of results
exposure to yields, they are not of the same magnitude as for
Scildon.
A divisional summary has been provided below, along with drawing
out some other key features of the IFRS results.
UK: Reported a loss for the year driven by adverse economic
returns; namely falling equity markets, rising interest rates and
the impact of rising inflation, in contrast with the prior year
which saw economic profits. A positive operating result was
reported in the year, driven by favourable operating assumption
change impacts and experience gains. The UK segment result includes
the post-acquisition results of CASLP.
Movestic: The division has reported a small IFRS profit,
although this is significantly down on the prior year. This is
largely driven by economic factors, which has resulted in lower
fund rebates arising from lower Funds Under Management and adverse
investment returns on shareholder assets.
Waard Group: The division's results reflect the impact of
investment market movements in the year, particularly the adverse
value impact on bond holdings as a result of interest rate rises in
the year. The division's results include the post-acquisition
performance of Robein Leven, which was acquired during the year.
The division also completed the acquisition of another small policy
portfolio in the year.
Scildon: Scildon's result is dominated by the impact of
increases in yields over the year. In addition the division has
reported some strain arising from higher than expected mortality
over the year.
Chesnara: The result largely represents holding company expenses
and debt financing costs. The current year loss is higher than last
year, largely due to additional interest costs on the new Tier 2
debt which was issued in February 2022. The result also includes
some investment losses as a consequence of adverse market movements
on directly held investments.
Consolidation adjustments: These relate to items such as the
amortisation and impairment of intangible assets. The increase in
the year is predominantly due to the extra charge arising from the
AVIF asset recognised in relation to the acquisition of CASLP.
Gain / (loss) on acquisition: The group completed the
acquisitions of Sanlam Life and Pensions and Robein Leven during
the year. Gains of GBP9.6m and GBP5.8m respectively were
recognised, representing the difference between the purchase
consideration and the net assets acquired.
Exchange gains: Movements in sterling against both the euro and
Swedish krona in the period created a favourable exchange profit,
compared with a large exchange rate loss incurred in the prior
year.
Operating profits: The group reported an operating loss in the
year. This includes the adverse impact of increased debt financing
costs within Chesnara, arising from the Tier 2 debt issuance in the
year and reduced operating profits within the UK division, where
experience variances and policyholder tax impacts were lower than
the prior year. The prior year result included the positive impact
of releasing an additional reserve created in 2020 due to the
liability adequacy test biting in Scildon, amounting to
GBP10.0m.
Economic losses: This represents the components of the earnings
that are directly driven by movements in economic variables. The
economic losses reported in the year are dominated by Scildon's
results.
FINANCIAL management
The group's financial management framework is designed to
provide security for all stakeholders, while meeting the
expectations of policyholders, shareholders and regulators.
Summary:
OBJECTIVES
The group's financial management framework is designed to
provide security for all stakeholders, while meeting the
expectations of policyholders, shareholders and regulators.
Accordingly we aim to:
- Maintain solvency targets
- Meet the dividend expectations of shareholders
- Optimise the gearing ratio to ensure an efficient capital base
- Ensure there is sufficient liquidity to meet obligations to
policyholders, debt financiers and creditors
- Maintain the group as a going concern
HOW WE DELIVER OUR OBJECTIVES
In order to meet our obligations we employ and undertake a
number of methods. These are centred on:
1. Monitor and control risk & solvency
2. Longer-term projections
3. Responsible investment management
4. Management actions
OUTCOMES
Key outcomes from our financial management process, in terms of
meeting our objectives, are set out below:
1. SOLVENCY:
Group Solvency Ratio: 197%
(2021: 152%)
2. SHAREHOLDER RETURNS
2020-2022 TSR 9.6%
(2019-2021 TSR (0.08)%)
2022 dividend yield 8.1%
(2021: 8.1%)
Based on average 2022 share price and full year 2022 dividend of
23.28p
3. CAPITAL STRUCTURE
Gearing ratio of 37.6%
(2021: 6.4%)
This does not include the financial reinsurance within the
Swedish business.
4. LIQUIDITY AND POLICYHOLDER RETURNS
Policyholders' reasonable expectations maintained.
Asset liability matching framework operated effectively in the
year.
Sufficient liquidity in the Chesnara holding company.
5. MAINTAIN THE GROUP AS A GOING CONCERN
Group remains a going concern
Further detail on capital structure
The group is funded by a combination of share capital, retained
earnings and debt finance. The debt gearing (excluding financial
reinsurance in Sweden) was 37.6% at 31 December 2022 (6.4% at 31
December 2021). The level of debt that the board is prepared to
take on is driven by the group's "Debt and leverage policy" which
incorporates the board's risk appetite in this area. Over time, the
level of gearing within the group will change, and is a function of
the funding requirements for future acquisitions and the repayment
of existing debt. During the year, the company announced the
successful pricing of its inaugural debt capital markets issuance
of GBP200m Tier 2 Subordinated Notes.
The net proceeds of the notes has been partially used for
corporate purposes, including the funding of the CASLP acquisition
in the year. The balance is held as investments.
Acquisitions are funded through a combination of debt, equity
and internal cash resources. The ratios of these three funding
methods vary on a deal-by-deal basis and are driven by a number of
factors including, but not limited to the size of the acquisition;
current cash resources of the group; the current gearing ratio and
the board's risk tolerance limits for additional debt; the expected
cash generation profile and funding requirements of the existing
subsidiaries and potential acquisition; future financial
commitments; and regulatory rules. In addition to the above, in the
past Movestic used a financial reinsurance arrangement to fund its
new business operation.
OUTCOMES FROM IMPLEMENTING OUR FINANCIAL MANAGEMENT
OBJECTIVES
Maintain the group as a going concern
After making appropriate enquiries, including consideration of
the prevailing high-inflation environment and the ongoing potential
impacts of the war in Ukraine on the group's operations, financial
position and prospects, the directors confirm that they are
satisfied that the company and the group have adequate resources to
continue in business for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in the preparation of the
financial statements.
In performing this work, the board has considered the current
solvency and cash position of the group and company, coupled with
the group's and company's projected solvency and cash position as
highlighted in its most recent business plan and Own Risk and
Solvency Assessment (ORSA) process. These processes consider the
financial projections of the group and its subsidiaries on both a
base case and a range of stressed scenarios, covering projected
solvency, liquidity, EcV and IFRS positions. In particular these
projections assess 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. Further insight into the immediate and
longer-term impact of certain scenarios, covering solvency, cash
generation and Economic Value, can be found under the section
headed 'Capital Management Sensitivities'. The directors believe
these scenarios will encompass any potential future impact of the
prevailing high inflation environment and the war in Ukraine on the
group, as Chesnara's most material ongoing exposure to both
potential threats are any associated future investment market
impacts. Underpinning the projections process outlined above are a
number of assumptions. The key ones include:
- We do not assume that a future acquisition needs to take place to make this assessment.
- We make long term investment return assumptions on equities and fixed income securities.
- The base case scenario assumes exchange rates remain stable,
and the impact of adverse rate changes are assessed through
scenario analysis.
- Levels of new business volumes and margins are assumed.
- The projections apply the most recent actuarial assumptions,
such as mortality and morbidity, lapses and expenses.
The group's strong capital position and business model, provides
a degree of comfort that although the ongoing war in Ukraine and
the prevailing high inflation environment both have the potential
to cause further significant global economic disruption, the group
and the company remain well capitalised and has sufficient
liquidity. As such we can continue to remain confident that the
group will continue to be in existence in the foreseeable future.
The information set out in the Capital Management section indicates
a strong Solvency II position as at 31 December 2022 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. This position was
further enhanced in early 2022, when the company announced the
successful pricing of its inaugural debt capital markets issuance
of GBP200m Tier 2 Subordinated Notes, the net proceeds of which
have been used for corporate purposes, including investments and
acquisitions. The group's subsidiaries 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.
Whilst there was some short-term operational disruption and
subsequent changes to working practices in light of COVID-19, our
experience has shown that both our internal functions and those
operated by our key outsourcers and suppliers have adapted well and
do not cause any issues as to our going concern.
Assessment of viability
The board assesses that being financially viable includes
continuing to pay an attractive and sustainable level of dividends
to investors and meeting all other financial obligations, including
debt repayments over the three-year business planning time horizon.
The board's assessment of the viability of the group is performed
in conjunction with its going concern assessment and considers both
the time horizons required for going concern, and the slightly
longer term timelines for assessing viability. The assessment for
viability also considers the same key financial metrics as for
assessing going concern, being solvency, cash, EcV and IFRS, both
on base case and stressed scenarios.
Viability statement
Based on the results of the analysis above, the directors have a
reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the
three-year period of their assessment. Although we produce business
plans and other financial projections over longer time horizons,
the selection of three-year viability assessment recognises that
the level of operating, regulatory and market certainty reduces
towards the later years of the projection time frames. The
three-year period also aligns with executive director LTIP
performance time frames.
Assessment of prospects
Our longer-term prospects are primarily considered through the
conclusions drawn from our annual business planning process,
updated for key events that may occur in-between business
plans.
The business plans include underlying operational deliverables,
an assessment of the business model and the financial consequences
of following those plans. As part of this process we also consider
the principal risks and uncertainties that the group faces and how
these might affect our prospects.
An assessment of our prospects has been shown below, updated for
our consideration of the impact of the War in Ukraine crisis and
the prevailing high inflation environment. This has been structured
around our three strategic objectives:
Value from in-force book: The group has c933k policies in force
at 31 December 2022 (over 1 million on a pro forma basis including
Conservatrix). These are generally long-term policies, and the
associated cash flows can, at an overall portfolio level, be
reasonably well predicted on base case and stressed scenarios. The
group is well capitalised at both a group and divisional level and
we have high quality assets backing our insurance liabilities. Just
as equity markets had recovered from the impact of COVID-19, the
worsening situation in the Ukraine caused equity prices to fall.
Whilst this may turn out to be a temporary situation, sustained
depressed market values do adversely impact fee income streams and
therefore if markets fall further then profitability prospects
reduce. Similarly, adverse movements in yields would adversely
impact our prospects. Temporary market volatility is however a
natural feature of investment markets and our financial model is
well positioned to withstand difficult conditions without creating
any permanent harm to the longer-term profitability prospects.
Acquisition Strategy: The outlook and prospects of continuing to
deliver against this strategic objective is covered earlier in the
business review section. We see no reason to expect that the war in
Ukraine or the high inflation environment will have a long term
impact on the availability of acquisition opportunities. Indeed,
during the year we completed two acquisitions in the year, one in
the UK and one in the Netherlands. We also completed another Dutch
acquisition on 1 January 2023. Waard continues to build a useful
market position as a company who are able and willing to acquire
books that are sub-scale for the vendors business model. Whilst we
maintain our ambition to complete larger deals, the prospects from
a steady flow of well-priced smaller acquisitions should not be
underestimated. The financial position of the group continues to
support financing deals through the use of our own resources or by
raising debt; however, in the short-term equity funding would
likely be less attractive.
Value from new business: Chesnara is in a fortunate position in
that its prospects do not fundamentally rely on the ability to
sustain new business volumes. New business levels have contributed
a small amount of extra value during the year despite the ongoing
challenges as a result of the war in Ukraine and the subsequent
cost of living crisis and we believe there remains realistic upside
potential as we move into 2023.
Our business fundamentals such as assets under management,
policy volumes, new business market shares and expenses have all
proven resilient to the impact of the war in Ukraine and cost of
living crisis. This, together with the positive assessment of our
core strategic objectives and a line of sight to positive
management actions over the planning period, leaves use well
positioned to deliver ongoing positive outcomes for all
stakeholders.
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.
HOW WE MANAGE RISK
RISK MANAGEMENT SYSTEM
The risk management system supports the identification,
assessment, and reporting of risks to monitor and control the
probability and/or impact of adverse outcomes within the board's
risk appetite or to maximise realisation of opportunities.
Strategy: The risk management strategy contains the objectives
and principles of risk management, the risk appetite, risk
preferences and risk tolerance limits.
Policies: The risk management policies implement the risk
management strategy and provide a set of principles (and mandated
activities) for control mechanisms that take into account the
materiality of risks.
Processes: The risk management processes ensure that risks are
identified, measured/ assessed, monitored and reported to support
decision making.
Reporting: The risk management reports deliver information on
the material risks faced by the business and evidence that
principal risks are actively monitored and analysed and managed
against risk appetite.
Chesnara adopts the "three lines of defence" model with a single
set of risk and governance principles applied consistently across
the business.
In all divisions we maintain processes for identifying,
evaluating and managing all material risks faced by the group,
which are regularly reviewed by the divisional and group Audit
& Risk Committees. Our risk assessment processes have regard to
the significance of risks, the likelihood of their occurrence and
take account of the controls in place to manage them. The processes
are designed to manage the risk profile within the board's approved
risk appetite.
Group and divisional risk management processes are enhanced by
stress and scenario testing, which evaluates the impact on the
group of certain adverse events occurring separately or in
combination. The results, conclusions and any recommended actions
are included within divisional and group ORSA Reports to the
relevant boards. There is a strong correlation between these
adverse events and the risks identified in 'Principal risks and
uncertainties'. The outcome of this testing provides context
against which the group can assess whether any changes to its risk
appetite or to its management processes are required.
ROLE OF THE BOARD
The Chesnara board is responsible for the adequacy of the design
and implementation of the group's risk management and internal
control system and its consistent application across divisions. All
significant decisions for the development of the group's risk
management system are the group board's responsibility.
Strategy and Risk Appetite
Chesnara group and its divisions have a defined risk strategy
and supporting risk appetite framework to embed an effective risk
management framework, culture and processes at its heart and to
create a holistic, transparent and focused approach to risk
identification, assessment, management, monitoring and
reporting.
The Chesnara board approves a set of risk preferences which
articulate, in simple terms, the desire to increase, maintain, or
reduce the level of risk taking for each main category of risk. The
risk position of the business is monitored against these
preferences using risk tolerance limits, where appropriate, and
they are taken into account by the management teams across the
group when taking strategic or operational decisions that affect
the risk profile.
Risk and Control Policies
Chesnara has a set of Risk and Control Policies that set out the
key policies, processes and controls to be applied. The Chesnara
board approves the review, updates and attestation of these
policies at least annually.
Risk Identification
The group maintains a register of risks which are specific to
its activity and scans the horizon to identify potential risk
events (e.g. political; economic; technological; environmental,
legislative & social).
On an annual basis the board approves the materiality criteria
to be applied in the risk scoring and in the determination of what
is considered to be a principal risk. At least quarterly the
principal and emerging risks are reported to the board, assessing
their proximity, probability and potential impact.
Own Risk and Solvency Assessment (ORSA)
On an annual basis, or more frequently if required, the group
produces a group ORSA Report which aggregates the divisional ORSA
findings and supplements these with an assessment specific to group
activities. The group and divisional ORSA policies outline the key
processes and contents of these reports.
The Chesnara board is responsible for approving the ORSA,
including steering in advance how the assessment is performed and
challenging the results.
Risk Management System Effectiveness
The group and its divisions undertake a formal annual review of
and attestation to the effectiveness of the risk management system.
The assessment considers the extent to which the risk management
system is embedded.
The Chesnara board is responsible for monitoring the Risk
Management System and its effectiveness across the group. The
outcome of the annual review is reported to the group board which
make decisions regarding its further development.
COVID-19
During 2022, the risks from the global pandemic have materially
reduced, with nearly all restrictions being lifted globally,
however there remains a risk of further outbreaks/variants. The
Chesnara group has continued to remain operationally and
financially stable throughout the COVID-19 pandemic, providing a
high level of assurance regarding operational resilience processes
and the suitability of the approach taken. COVID-19 is not
documented here as a principal risk in its own right, as the
impacts are already covered by other principal risks, for example,
market risks morality risk and other risks associated with
operational failure and business continuity.
CLIMATE CHANGE RISK WITHIN CHESNARA'S RISK FRAMEWORK
Climate change is not considered as a standalone principal risk.
Instead, the risks arising from climate change are integrated
through existing considerations and events within the framework.
The information in the following pages has been updated to reflect
Chesnara's latest views on the potential implications of climate
change risk and wider developments and activity in relation to
Environmental, Social and Governance (ESG).
Chesnara has embedded climate change risk within the group's
risk framework and included a detailed assessment alongside the
group's ORSA, concluding that the group is not materially exposed
to climate change risk.
UKRAINE CONFLICT
The ongoing invasion of Ukraine by Russia is considered to be an
emerging risk for Chesnara Group in the sense that it is an
evolving situation and has potential implications for Chesnara's
Principal risks. The risk information on the following pages
includes specific commentary where appropriate.
MACROECONOMIC VOLATILITY
Significant economic volatility globally and particularly in the
UK is being driven by supply chain pressures and soaring energy
prices. The UK narrowly staved off a recession at the end of 2022,
though it is still possible that the UK will enter recession in
2023 albeit the BoE expects any recession to be shorter and less
severe than previously thought. The information in the following
pages has been updated to reflect Chesnara's latest views on the
potential implications.
principal risks and uncertainties
The following tables outline the principal risks and
uncertainties of the group and the controls in place to mitigate or
manage their impact. It has been drawn together following regular
assessment, performed by the Audit & Risk Committee, of the
principal risks facing the group, including those that would
threaten its business model, future performance, solvency or
liquidity. The impacts are not quantified in the tables. However,
by virtue of the risks being defined as principal, the impacts are
potentially significant. Those risks with potential for a material
financial impact are covered within the sensitivities.
PR1 - INVESTMENT AND LIQUIDITY RISK
DESCRIPTION Exposure to financial losses or value reduction arising
from adverse movements in currency, investment markets,
counterparty defaults, or through inadequate asset liability
matching.
=====================================================================================
RISK APPETITE The group accepts this risk but has controls in place to
prevent any increase or decrease in the risk exposure beyond
set levels. These controls will result in early intervention
if the amount of risk approaches those limits.
=====================================================================================
POTENTIAL Market risk results from fluctuations in asset values, foreign
IMPACT exchange rates and interest rates and has the potential
to affect the group's ability to fund its commitments to
customers and other creditors, as well as pay a return to
shareholders.
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.
Other liquidity issues could arise from counterparty failures/credit
defaults, a large spike in the level of claims or other
significant unexpected expenses.
Worldwide developments in Environmental, Social, and Governance
(ESG) responsibilities and reporting have the potential
to influence market risk in particular, for example the
risks arising from transition to a carbon neutral industry,
with corresponding changes in consumer preferences and behaviour.
=====================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
================================================
With greater global emphasis being placed
* Regular monitoring of exposures and performance; on environmental and social factors
when selecting investment strategies,
the group has an emerging exposure to
* Asset liability matching; "transition risk" arising from changing
preference and influence of, in particular,
institutional investors. This has the
* Maintaining a well-diversified asset portfolio; potential to result in adverse investment
returns on any assets that perform poorly
as a result of "ESG transition". Chesnara
* Holding a significant amount of surplus in highly has established a Sustainability Programme
liquid "Tier 1" assets such as cash and gilts; to embed Chesnara's Sustainability strategy.
The conflict in Ukraine / Russia brings
* Utilising a range of investment funds and managers to additional economic uncertainty and
avoid significant concentrations of risk; volatility to financial markets, including
the potential for higher inflationary
pressures in the short term. The group
* Having an established investment governance framework has no direct exposure in terms of investments
to provide review and oversight of external fund in Russian funds or companies via customer
managers; unit linked funds, and we are working
with customers that are exposed to help
them.
* Regular liquidity forecasts;
The cost of living and energy crisis
is driving significant economic volatility
* Considering the cost/benefit of hedging when globally and particularly in the UK
appropriate; and there is a risk of poor mid-term
performance on shareholder and policyholder
assets.
* Actively optimising the risk / return trade-off
between yield on fixed interest assets compared with An interim risk report was produced
the associated balance sheet volatility and potential in October 2022 for the Audit & Risk
for defaults or downgrades; and Committee summarising some of the emerging
risks from the current geo-political
and domestic volatility, documenting
* Giving due regular consideration (and discussing known risks and mitigants providing
appropriate strategies with fund managers) to longer assurance that the risks are being adequately
term global changes that may affect investment managed.
markets, such as climate changes.
================================================
PR2 - REGULATORY CHANGE RISK
DESCRIPTION The risk of adverse changes in industry practice/regulation,
or inconsistent application of regulation across territories.
=============================================================================
RISK APPETITE The group aims to minimise any exposure to this risk, to the
extent possible, but acknowledges that it may need to accept
some risk as a result of carrying out business.
=============================================================================
POTENTIAL Chesnara currently operates in three main regulatory domains
IMPACT and is therefore exposed to potential for inconsistent application
of regulatory standards across divisions, such as the imposition
of higher capital buffers over and above regulatory minimum requirements.
Potential consequences of this risk for Chesnara are the constraining
of efficient and fluid use of capital within the group or creating
a non-level playing field with respect to future new business/acquisitions.
Regulatory developments continue to drive a high level of change
activity across the group, with items such as operational resilience,
climate change and IFRS17 being particularly high profile. Such
regulatory initiatives carry the risk of expense overruns should
it not be possible to adhere to them in a manner that is proportionate
to the nature and scale of Chesnara's businesses. The group is
therefore exposed to the risk of:
* incurring one-off costs of addressing regulatory
change as well as any permanent increases in the cost
base in order to meet enhanced standards;
* erosion in value arising from pressure or enforcement
to reduce future policy charges;
* erosion in value arising from pressure or enforcement
to financially compensate for past practice; and
* regulatory fines or censure in the event that it is
considered to have breached standards or fails to
deliver changes to the required regulatory standards
on a timely basis.
=============================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
Chesnara seeks to limit The jurisdictions which Chesnara operates in are
any potential impacts currently
of regulatory change subject to significant change arising from political,
on the business by: regulatory and legal change. These may either be
* Having processes in place for monitoring changes, t localised
o or may apply more widely, following from EU-based
enable timely actions to be taken, as appropriate; regulation
and law, or the potential unwinding of this following
the UK's departure from the EU.
* Maintaining strong open relationships with all The UK Treasury and EIOPA are both undertaking a review
regulators, and proactively discussing their of SII rules implementation. There is potential for
initiatives to encourage a proportional approach; divergence of regulatory approaches amongst European
regulators with potential implications for Chesnara's
capital, regulatory supervision and structure.
* Being a member of the ABI and equivalent overseas The group has considered any restructuring which could
organisations and utilising other means of joint be required to align to changes in the requirements
industry representation; of cross border regulatory supervision. In extremis,
Chesnara could consider the re-domiciling of subsidiaries
or legal restructure of the business, should this result
* Performing internal reviews of compliance with in a more commercially acceptable business model in
regulations; and a changed operating environment. In addition, there
are a number of potential secondary impacts such as
economic implications, and the effect of any regulatory
* Utilising external specialist advice and assurance, divergence as the PRA progresses SII-equivalent
when appropriate. regulation
for the UK businesses. Chesnara will monitor the
consultation
Regulatory risk is and discussions arising under EIOPA's Solvency II Review,
monitored and scenario and in the context of Brexit and the UK's ultimate
tests are performed position
to understand the potential regarding SII equivalence.
impacts of adverse The group is subject to evolving regimes governing the
political, regulatory recovery, resolution or restructuring of insurance
or legal changes, along companies.
with consideration As part of the global regulatory response to the risk
of actions that may that systemically important financial institutions could
be taken to minimise fail, banks, and more recently insurance companies,
the impact, should have been the focus of new recovery and resolution
they arise. planning
requirements developed by regulators and policy makers
nationally and internationally. It remains unclear to
what extent any future recovery and resolution regime
could apply to the group in the future and, consequently,
what the implications of such a development would be
for the group and its creditors.
In July 2022, the FCA published final rules for a new
Consumer Duty and response to feedback to CP21/36 -
A New Consumer Duty. The Consumer Duty, with an
implementation
date of 31 July 2023, will set higher and clearer
standards
of consumer protection across financial services and
require firms to act to deliver good outcomes for
customers.
Operations in the UK are reviewing existing product
governance frameworks in relation to delivering the
new Consumer Duty requirements.
==========================================================
PR3 - ACQUISITION RISK
DESCRIPTION The risk of failure to source acquisitions that meet Chesnara's
criteria or the execution of acquisitions with subsequent
unexpected financial losses or value reduction.
===========================================================================
RISK APPETITE Chesnara has a patient approach to acquisition and generally
expects acquisitions to enhance EcV and expected cash
generation in the medium term (net of external financing),
though each opportunity will be assessed on its own merits.
===========================================================================
POTENTIAL IMPACT The acquisition element of Chesnara's 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 within 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.
Through the execution of acquisitions, Chesnara is also
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
as part of the transaction.
===========================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
=====================================
Chesnara's financial strength, strong relationships Chesnara completed acquisitions
and reputation as a "safe hands acquirer" in the Netherlands and the
via regular contact with regulators, banks UK during 2022 and has recently
and target companies enables the company completed a further acquisition
to adopt a patient and risk-based approach in the Netherlands in early
to assessing acquisition opportunities. 2023, whilst maintaining the
Operating in multi-territories provides established disciplines within
some diversification against the risk of the Acquisition Policy.
changing market circumstances in one of The successful Tier 2 debt
the territories. Consideration of additional raise, in addition to diversifying
territories within Western-Europe remains the group's capital structure,
on the agenda, if the circumstances of entry has provided additional flexibility
meet Chesnara's stated criteria. in terms of funding Chesnara's
Chesnara seeks to limit any potential unexpected future growth strategy.
adverse impacts of acquisitions by:
* Applying a structured board approved risk-based
Acquisition Policy including CRO involvement in the
due diligence process and deal refinement processes;
* Having a management team with significant and proven
experience in mergers and acquisitions; and
* Adopting a cautious risk appetite and pricing
approach.
=====================================
PR4 - DEMOGRAPHIC EXPERIENCE RISK
DESCRIPTION Risk of adverse demographic experience compared with assumptions
(such as rates of mortality, morbidity, persistency etc.)
===================================================================================
RISK APPETITE The group accepts this risk but restricts its exposure,
to the extent possible, through the use of reinsurance
and other controls. Early warning trigger monitoring is
in place to track any increase or decrease in the risk
exposure beyond a set level, with action taken to address
any impact as necessary.
===================================================================================
POTENTIAL IMPACT In the event that demographic experience (rates of mortality,
morbidity, persistency etc.) varies from the assumptions
underlying product pricing and subsequent reserving, more
or less profit will accrue to the group.
The effect of recognising any changes in future demographic
assumptions at a point in time would be to crystallise
any expected future gain or loss on the balance sheet.
If mortality or morbidity experience is higher than that
assumed in pricing contracts (i.e. more death and sickness
claims are made than expected), this will typically result
in less profit accruing to the group.
If persistency is significantly lower than that assumed
in product pricing and subsequent reserving, this will
typically lead to reduced group profitability in the medium
to long-term, as a result of a reduction in future income
arising from charges on those products. The effects of
this could be more severe in the case of a one-off event
resulting in multiple withdrawals over a short period of
time (a "mass lapse" event).
===================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
=================================================
Chesnara performs close monitoring Legislation introduced at the start of
of persistency levels across all 2020, and enhanced at the start of 2021,
groups of business to support best made it easier for customers to transfer
estimate assumptions and identify insurance policies in Sweden. Even before
trends. There is also partial risk the legislation passed, this resulted
diversification in that the group in higher transfer activity in the market,
has a portfolio of annuity contracts particularly driven by brokers. Following
where the benefits cease on death. higher rates of transfers through 2021,
Chesnara seeks to limit the impacts transfers have trended downwards during
of adverse demographic experience 2022. However the market remains sensitive
by: to any changes and so this risk continues
* Aiming to deliver good customer service and fair to be actively monitored.
customer outcomes; COVID-19 increased the number of deaths
arising in 2020, 2021 and to a lesser
extent in 2022. The effect of this is
* Having effective underwriting techniques and expected to be more pronounced in older
reinsurance programmes, including the application of lives rather than in the typical ages
"Mass Lapse reinsurance", where appropriate; of the assured lives in the Chesnara
books. Chesnara does not expect the pandemic
to have a material impact on mortality
* Carrying out regular investigations, and industry experience and costs in the long-term.
analysis, to support best estimate assumptions and Cost of living pressures could give rise
identify trends; to higher surrenders and lapses should
customers face personal finance pressures
and not be able to afford premiums or
* Active investment management to ensure competitive need to access savings. Any downturn
policyholder investment funds; and in the property market could reduce protection
business sales particularly in the Netherlands.
Currently there has been no evidence
* Maintaining good relationships with brokers, which is of changes in behaviours. Chesnara continues
independently measured via yearly external surveys to monitor closely and respond appropriately.
that considers brokers attitude towards different
insurers.
=================================================
PR5 - EXPENSE RISK
DESCRIPTION Risk of expense overruns and unsustainable unit cost growth.
================================================================================
RISK APPETITE The group aims to minimise its exposure to this risk, to
the extent possible, but acknowledges that it may need
to accept some risk as a result of carrying out business.
================================================================================
POTENTIAL The group is exposed to expenses being higher than expected
IMPACT as a result of one-off increases in the underlying cost
of performing key functions, or through higher inflation
of variable expenses.
A key underlying source of potential increases in regular
expense is the additional regulatory expectations on the
sector.
For the closed funds, the group is exposed to the impact
on profitability of fixed and semi-fixed expenses, in conjunction
with a diminishing policy base.
For the companies open to new businesses, the group is
exposed to the impact of expense levels varying adversely
from those assumed in product pricing. Similar, for acquisitions,
there is a risk that the assumed costs of running the acquired
business allowed for in pricing are not achieved in practice,
or any assumed cost synergies with existing businesses
are not achieved.
================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
=========================================
For all subsidiaries, the group maintains Chesnara has an ongoing expense
a regime of budgetary control. management programme and various
* Movestic and Scildon assume growth through new strategic projects aimed at controlling
business such that the general unit cost trend is expenses. Acquisitions also present
positive; opportunities for expense systems
and unit cost reduction.
Through its exposures to investments
* The Waard Group pursues a low cost-base strategy in real asset classes, both direct
using a designated service company. The cost base is and indirect, Chesnara has an indirect
supported by service income from third party hedge against the effects of inflation
customers; and will consider more direct inflation
hedging options should circumstances
determine that to be appropriate.
* Countrywide Assured pursues a strategy of outsourcing The cost of living and energy crisis
functions with charging structures such that the is driving increases in supplier
policy administration cost is more aligned to the costs, particularly in the UK with
book's run off profile; and its outsourcing model. Wage inflation
is generally lower than headline
inflation but is currently much
* With an increased current level of operational and higher than the long term valuation
strategic change within the business, a policy of assumptions, with consideration
strict Project Budget Accounting discipline is being needed regarding the balancing of
upheld by the group for all material projects. employee remuneration versus turnover
/retention / motivation risks /
tight labour markets.
=========================================
PR6 - OPERATIONAL RISK
DESCRIPTION Significant operational failure/business continuity event.
===================================================================================
RISK APPETITE The group aims to minimise its exposure to this risk, to
the extent possible, but acknowledges that it may need to
accept some risk as a result of carrying out business.
===================================================================================
POTENTIAL The group and its subsidiaries are exposed to operational
IMPACT risks which arise through daily activities and running of
the business. Operational risks may, for example, arise
due to technical or human errors, failed internal processes,
insufficient personnel resources or fraud caused by internal
or external persons. As a result, the group may suffer financial
losses, poor customer outcomes, reputational damage, regulatory
intervention or business plan failure.
Part of the group's operating model is to outsource support
activities to specialist service providers. Consequently,
a significant element of the operational risk arises within
its outsourced providers.
===================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
==========================================
The group perceives operational risk Operational resilience remains a
as an inherent part of the day-to-day key focus for the business and high
running of the business and understands on the regulatory agenda following
that it can't be completely eliminated. the regulatory changes published
However, the Company's objective is by the BoE, PRA and FCA. Chesnara
to always control or mitigate operational continues to progress activity under
risks, and to minimise the exposure the UK operational resilience project.
when it's possible to do so in a convenient In line with the regulatory deadlines,
and cost-effective way. the first self-assessment was presented
Chesnara seeks to reduce the impact to the A&RC/Board in March 2022.
and likelihood of operational risk by: The next key regulatory deadline
* Monitoring of key performance indicators and is 31 March 2025; the deadline by
comprehensive management information flows; which all firms should have sound,
effective, and comprehensive strategies,
processes, and systems that enable
* Effective governance of outsourced service providers them to address risks to their ability
including a regular financial assessment. Under the to remain within their impact tolerance
terms of the contractual arrangements the group may for each important business service
impose penalties and/or exercise step-in rights in (IBS) in the event of a severe but
the event of specified adverse circumstances; plausible disruption. To support
this the project is currently in
the process of running a schedule
* Regular testing of business continuity plans; of real life severe but plausible
scenario testing. Each Business
Unit continues to carry out assurance
* Regular staff training and development; activities through local business
continuity programmes to ensure
robust plans are in place to limit
* Employee performance management frameworks; business disruption in a range of
severe but plausible events.
In response to the ongoing energy
* Promoting the sharing of knowledge and expertise; and crisis analysis has been carried
out on operational continuity with
the threat of planned blackouts.
* Complementing internal expertise with established Based on the expected nature and/or
relationships with external specialist partners. probability of the risk crystallising
there were no material concerns
arising.
==========================================
PR7 - IT / DATA SECURITY & CYBER RISK
DESCRIPTION Risk of IT/ data security failures or impacts of malicious
cyber-crime (including ransomware) on continued operational
stability.
=================================================================================================
RISK APPETITE The group aims to minimise its exposure to this risk, to
the extent possible, but acknowledges that it may need to
accept some risk as a result of carrying out business.
=================================================================================================
POTENTIAL Cyber risk is a growing risk affecting all companies, particularly
IMPACT 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 and ransomware attacks etc. The extent of Chesnara's
exposure to such threats also includes third party service
providers.
The potential impact of this risk includes financial losses,
inability to perform critical functions, disruption to policyholder
services, loss of sensitive data and corresponding reputational
damage or fines.
=================================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
=====================================================
Chesnara seeks to limit the exposure and potential Chesnara continues to invest
impacts from IT/data security failures or cyber-crime in the incremental strengthening
by: of its cyber risk resilience
* Embedding the Information Security Policy in all key and response options.
operations and development processes; No reports of material
data breaches.
The ongoing invasion of
* Seeking ongoing specialist external advice, Ukraine by Russia heightens
modifications to IT infrastructure and updates as the risk of cyber crime
appropriate; campaigns originating from
Russia, with some suppliers
reporting an increase in
* Delivering regular staff training and attestation to information security threats
the information security policy; which some are saying is
state sponsored. Although
Chesnara is not considered
* Regular employee phishing tests and awareness to be a direct target of
sessions; any such campaigns, all
business units have confirmed
that they have increased
* Ensuring the board encompasses directors with monitoring and detection/
information technology and security knowledge; protection controls in
relation to the increased
threat.
* Conducting penetration and vulnerability testing, During 2022 the group has
including third party service providers; continued to test and seek
assurance of the resilience
to cyber risks, this has
* Executive committee and board level responsibility included:
for the risk, included dedicated IT security * End-to-end simulated cyber attack;
committees with executive membership;
* Regular phishing campaigns;
* Having established Chesnara and supplier business
continuity plans which are regularly monitored and
tested; * Board training and awareness;
* Ensuring Chesnara's outsourced IT service provider * Group w ide cyber risk reviews; and
maintains relevant information security standard
accreditation (ISO27001); and
* Ongoing penetration testing and vulnerability
management
* Monitoring network and system security including
firewall protection, antivirus and software updates.
Chesnara is also implementing
a new group-wide cyber
In addition, a designated Steering Group provides response framework which
oversight of the IT estate and Information includes updated group
Security environment including: policy regarding ransomware.
* Changes and developments to the IT estate;
* Performance and security monitoring;
* Oversight of Information Security incident
management;
* Information Security awareness and training;
* Development of Business Continuity plans and testing;
and
* Overseeing compliance with the Information Security
Policy.
=====================================================
PR8 - NEW BUSINESS RISK
DESCRIPTION Adverse new business performance compared with projected
value.
====================================================================================
RISK APPETITE Chesnara does not wish to write new business that does not
generate positive new business value (on a commercial basis)
over the business planning horizon.
====================================================================================
POTENTIAL If new business performance is significantly lower than
IMPACT the projected value, this will typically lead to reduced
value growth in the medium to long-term. A sustained low
level performance may lead to insufficient new business
profits to justify remaining open to new business.
====================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
=============================================
Chesnara seeks to limit any potential The Swedish transfer market remains active
unexpected adverse impacts of acquisitions following regulatory changes over the
by: past two years. Further regulatory changes
* Monitoring quarterly new business profit performance; affecting transfers are expected in April
2023 that could also impact transfer
experience.
* Investing in brand and marketing;
As a result of recent changes in competitor
offerings, making them less attractive,
* Maintaining good relationships with brokers; 'transfers out' have begun to trend back
down towards more normal levels.
* Offering attractive products that suit customer
needs;
* Monitoring market position and competitor pricing,
adjusting as appropriate;
* Maintaining appropriate customer service levels and
experience; and
* Monitoring market and pricing movements.
=============================================
PR9 - REPUTATIONAL RISK
DESCRIPTION Poor or inconsistent reputation with customers, regulators,
investors, staff or other key stakeholders/counterparties.
================================================================================
RISK APPETITE The group aims to minimise its exposure to this risk, to the
extent possible, but acknowledges that it may need to accept
some risk as a result of carrying out business.
================================================================================
POTENTIAL The group is exposed to the risk that litigation, employee
IMPACT misconduct, operational failures, the outcome of regulatory
investigations, press speculation and negative publicity, disclosure
of confidential client information (including the loss or theft
of customer data), IT failures or disruption, cyber security
breaches and/or inadequate services, amongst others, whether
true or not, could impact its brand or reputation. The group's
brand and reputation could also be affected if products or
services recommended by it (or any of its intermediaries) do
not perform as expected (whether or not the expectations are
realistic) or in line with the customers' expectations for
the product range.
Any damage to the group's brand or reputation could cause existing
customers or partners to withdraw their business from the group,
and potential customers or partners to elect not to do business
with the group and could make it more difficult for the group
to attract and retain qualified employees.
================================================================================
KEY CONTROLS RECENT CHANGE / OUTLOOK
==========================================
Chesnara seeks to limit any potential reputational Given the global focus on climate
damage by: change as well as the significant
* Regulatory publication reviews and analysis momentum in the finance industry,
the group is exposed to strategic
and reputational risks arising
* Timely response to regulatory requests from its action or inaction in
response to climate change as
well the regulatory and reputational
* Open and honest communications risks arising from its public
disclosures on the matter. Chesnara
supports the UN Sustainable Development
* HR policies and procedures Goals (SDGs), including Climate
Action. We have set our long
term net zero targets and during
* Fit & Proper procedures 2023, we will produce our transition
plan and the all-important shorter
term 2025 and 2030 targets.
* Operational and IT Data Security Frameworks In relation to the Ukraine /
Russia conflict, no material
exposure has been identified
* Product governance and remediation frameworks in terms of the group's key counterparty
connections. There are limited
indirect connections through
* Appropriate due diligence and oversight of third parties who have a presence
outsourcers and third parties in Russia and Chesnara has confirmed
that there are no obvious links
with Russia through its shareholders
or stockbrokers.
==========================================
DIRECTORS' REsponsibilities STATEMENT
With regards to this preliminary announcement, the Directors
confirm to the best of their knowledge that:
- The financial statements have been prepared in accordance with
United Kingdom adopted international accounting standards and give
a true and fair view of the assets, liabilities, financial position
and profit for the Company and the undertakings included in the
consolidation as a whole;
- Pursuant to Disclosure and Transparency Rules Chapter 4, the
Chairman's Statement and Management Report include a fair review of
the development and performance of the business and the position of
the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties faced by the business.
On behalf of the Board
Luke Savage Steve Murray
Chairman Chief Executive Officer
29 March 2023 29 March 2023
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF CHESNARA PLC ON
THE PRELIMINARY ANNOUNCEMENT OF CHESNARA PLC
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF CHESNARA PLC ON
THE PRELIMINARY ANNOUNCEMENT OF CHESNARA PLC
As the independent auditor of Chesnara plc we are required by UK
Listing Rule LR 9.7A.1(2)R to agree to the publication of Chesnara
plc's preliminary announcement statement of annual results for the
period ended 31 December 2022.
The preliminary statement of annual results for the period ended
31 December 2022 includes disclosures required by the Listing Rules
and any additional content such as highlights, Chairman's
Statement, component business review, a consolidated statement of
comprehensive income, consolidated balance sheet and consolidated
statement of cash flows. We are not required to agree to the
publication of presentation to analysts.
The directors of Chesnara plc are responsible for the
preparation, presentation and publication of the preliminary
statement of annual results in accordance with the UK Listing
Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Chesnara plc is
complete and we signed our auditor's report on 29 March 2023. Our
auditor's report is not modified and contains no emphasis of matter
paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
Valuation of the CASLP AVIF intangible asset
Key audit matter On 28 April 2022, Chesnara plc completed the acquisitions
description of Sanlam Life & Pensions UK Limited (subsequently renamed
"CASLP Limited"). The acquisition has resulted in the
recognition of an AVIF intangible asset amounting to
GBP59.6m, 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.
We have identified a new key audit matter relating to
the discount rate used by management to discount the
future cash flows underpinning the fair value of the
CASLP AVIF intangible at acquisition date. Due to the
highly judgemental nature of this balance, we identified
manipulation of this assessment as an area of potential
fraud.
The accounting policy adopted by the group is documented
within note 2(n) to the financial statements, with details
of the balance sheet movement in note20 therewith.
----------------------- ------------------------------------------------------------------
How the scope In respect of the CASLP AVIF:
of our audit responded * we gained an understanding of the relevant controls
to the key audit in place over the accuracy and completeness of key
matter assumptions;
* with involvement of valuation specialists, we
constructed a range of independent discount rates
based on alternative industry data in order to
challenge the discount rate applied by management;
* with the involvement of actuarial specialist, we
assessed the reasonableness of management's cash flow
assumptions and amortisation rate used in deriving
the AVIF balance;
* we have assessed the disclosure of the AVIF
recognised at acquisition within note 20 to the
financial statements.
----------------------- ------------------------------------------------------------------
Key observations Based on the audit procedures performed, we consider
the discount rate used in the AVIF recognised at the
date of acquisition to be appropriate.
----------------------- ------------------------------------------------------------------
Valuation of Scildon insurance liabilities
Key audit matter Scildon measures the majority of its insurance contract
description liabilities using historical market rates of interest
along with a number of other parameters and assumptions.
At 31 December 2022, the Scildon insurance liabilities
represented GBP1.7bn (2021: GBP1.9bn) of the group total
of GBP3.8bn (2021: GBP3.8bn).
IFRS 4 Insurance Contracts requires an insurer, at the
end of each reporting period, to assess whether its
recognised insurance contract liabilities are adequate,
using current estimates of future cash flows (the "Liability
adequacy test", or "LAT"). Given Scildon's accounting
policy makes use of historical market interest rates,
there is a heightened risk that its reserves under IFRS
4 are not adequate. We therefore consider the initial
parameter setting process and LAT as key audit matters,
specifically in relation to the mortality, lapse and
expense assumptions which feed into the test, given
that the insurance liabilities are most sensitive to
these factors.
We have also deemed there to be a risk of fraud, due
to the inherent risk of management overriding internal
controls around the setting of the parameters used to
calculate the reserves at inception.
The accounting policy adopted by the group is documented
within note 2(g) in the financial statements. The assumptions
and the sensitivity of Scildon insurance contract liabilities
to such assumptions are set out in note 30 of the financial
statements. Actuarial assumptions, specifically the
liability adequacy test, are referred to within the
Audit and Risk Committee report on page 120 of the annual
report.
----------------------- --------------------------------------------------------------
How the scope In respect of the Scildon insurance contract liabilities,
of our audit responded we performed the following procedures:
to the key audit * gained an understanding of the relevant controls
matter around the setting of the assumptions feeding into
the LAT;
* with the involvement of actuarial specialists,
challenged the mortality, lapse and expense
assumptions which feed into the test, by evaluating
experience, supporting documents and calculations;
* assessed the results of the experience investigations
carried out by management to determine whether they
provide support for the assumptions;
* performed analytics on policy cash flows, and carried
out further investigation on outliers and movements
compared to the prior period; and
* for a sample of policies, recalculated the reserve at
a policy level, using an independent replication
model, and compared the results to those produced by
management.
----------------------- --------------------------------------------------------------
Key observations Based on the procedures performed, we concluded that
the initial parameter setting process and the LAT performed
by management were reasonable, supporting the valuation
of Scildon's insurance contract liabilities.
----------------------- --------------------------------------------------------------
Valuation of Movestic Deferred Acquisition Costs intangible
asset
Key audit matter Acquisition costs relating to investment contracts comprise
description of directly attributable incremental acquisition costs,
which vary with, and are related to, securing new business.
Acquisition costs are recognised as a deferred acquisition
cost asset to the extent that they represent the contractual
right to future bene ts from the provision of investment
management service. The asset is amortised over the expected
term of the contract, as the fees relating to the provision
of the services are recognised.
There are a number of key judgement areas within this
balance, both in terms of the amortisation period selected
for the DAC and also in management's assessment of the
asset for impairment. The impairment assessment is most
sensitive to mortality, transfer, surrender, and expense
assumptions.
As at year end 2022, the DAC balance held on the group
balance sheet totalled GBP62.8m (2021: GBP63.3m), of
which GBP51.9m (2021: GBP53.6m) related to the Movestic
component. Due to the significance of the balance and
the uncertainty brought about by macroeconomic factors
and regulatory changes in the Swedish market, we identified
a key audit matter related to the valuation of the Movestic
DAC.
We have also deemed there to be a risk of fraud, due
to the inherent risk of management overriding internal
controls around the assumptions used in the impairment
assessment and determination of the amortisation period
applied.
The accounting policy adopted by the group is set out
in note 2(h) to the financial statements, with details
of the balance s heet movement in note 19 therewith.
----------------------- ------------------------------------------------------------------
How the scope In respect of the Movestic DAC we:
of our audit responded * gained an understanding of the relevant controls in
to the key audit place around the setting of the amortisation profile,
matter and the impairment test;
* assessed the rationale for the expense ledger
balances capitalised, and performed tests of detail
in respect of valuation which involved agreeing
acquisition costs back to contracts;
* created an expectation of the DAC balance using the
amounts capitalised through the period, offset with
the amortisation charge. We have also performed
investigation into any differences;
* with the involvement of actuarial specialists,
challenged the amortisation profile adopted by
management, by constructing a range of independent
amortisation profiles based on alternative data; and
* with the involvement of internal actuarial
specialists, challenged the reasonableness of
management's assumptions within the impairment test
by evaluating experience, supporting documents and
calculations.
----------------------- ------------------------------------------------------------------
Key observations Based on the procedures performed, we consider the DAC
valuation to be reasonable.
----------------------- ------------------------------------------------------------------
Valuation of Chesnara plc's investment in CA plc
Key audit matter Chesnara plc, the group's parent entity, holds a total
description investment of GBP414.1m (2021: GBP354.7m) on the company
balance sheet relating to its investment in group subsidiaries,
of which GBP142.9m (2021: GBP167.9m) related to the UK
entity, CA plc. The balance is held at cost less impairment.
In line with IAS 36 'Impairment of Assets', management
are required to carry out an impairment assessment if
there is indication of impairment loss at the balance
sheet date. Through the assessment management challenge
whether the investment in CA plc is carried at more or
less than the recoverable amount, which is the higher
of fair value less costs of disposal and value in use,
and therefore whether an impairment is required. Management
have historically deemed economic value ("EcV") to be
an appropriate proxy for the IAS 36 "value in use" within
their impairment assessment. Management's definition
of EcV has been set out on page 245 of the annual report.
In recent periods, the CA plc EcV has been on a downwards
trend due to the entity being closed to new business,
poor investment returns, and increasing pressures from
macroeconomic factors. The impairment assessment performed
by management at the balance sheet date highlighted GBP25.0m
(2021: GBP14m of headroom) of impairment over the carrying
value of the investment. We therefore identified a key
audit matter relating to the valuation of Chesnara plc's
investment in CA plc.
Due to the potential for management to introduce inappropriate
bias to judgements made in the impairment assessment,
we have determined that there was a risk of misstatement
due to fraud.
The accounting policy relating to the valuation of Chesnara
plc's investment in CA plc has been presented in note
2 (gg) of the financial statements, with details of the
balance and movement in note 18 therewith. The investment
in CA plc is also referred to in the Audit and Risk Committee
report on page 119 of the annual report.
----------------------- -----------------------------------------------------------------
How the scope In respect of the investment in CA plc:
of our audit responded * we gained an understanding of the relevant controls
to the key audit in place around the impairment assessment and EcV
matter valuation;
* we evaluated management's methodology and the
appropriateness of using EcV as a proxy for the
"value in use" with reference to the requirements of
IAS 36;
* we challenged management's assessment by performing
benchmarking against other recent industry
transactions to gain corroborative and contradictory
evidence; and
* with the support of our actuarial specialists, we
have tested the adjustments made to the IFRS balance
sheet to arrive at EcV.
----------------------- -----------------------------------------------------------------
Key observations Based on the procedures performed, we consider the carrying
value of Chesnara plc's investment in CA plc on the company
balance sheet to be appropriate.
----------------------- -----------------------------------------------------------------
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these
matters.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Chesnara plc we carried out the
following procedures:
(a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted from the
audited or draft financial statements and reflect the presentation
to be adopted in the audited financial statements;
(b) considered whether the information (including the management
commentary) is consistent with other expected contents of the
annual report;
(c) considered whether the financial information in the
preliminary announcement is misstated;
(d) considered whether the preliminary announcement includes a
statement by directors as required by section 435 of CA 2006 and
whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information and
whether:
-- the use, relevance and reliability of APMs has been explained;
-- the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of
calculation;
-- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented in the
financial statements of the corresponding period; and
-- comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative
disclosures and any final interim period figures and considered
whether they are fair, balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's 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 and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Matthew Perkins (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
29 March 2023
IFRS FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2022 2021
GBP000 GBP000
---------------------------------------------------------------------------------- ----------- -----------
Insurance premium revenue 317,457 312,046
Insurance premium ceded to reinsurers (44,821) (115,881)
----------------------------------------------------------------------------------- ----------- -----------
Net insurance premium revenue 272,636 196,165
Fee and commission income 93,380 89,975
Net investment return (1,487,013) 1,172,988
Other operating income 48,371 46,568
----------------------------------------------------------------------------------- ----------- -----------
Total revenue net of investment return (1,072,626) 1,505,696
----------------------------------------------------------------------------------- ----------- -----------
Insurance contract claims and benefits incurred
Claims and benefits paid to insurance contract holders (458,530) (506,490)
Net decrease/(increase) in insurance contract provisions 510,572 (23,577)
Reinsurers' share of claims and benefits 18,101 60,168
----------- -----------
Net insurance contract claims and benefits 70,143 (469,899)
----------- -----------
Change in investment contract liabilities 1,003,957 (902,579)
Reinsurers' share of investment contract liabilities (2,653) 4,110
----------- -----------
Net change in investment contract liabilities 1,001,304 (898,469)
----------- -----------
Fees, commission and other acquisition costs (43,432) (24,023)
Administrative expenses (85,097) (67,925)
Other operating expenses
Charge for amortisation of acquired value of in-force business (13,259) (8,184)
Charge for amortisation of acquired value of customer relationships (45) (55)
Other (8,700) (5,964)
----------------------------------------------------------------------------------- ----------- -----------
Total expenses net of change in insurance contract provisions and investment
contract liabilities 920,914 (1,474,519)
----------------------------------------------------------------------------------- ----------- -----------
Total (expenses)/income less expenses (151,712) 31,177
Post completion gain/(loss) on acquisition 15,361 (93)
Financing costs (10,549) (2,272)
----------------------------------------------------------------------------------- ----------- -----------
(Loss)/profit before income taxes (146,900) 28,812
Income tax credit/(expense) 48,567 (1,518)
(Loss)/profit for the year (98,333) 27,294
Items that may be reclassified subsequently to profit and loss:
Foreign exchange translation differences arising on the revaluation of foreign
operations 5, 785 (23,879)
Revaluation of land and buildings 674 369
----------------------------------------------------------------------------------- ----------- -----------
Other comprehensive income/(expenses) for the year, net of tax 6,459 (23,510)
----------------------------------------------------------------------------------- ----------- -----------
Total (expenses)/ comprehensive income for the year (91,874) 3,784
----------------------------------------------------------------------------------- ----------- -----------
Basic earnings per share (based on (loss)/earnings for the year) (65.45)p 18.18p
----------------------------------------------------------------------------------- ----------- -----------
Diluted earnings per share (based on (loss)/earnings for the year) (64.67)p 18.00p
----------------------------------------------------------------------------------- ----------- -----------
In accordance with the exemption allowed by section 408 of the
Companies Act 2006, the Company has not presented its own income
statement or statement of other comprehensive income. The Company
reported a loss of GBP16.4m (2021: profit GBP29.0m) during the
year. The retained profit for the financial year reported in the
financial statements of the Company was GBP175.2m (2021:
GBP225.0m).
CONSOLIDATED BALANCE SHEET
31 December 2022 2021
GBP000 GBP000
-------------------------------------------------------------------------- ---------- ---------
Assets
Intangible assets
Deferred acquisition costs 62,805 63,327
Acquired value of in-force business 96,922 49,629
Acquired value of customer relationships 268 320
Software assets 9,300 8,885
Property and equipment 7,894 7,830
Investment properties 94,481 1,071
Reinsurers' share of insurance contract provisions 196,315 247,750
Amounts deposited with reinsurers 32,803 38,295
Financial assets
Equity securities at fair value through income 79,233 6,352
Holdings in collective investment schemes at fair value through income 8,157,208 6,858,054
Debt securities at fair value through income 932,711 978,199
Policyholders' funds held by the group 1,130,476 990,700
Financial assets held at amortised cost 305,228 293,811
Derivative financial instruments 141 264
---------- ---------
Total financial assets 10,604,997 9,127,380
---------- ---------
Insurance and other receivables 36,672 35,613
Prepayments 15,630 13,245
Reinsurers' share of accrued policyholder claims 14,125 16,340
Income taxes 5,846 7,233
Cash and cash equivalents 175,294 70,087
--------------------------------------------------------------------------- ---------- ---------
Total assets 11,353,352 9,687,005
--------------------------------------------------------------------------- ---------- ---------
Liabilities
Insurance contract provisions 3,611,261 3,818,412
Other provisions 7,953 992
Financial liabilities
Investment contracts at fair value through income 5,804,869 4,120,572
Liabilities relating to policyholders' funds held by the group 1,130,476 990,700
Lease contract liabilities 1,233 2,019
Borrowings 211,976 47,185
Derivative financial instruments 3,850 -
---------- ---------
Total financial liabilities 7,152,404 5,160,476
---------- ---------
Deferred tax liabilities 8,095 15,699
Reinsurance payables 48,821 70,414
Payables related to direct insurance and investment contracts 149,723 129,262
Deferred income 2,383 2,809
Income taxes 4,426 6,527
Other payables 35,150 23,991
Bank overdrafts 19 256
--------------------------------------------------------------------------- ---------- ---------
Total liabilities 11,020,235 9,228,838
--------------------------------------------------------------------------- ---------- ---------
Net assets 333,117 458,167
--------------------------------------------------------------------------- ---------- ---------
Shareholders' equity
Share capital 7,502 7,496
Merger reserve 36,272 36,272
Share premium 142,332 142,085
Other reserves 13,721 7,262
Retained earnings 133,290 265,052
--------------------------------------------------------------------------- ---------- ---------
Total shareholders' equity 333,117 458,167
--------------------------------------------------------------------------- ---------- ---------
Approved by the board of directors and authorised for issue on
29 March 2023 and signed on its behalf by:
Luke Savage Steve Murray
Chairman Chief Executive Officer
Company Number: 04947166
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2022 2021
GBP000 GBP000
--------------------------------------------- --------- ---------
Profit for the year (98,333) 27,294
Adjustments for:
Depreciation of property and equipment 732 749
Amortisation of deferred acquisition
costs 13,571 13,370
Impairment of acquired value of in-force
business - -
Amortisation of acquired value of
in-force business 13,259 8,184
Amortisation of acquired value of
customer relationships 45 55
Amortisation of software assets 1,785 1,382
Depreciation on right of use assets 659 739
Interest on lease liabilities 28 95
Share based payment 867 593
Tax paid (32,268) 1,518
Interest receivable (9,530) (2,269)
Dividends receivable (1,519) (614)
Interest expense 10,521 2,177
Fair value gains on financial assets 1,219,377 (990,914)
Profit arising on acquisition (15,361) -
Increase in intangible assets related
to insurance and investment contracts (13,704) (8,938)
Interest received 9,626 2,493
Dividends received 1,458 1,930
Changes in operating assets and liabilities:
Increase in financial assets (31,148) (187,975)
Decrease/(increase) in reinsurers'
share of insurance contract provisions 54,013 (37,747)
Decrease in amounts deposited with
reinsurers 5,492 5,858
Decrease in insurance and other receivables 11,690 5,980
Increase in prepayments (2,149) (873)
(Decrease)/increase in insurance
contract provisions (422,279) 15,534
(Decrease)/increase in investment
contract liabilities (755,826) 1,098,809
(Decrease)/increase in provisions (2,827) 445
(Decrease)/increase in reinsurance
payables (21,564) 67,766
Increase in payables related to direct
insurance and investment contracts 17,141 35,701
Decrease in other payables (12,755) (24,950)
---------------------------------------------- --------- ---------
Net cash (utilised by)/generated
from operations (58,999) 36,392
Income tax paid (12,121) (9,796)
---------------------------------------------- --------- ---------
Net cash (utilised by)/generated
from operating activities (71,120) 26,596
---------------------------------------------- --------- ---------
Cash flows from investing activities
Development of software (2,400) -
Acquisition of subsidiary, net of
cash acquired 55,557 -
Purchases of property and equipment (1,106) (3,636)
Net cash generated from/(utilised
by) investing activities 52,051 (3,636)
---------------------------------------------- --------- ---------
Cash flows from financing activities
Net proceeds from the issue of share
capital 253 -
Net proceeds of Tier 2 debt raise 196,542 -
Proceeds from borrowings 2,013 -
Repayments of borrowings (37,135) (16,102)
Repayment of lease liabilities (342) (598)
Dividends paid (34,296) (33,276)
Interest paid (5,801) (2,271)
---------------------------------------------- --------- ---------
Net cash generated from/(utilised
by) financing activities 121,234 (52,247)
---------------------------------------------- --------- ---------
Net decrease in net cash and cash
equivalents 102,165 (29,287)
Net cash and cash equivalents at
beginning of year 69,831 103,706
Effect of exchange rate changes on
net cash and cash equivalents 3,279 (4,588)
---------------------------------------------- --------- ---------
Net cash and cash equivalents at
end of the year 175,275 69,831
---------------------------------------------- --------- ---------
Note: Net cash and cash equivalents includes overdrafts.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December
2022 Share capital Share premium Merger reserve Other reserves Retained earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------------- ------------- -------------- -------------- ----------------- ---------
Equity shareholders' funds
at 1 January 2022 7,496 142,085 36,272 7,262 265,052 458,167
Profit for the year - - - - (98,333) (98,333)
Dividends paid - - - - (34,296) (34,296)
Foreign exchange
translation differences - - - 5,785 - 5,785
Revaluation of land and
buildings - - - 674 - 674
Issue of share capital 6 - - - - 6
Issue of share premium - 247 - - - 247
Share based payment - - - - 867 867
Equity shareholders' funds
at 31 December 2022 7,502 142,332 36,272 13,721 133,290 333,117
-------------------------- ------------- ------------- -------------- -------------- ----------------- ---------
Year ended 31 December 2021 Share capital Share premium Merger reserve Other reserves Retained earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------- ------------- -------------- -------------- ----------------- --------
Equity shareholders' funds
at 1 January 2021 (as
previously stated) 43,768 142,085 - 30,772 270,442 487,067
Transfer to merger reserve (36,272) - 36,272 - - -
--------------------------- ------------- ------------- -------------- -------------- ----------------- --------
Equity shareholders' funds
at 1 January 2021
(restated) 7,496 142,085 36,272 30,772 270,442 487,067
Profit for the year - - - - 27,294 27,294
Dividends paid - - - - (33,277) (33,277)
Foreign exchange
translation differences - - - (23,879) - (23,879)
Revaluation of land and
buildings - - - 369 - 369
Share based payment - - - - 593 593
Equity shareholders' funds
at 31 December 2021 7,496 142,085 36,272 7,262 265,052 458,167
--------------------------- ------------- ------------- -------------- -------------- ----------------- --------
NOTES TO THE CONSOLIDATED IFRS FINANCIAL STATEMENTS
1. Basis of presentation
The preliminary announcement is based on the group's financial
statements for the year ended 31 December 2022, which are prepared
in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union.
2. Significant accounting policies
The accounting policies applied by the group in determining the
IFRS basis results in this report are the same as those previously
applied in the group's consolidated financial statements.
3. 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 31 December 2022 comprise:
UK: This segment represents 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 of City of Westminster Assurance Company Limited
which was acquired in 2005 and the long-term business of which was
transferred to Countrywide Assured plc (CA) during 2006. This
segment also contains Save & Prosper Insurance Limited which
was acquired on 20 December 2010 and its then subsidiary Save &
Prosper Pensions Limited. The S&P business was transferred to
CA during 2011. This segment also contains the business of
Protection Life, which was purchased on 28 November 2013 and the
business of which was transferred to CA effective from 1 January
2015. This also includes the acquisition of Sanlam Life and
Pensions (UK) Limited (SLP) on 28 April 2022, subsequently the
legal name changed to CASLP. CA & CASLP are responsible for
conducting 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'.
Movestic: This segment comprises the group's Swedish life and
pensions business, Movestic Livförsäkring AB ('Movestic') and its
subsidiary company Movestic Kapitalforvaltning AB (investment fund
management company) which are open to new business, and which are
responsible for conducting both unit-linked and pensions and
savings business and providing some life and health product
offerings.
Waard Group: This segment represents the group's closed Dutch
life and general insurance business, which was acquired on 19 May
2015 and comprised the three insurance companies Waard Leven N.V.,
Hollands Welvaren Leven N.V. and Waard Schade N.V., and a servicing
company, Waard Verzekering. During 2017, the book of policies held
within Hollands Welvaren Leven N.V. was successfully integrated
into Waard Leven and consequently Hollands Welvaren Leven N.V. was
deregistered on 19 December 2018. 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. On 1 October
2019, the Waard Group acquired a small portfolio of policies from
Monuta insurance, which consists of term and savings policies. On
21 November 2019, the Waard Group completed a deal to acquire a
portfolio of term life insurance policies and saving mortgages
insurance policies. The completion took place on the 31 August
2020, at which stage Waard Group obtained control. On 31 December
2020, Waard entered into an agreement to acquire a portfolio of
term life insurance policies, Unit Linked policies and funeral
insurance policies from Dutch insurance provider Brand New Day
Levensverzekeringen N.V. (BND). The portfolio was successfully
migrated on 10 April 2021. On 25 November 2021, Waard entered into
an agreement with Monument Re Group to acquire Robein Leven, a
specialist provider of traditional and linked savings products,
mortgages and annuities in the Netherlands. The acquisition was
successfully completed on 28 April 2022, thereby extending the
existing group. 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 open 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 parent
company, 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
of the reporting segments and the group as a whole. There were no
changes to the measurement basis for segment profit during the year
ended 31 December 2022.
(i) Segmental income statement for the year ended 31 December 2022
Other
Group
Movestic Waard Scildon activities
UK (Sweden) Group (Netherlands) (UK) Total
(Netherlands)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Insurance premium revenue 33,065 12,120 32,128 240,144 - 317,457
Insurance premium ceded to
reinsurers (14,170) (4,651) (3,776) (22,224) - (44,821)
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Net insurance premium
revenue 18,895 7,469 28,352 217,920 - 272,636
Fee and commission income 27,928 15,927 133 49,392 - 93,380
Net investment return (297,659) (876,844) (6,599) (302,326) (3,585) (1,487,013)
Other operating income 17,704 30,667 - - - 48,371
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Segmental revenue, net of
investment return (233,132) (822,781) 21,886 (35,014) (3,585) (1,072,626)
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Net insurance contract
claims
and benefits incurred 137,517 (937) (23,640) (42,797) - 70,143
Net change in investment
contract liabilities 130,099 871,205 - - - 1,001,304
Fees, commission and other
acquisition costs (20,827) (22,348) (1,303) (390) - (44,868)
Administrative expenses:
Depreciation charge on
property
and equipment (36) - - - - (36)
Other (25,081) (13,287) (6,939) (25,523) (14,231) (85,061)
Operating expenses (2) (8,698) - - - (8,700)
Financing costs (228) (823) (1) - (9,497) (10,549)
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
(Loss)/profit before tax
and consolidation
adjustments (11,690) 2,331 (9,997) (103,724) (27,313) (150,393)
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Other operating expenses:
Charge for amortisation of
acquired value of in-force
business (7,075) (2,171) (830) (3,183) - (13,259)
Charge for amortisation of
acquired value of customer
relationships - (45) - - - (45)
Fees, commission and other
acquisition costs - 1,312 - 124 - 1,436
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Segmental income less
expenses (18,765) 1,427 (10,827) (106,783) (27,313) (162,261)
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
Post completion gain on
portfolio
acquisition 9,565 -- 5,796 - - 15,361
----------------------------- ---------- ----------- ---------------- ---------------- ------------ ------------
(Loss)/profit before tax (9,200) 1,427 (5,031) (106,783) (27,313) (146,900)
Income tax credit 14,177 14 1,307 27,686 5,383 48,567
---------- ----------- ---------------- ---------------- ------------ ------------
(Loss)/profit after tax 4,977 1,441 (3,724) (79,097) (21,930) (98,333)
---------- ----------- ---------------- ---------------- ------------ ------------
(ii) Segmental balance sheet as at 31 December 2022
Other Group
Movestic Waard Group Scildon Activities
UK (Sweden) (Netherlands) (Netherlands) (UK) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ----------- ----------- --------------- --------------- ------------------ ------------
Total assets 4,772,475 3,952,482 587,787 1,927,937 112,671 11,353,352
Total liabilities (4,601,373) (3,850,513) (519,950) (1,846,714) (201,685) (11,020,235)
------------------- ----------- ----------- --------------- --------------- ------------------ ------------
Net assets 171,102 101,969 67,837 81,223 (89,014) 333,117
------------------- ----------- ----------- --------------- --------------- ------------------ ------------
Investment in - - - - - -
associates
------------------- ----------- ----------- --------------- --------------- ------------------ ------------
Additions to
non-current assets - 10,548 254 769 - 11,571
------------------- ----------- ----------- --------------- --------------- ------------------ ------------
(iii) Segmental income statement for the year ended 31 December
2021
Movestic Waard Group Scildon Other Group Activities
UK (Sweden) (Netherlands) (Netherlands) (UK) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- -------- ---------- --------------- --------------- ---------------------- ---------
Insurance premium
revenue 36,004 13,796 32,546 229,700 - 312,046
Insurance premium
ceded to reinsurers (87,353) (5,374) (3,406) (19,748) - (115,881)
Net insurance premium
revenue (51,349) 8,422 29,140 209,952 - 196,165
Fee and commission
income 22,140 18,029 76 49,730 - 89,975
Net investment return 179,662 821,381 11,928 160,006 11 1,172,988
Other operating income 13,681 32,887 - - - 46,568
---------------------- -------- ---------- --------------- --------------- ---------------------- ---------
Segmental revenue, net
of investment return 164,134 880,719 41,144 419,688 11 1,505,696
---------------------- -------- ---------- --------------- --------------- ---------------------- ---------
Net insurance contract
claims and benefits
incurred (34,545) (2,787) (35,849) (396,718) - (469,899)
Net change in
investment contract
liabilities (77,568) (820,901) - - - (898,469)
Fees, commission and
other acquisition
costs (316) (23,598) (713) (1,816) - (26,443)
Administrative
expenses:
Amortisation charge
on software assets - (1,306) - (36) - (1,342)
Depreciation charge
on property and
equipment - (115) (54) (577) - (746)
Other (16,090) (12,794) (4,407) (20,992) (11,554) (65,837)
Operating expenses 5 (5,972) - - 3 (5,964)
Financing costs - (1,179) (1) - (1,092) (2,272)
Profit/(loss) before
tax and consolidation
adjustments 35,620 12,067 120 (451) (12,632) 34,724
---------------------- -------- ---------- --------------- --------------- ---------------------- ---------
Other operating
expenses:
Charge for
amortisation of
acquired value of
in-force business (1,443) (2,467) (838) (3,436) - (8,184)
Charge for
amortisation of
acquired value of
customer
relationships - (55) - - - (55)
Fees, commission and
other acquisition
costs - 1,878 - 542 - 2,420
Segmental income less
expenses 34,177 11,423 (718) (3,345) (12,632) 28,905
Post completion gain
on portfolio
acquisition - - (93) - - (93)
Profit/(loss) before
tax 34,177 11,423 (811) (3,345) (12,632) 28,812
Income tax
(expense)/credit (4,979) (1) 188 444 2,830 (1,518)
--------
Profit/(loss) after
tax 29,198 11,422 (623) (2,901) (9,802) 27,294
-------- ---------- --------------- --------------- ---------------------- ---------
(iv) Segmental balance sheet as at 31 December 2021
Other Group
Movestic Waard Group Scildon Activities
UK (Sweden) (Netherlands) (Netherlands) (UK) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ----------- ----------- --------------- --------------- ------------------- -----------
Total assets 2,551,611 4,568,400 389,846 2,122,474 54,674 9,687,005
Total liabilities (2,420,861) (4,462,163) (347,961) (1,963,052) (34,801) (9,228,838)
------------------- ----------- ----------- --------------- --------------- ------------------- -----------
Net assets 130,750 106,237 41,885 159,422 19,873 458,167
------------------- ----------- ----------- --------------- --------------- ------------------- -----------
Investment in - - - - - -
associates
------------------- ----------- ----------- --------------- --------------- ------------------- -----------
Additions to
non-current assets - 11,590 197 4,483 - 16,270
------------------- ----------- ----------- --------------- --------------- ------------------- -----------
4. Borrowings
Group
31 December
2022 2021
GBP000 GBP000
------------------------------------------------ ------- -------
Bank loan - 31,273
Tier 2 Debt 200,356 -
Amount due in relation to financial reinsurance 9,607 15,912
Amount due in relation to financial reinsurance 2,013 -
------------------------------------------------ ------- -------
Total 211,976 47,185
------------------------------------------------ ------- -------
Current 204,327 36,907
Non-current 7,649 10,278
------------------------------------------------ ------- -------
Total 211,976 47,185
------------------------------------------------ ------- -------
Company
31 December
2022 2021
GBP000 GBP000
------------- ------- -------
Bank loan - 31,273
Tier 2 Debt 200,356 -
------------- ------- -------
Total 200,356 31,273
Current 200,356 31,273
Non-current - -
------------- ------- -------
Total 200,356 31,273
------------- ------- -------
In 2022, the bank loan was fully repaid and replaced by Tier 2
Subordinated Notes Debt. The fair value of amounts due in relation
to Tier 2 debt at 31 December 2022 was GBP148.0m (31 December 2021:
GBPnil).
The bank loan as at 31 December 2021 comprised 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. During the year, the
London Inter-Bank Offer Rate changed to Sterling Overnight Index
Average (SONIA) as a reference point. 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.
- In April 2018 we converted our existing debt arrangement with
RBS into a syndicated facility. This will provide access to higher
levels of debt financing from a wider panel of lenders, which in
turn will enable us to fulfil our appetite of financing future
deals up to the maximum levels of gearing set out in our debt and
leverage policy, without being restricted by the lending capacity
of one individual institution. This facility enables Chesnara to
access an increased level of funds efficiently, which in turn
supports our acquisition strategy.
The fair value of the sterling denominated bank loan at 31
December 2022 was GBPnil (31 December 2021: GBP12.0m).
The fair value of the euro denominated bank loan at 31 December
2022 was GBPnil (31 December 2021: GBP18.5m).
The fair value of amounts due in relation to financial
reinsurance at 31 December 2022 was GBP9.0m (31 December 2021:
GBP16.4m).
Bank loans are presented net of unamortised arrangement fees.
Arrangement fees are recognised in profit or loss using the
effective interest rate method.
5. Earnings per share
Earnings per share are based on the following:
Year ended 31 December 2022 2021
Profit for the year attributable to shareholders (GBP000) (98,333) 27,294
Weighted average number of ordinary shares 150,239,599 150,118,548
Basic earnings per share (65,45)p 18.18p
Diluted earnings per share (64,67)p 18.00p
The weighted average number of ordinary shares in respect of the
year ended 31 December 2022 is based upon 150,369,603 shares. No
shares were held in treasury.
There were 1,815,601 share options outstanding at 31 December
2022 (2021: 1,501,566). Accordingly, there is dilution of the
average number of ordinary shares in issue in respect of 2021 and
2022.
6. Retained earnings
Group
Year ended 31 December
2022 2021
GBP000 GBP000
--------------------------------------------------------------------------------- -------- --------
Retained earnings attributable to equity holders of the parent company comprise:
Balance at 1 January 265,052 270,442
Profit for the year (98.333) 27,294
Share based payment 867 593
Dividends
Final approved and paid for 2020 - (21,446)
Interim approved and paid for 2021 - (11,831)
Final approved and paid for 2021 (22,101) -
Interim approved and paid for 2022 (12,195) -
--------------------------------------------------------------------------------- -------- --------
Balance at 31 December 133,290 265,052
--------------------------------------------------------------------------------- -------- --------
The interim dividend in respect of 2021, approved and paid in
2021 was paid at the rate of 7.88p per share. The final dividend in
respect of 2021, approved and paid in 2022, was paid at the rate of
14.72p per share so that the total dividend paid to the equity
shareholders of the parent company in respect of the year ended 31
December 2021 was made at the rate of 22.60p per share.
The interim dividend in respect of 2022, approved and paid in
2022, was paid at the rate of 8.12p per share to equity
shareholders of the parent company registered at the close of
business on 21 October 2022, the dividend record date.
A final dividend of 15.16p per share in respect of the year
ended 31 December 2022 payable on 26 May 2023 to equity
shareholders of the parent company registered at the close of
business on 6 April 2023, the dividend record date, was approved by
the directors after the balance sheet date. The resulting total
final dividend of GBP22.8m has not been provided for in this
preliminary announcement and there are no income tax
consequences.
The following summarises dividends per share in respect of the
year ended 31 December 2021 and 31 December 2022:
Year ended 31 December
2022 2021
P P
---------------------------- ----- -----
Interim - approved and paid 8.12 7.88
Final - proposed/paid 15.16 14.72
---------------------------- ----- -----
Total 23.28 22.60
---------------------------- ----- -----
7. Related parties
(a) Identity of related parties
The shares of the company were widely held and no single
shareholder exercised significant influence or control over the
company.
The company has related party relationships with:
(i) key management personnel who comprise the directors
(including non-executive directors) of the company;
(ii) its subsidiary companies;
(iii) other companies over which the directors have significant
influence; and
(iv) transactions with persons related to key management personnel.
(b) Related party transactions
(i) Transactions with key management personnel.
Key management personnel comprise of the directors of the
company. This is on the basis that the group's governance map
requires all strategically significant decisions to be approved by
the group board. As such, they have the authority and
responsibility for planning, directing and controlling the
activities of the group. Key management compensation is as
follows:
2022 2021
GBP000 GBP000
----------------------------- ------- -------
Short-term employee benefits 1,204 2,342
Post-employment benefits 65 85
Share-based payments 869 593
Total 2,138 3,020
----------------------------- ------- -------
The share-based payments charge comprises GBP0.3m (2021:
GBP0.2m) of Short-term Incentive Scheme (STI), and GBP0.2m (2021:
GBP0.2m) related to Long-term Incentive Scheme (LTI), which is
determined in accordance with IFRS 2 'Share based Payment'.
In addition to their salaries the company also provides non-cash
benefits to directors and contributes to a post-employment defined
contribution pension plan on their behalf, or where regulatory
contribution limits are reached, pay an equivalent amount as an
addition to base salary.
The following amounts were payable to directors in respect of
bonuses and incentives:
2022 2021
GBP000 GBP000
------------------------------------------------------------------------- ------- -------
Annual bonus scheme (included in the short-term employee benefits above) 546 934
------------------------------------------------------------------------- ------- -------
The amounts payable under the annual bonus scheme were payable
within one year.
(ii) Transactions with subsidiaries
The company undertakes centralised administration functions, the
costs of which it charges back to its operating subsidiaries. The
following amounts which effectively comprised a recovery of
expenses at no mark up were credited to the Statement of
Comprehensive Income of the company for the respective periods:
Year ended 31 December
2022 2021
GBP000 GBP000
----------------------- ------- -------
Recovery of expenses 4,762 4,771
----------------------- ------- -------
(iii) Transactions with persons related to key management personnel
During the year, there were no transactions with persons related
to key management personnel (31 December 2021: GBPnil).
8. Business combination & portfolio acquisition
On 13 September 2021, Chesnara has entered into an agreement
with Sanlam UK Limited to acquire Sanlam Life & Pensions UK
Limited (now CASLP), a specialist provider of insurance and
long-term savings products in the UK. The acquisition was completed
on 28 April 2022. CASLP is a specialist provider of insurance and
long-term savings products in the UK, with approximately GBP2.9
billion of assets under administration and 80,000 policies. The
acquisition of CASLP was initially announced in September 2021.
The acquisition has given rise to an immediate profit of
GBP9.6m, calculated as follows:
Book value Fair value adjustments Fair value
GBP000 GBP000 GBP000
----------------------------------------------------------- ---------- ---------------------- ----------
Assets
Intangible assets
Acquired value of in-force business - 59,579 59,579
Property and equipment 46 - 46
Investment properties 102,974 - 102,974
Reinsurers' share of insurance contract provisions 1,014 - 1,014
Financial assets 2,612,574 2,612,574
Other assets and receivables 15,084 - 15,084
Cash and cash equivalents 93,407 - 93,407
Total assets 2,825,099 59,579 2,884,678
----------------------------------------------------------- ---------- ---------------------- ----------
Liabilities
Insurance contract provisions 209,640 - 209,640
Other provisions 9,809 - 9,809
Investment contracts at fair value through profit and loss 2,547,789 - 2,547,789
Deferred tax liabilities 9,787 40,548 50,335
Other payables 19,690 - 19,690
Total liabilities 2,796,715 40,548 2,837,263
----------------------------------------------------------- ---------- ---------------------- ----------
Net assets 28,384 19,031 47,415
----------------------------------------------------------- ---------- ---------------------- ----------
Net assets acquired 47,415
Total consideration, paid in cash (37,850)
Profit arising on business combination 9,565
----------------------------------------------------------- ---------- ---------------------- ----------
There has been a change in the valuation of the profit arising
on business combination from what was reported in the group's Half
Year Report for the 6 months ended 30 June 2022. Under IFRS 3
Business Combination, it allows a period of 12 months from the
acquisition date to refresh our estimates. In our half year 2022
reporting, our valuation was based on 31 March 2022. This was
refined post half year and at the year-end the valuation was based
on the actual acquisition date, 28 April 2022.
The Acquired Value of In-force business (AVIF) has materially
changed since the half year reporting. This was due to the change
in discount rate used in the calculation of the AVIF business to
take into account the weighted average cost of capital in Chesnara
plc. The discount rate used was 5.75% at the half-year, and 8.0% in
the final AVIF calculation. The run-off profile for the AVIF is
over a 30 year period.
The other material changes were related to the financial assets
and cash and cash equivalents, which takes into account an
additional month of transactions and market fluctuations.
The assets and liabilities at the acquisition date have been
amended compared with what was reported in the group's Half Year
Report for the 6 months ended 30 June 2022. This is because the
information disclosed at that point in time included some
provisional numbers. These have now been finalised following a
review that was completed during the second half of 2022.
Acquired value of in-force business: The acquisition has
resulted in the recognition of net of a tax intangible asset
amounting to GBP19.0m, 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 GBP9.6m has been
recognised on acquisition. Under IFRS 3, a gain on acquisition is
defined as being a "bargain purchase". A day one gain has arisen on
business combination, as by applying the pricing model that we
generally adopt, we offered a purchase price which was at a
discount to our own assessment of the value of the net assets to be
acquired.
Acquisition-related costs: Chesnara concluded the deal and
obtained control of CASLP as of 28 April 2022. The consideration
transferred by Chesnara for the acquisition of CASLP consisted of
cash totalling GBP37.9m. There was also a capital contribution made
by Chesnara to CASLP amounting to GBP25m immediately following
completion. The costs in respect of the transaction amounted to
GBP1.7m which have been included within the "Administrative
Expenses" on the Consolidated Statement of Comprehensive
Income.
Results of CASLP: The results of CASLP have been included in the
consolidated financial statements of the Group with effect from 28
April 2022. Net insurance premium revenue for the period was
GBP1.2m, with contribution to overall consolidated loss before tax
of GBP11.2m, before the amortisation of the AVIF and deferred
acquisition cost intangible assets. Had CASLP been consolidated
from 1 January 2022, the Consolidated Statement of Comprehensive
Income would have included net insurance premium revenue of GBP1.9m
and would have contributed GBP25.7m to the overall consolidated
loss before tax.
On 25 November 2021, the Waard Group, has agreed to acquire 100%
of the shares of Robein Leven N.V. and its subsidiary, a specialist
provider of traditional and linked savings products, mortgages and
annuities in the Netherlands, from Monument Re Group. The
completion took place on 28 April 2022. The consideration
transferred by Waard Leven for the acquisition of Robein consisted
of cash amounting to GBP14.1m.
The transaction has given rise to a post completion profit on
acquisition of GBP5.8m calculated as follows:
Fair value
GBP'000
-------------------------------------------------- ----------
Assets
Financial assets 202,908
Investment in subsidiaries (1) 1,461
Other assets and receivables 4,784
Cash and cash equivalents 7,301
Total assets 216,454
---------------------------------------------------- ----------
Liabilities
Insurance contract provisions 188,279
Value of business acquired 1,645
Investment contracts at fair value through income 6,245
Total liabilities 196,168
---------------------------------------------------- ----------
Net assets 20,286
---------------------------------------------------- ----------
Net assets acquired 20,286
Total consideration, paid in cash (14,490)
Post completion profit on portfolio acquisition 5,796
---------------------------------------------------- ----------
The investment in subsidiaries relates to Robein Effecten
Dienstverlening, which is subsidiary of Robein Leven.
There has been a change in the valuation of the profit arising
on business combination from the reported half year position.
Under, IFRS 3 Business Combination, it allows a period of 12 months
from the acquisition date to refresh our estimates. There was a
material increase in financial assets reported at half year
compared to year-end.
The insurance portfolio and the related assets from are
transferred from Robein into Waard Leven on 27 December 2022. At
the date of transfer, Robein will remain a separate legal entity
within the group structure of Waard. The insurance license held by
Robein will be forfeited. In the course of financial year 2023 most
of the owns funds will be paid out as a dividend to Waard
Leven.
Profit on acquisition : A profit of GBP5.8m has been recognised
on acquisition. This profit on acquisition has been recorded as a
"post completion gains on portfolio acquisition" on the face of the
statement of comprehensive income. A day one gain has arisen on
business combination, as by applying the pricing model that we
generally adopt, we offered a purchase price which was at a
discount to our own assessment of the value of the net assets to be
acquired.
Acquisition-related costs: Waard Leven incurred costs of around
GBP0.2m in relation to the acquisition.
The assets and liabilities acquired fare included within changes
in insurance provisions and financial assets within operating cash
flows on the face of the cash flow statement.
Results of Robein Leven: The results of Robein Leven have been
included in the consolidated financial statements of the Group with
effect from 28 April 2022, within Waard Group. Had Robein Leven
been consolidated from 1 January 2022, the Consolidated Statement
of Comprehensive Income would have contributed GBP0.2m to the
overall consolidated profit before tax.
During the year, Waard also acquired 3,000 policies in August
2022 from SRLEV N.V. in the Netherlands. As Waard was already
administering these policies as Proxy Agent on behalf of the
vendor, the integration of the policies was completed in a short
time frame.
FINANCIAL CALAR
30 March 2023
Results for the year ended 31 December 2022 announced
06 April 2023
Ex-dividend date
11 April 2023
Dividend record date
27 April 2023
Last date for dividend reinvestment plan elections
16 May 2023
Annual General Meeting
26 May 2023
Dividend payment date
21 September 2023
Half year results for the 6 months ending
30 June 2023 announced
KEY CONTACTS
Registered and head office
2(nd) Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
T : 01772 972050
www.chesnara.co.uk
Advisors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2HA
Addleshaw Goddard LLP
One St Peter's Square
Manchester
M2 3DE
Burness Paull LLP
Exchange Plaza
50 Lothian Road
Edinburgh
EH3 9WJ
Auditor
Deloitte LLP
Statutory Auditor
3 Rivergate
Temple Quay
Bristol
BS1 6GD
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Joint Stockbrokers and
Corporate Advisors
Panmure Gordon
40 Gracechurch Street
London
EC3V 0BT
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
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
ALTERNATIVE PERFORMANCE MEASURES
Throughout this report we use alternative performance measures
(APMs) to supplement the assessment and reporting of the
performance of the group. These measures are those that are not
defined by statutory reporting frameworks, such as IFRS or Solvency
II.
The APMs aim to assess performance from the perspective of all
stakeholders, providing additional insight into the financial
position and performance of the group and should be considered in
conjunction with the statutory reporting measures such as IFRS and
Solvency II.
The following table identifies the key APMs used in this report,
how each is defined and why we use them.
APM What is it? Why do we use it?
=================== ============================================================ ===================================
Group cash Cash generation is used by the group Cash generation is a key
generation as a measure of assessing how much measure, because it is the
dividend potential has been generated, net cash flows to Chesnara
subject to ensuring other constraints from its life and pensions
are managed. businesses which support
Group cash generation is calculated Chesnara's dividend-paying
as the movement in the group's surplus capacity and acquisition
own funds above the group's internally strategy. Cash generation
required capital, as determined can be a strong indicator
by applying the group's capital of how we are performing
management policy, which has Solvency against our stated objective
II rules at its heart. of 'maximising value from
existing business'.
=================== ============================================================ ===================================
Divisional Cash generation is used by the group It is an important indicator
cash generation as a measure of assessing how much of the underlying operating
dividend potential has been generated, performance of the business
subject to ensuring other constraints before the impact of group
are managed. level operations and consolidation
Divisional cash generation represents adjustments.
the movement in surplus own funds
above local capital management policies
within the three operating divisions
of Chesnara. Divisional cash generation
is used as a measure of how much
dividend potential a division has
generated, subject to ensuring other
constraints are managed.
=================== ============================================================ ===================================
Commercial Cash generation is used by the group Commercial cash generation
cash generation as a measure of assessing how much aims to provide stakeholders
dividend potential has been generated, with enhanced insight into
subject to ensuring other constraints cash generation, drawing
are managed. out components of the result
Commercial cash generation excludes relating to technical complexities
the impact of technical adjustments, or exceptional items. The
modelling changes and corporate result is deemed to better
acquisition activity; representing reflect the underlying commercial
the underlying commercial cash generated performance, showing the
by the business. key drivers within that.
=================== ============================================================ ===================================
Economic EcV is a financial metric that is EcV aims to reflect the
Value (EcV) derived from Solvency II Own Funds. market-related
It provides a market consistent value of in-force business
assessment of the value of existing and net assets of the
insurance businesses, plus adjusted non-insurance
net asset value of the non-insurance business and hence is an
business within the group. important reference point
We define EcV as being the Own Funds by which to assess Chesnara's
adjusted for contract boundaries, value. A life and pensions
risk margin and restricted with-profit group may typically be
surpluses. As such, EcV and Own characterised
Funds have many common characteristics as trading at a discount
and tend to be impacted by the same or premium to its Economic
factors. 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.
=================== ============================================================ ===================================
Economic The principal underlying components By recognising the market-related
Value (EcV) of the Economic Value earnings are: value of in-force business
earnings * The expected return from existing business (being the (in-force value), a different
effect of the unwind of the rates used to discount perspective is provided in
the value in-force); the performance of the group
and on the valuation of the
business. Economic Value
* Value added by the writing of new business; earnings are an important
KPI as they provide a longer-term
measure of the value generated
* Variations in actual experience from that assumed in during a period. The Economic
the opening valuation; Value earnings of the group
can be a strong indicator
of how we have delivered
* The impact of restating assumptions underlying the against all three of our
determination of expected cash flows; and core strategic objectives.
* The impact of acquisitions.
=================== ============================================================ ===================================
EcV operating This is the element of EcV earnings EcV operating earnings are
earnings (see above) that are generated from important as they provide
the company's ongoing core business an indication of the underlying
operations, excluding any profit value generated by the business.
earned from investment market conditions It can help identify profitable
in the period and any economic assumption activities and also inefficient
changes in the future. processes and potential management
actions.
=================== ============================================================ ===================================
EcV economic This is the element of EcV earnings EcV economic earnings are
earnings (see above) that are derived from important in order to measure
investment market conditions in the additional value generated
the period and any economic assumption from investment market factors.
changes in the future.
=================== ============================================================== =================================
Commercial A more commercially relevant measure This provides a fair commercial
new business of new business profit than that reflection of the value added
profit recognised directly under the Solvency by new business operations
II regime, allowing for a modest and is more comparable with
level of return, over and above how new business is reported
risk-free, and exclusion of the by our peers, improving market
incremental risk margin Solvency consistency.
II assigns to new business.
=================== ============================================================== =================================
Funds under FuM reflects the value of the financial FuM are important as it provides
management assets that the business manages, an indication of the scale
(FuM) as reported in the IFRS Consolidated of the business, and the
Balance Sheet. potential future returns
that can be generated from
the assets that are being
managed.
=================== ============================================================== =================================
Operating A measure of the pre-tax profit Operating earnings are important
profit, excluding earned from the company's ongoing as they provide an indication
AVIF impairment business operations, excluding any of the underlying profitability
profit earned from investment market of the business. It can help
conditions in the period and any identify profitable activities
economic assumption changes in the and also inefficient processes
future. This also excludes any intangible and potential management
asset adjustments that are not practicable actions.
to ascribe to either operating or
economic conditions.
=================== ============================================================== =================================
Economic A measure of pre-tax profit earned Economic earnings are important
profit, excluding from investment market conditions in order to measure the surplus
AVIF impairment in the period and any economic assumption generated from investment
changes. This also excludes any market factors.
intangible asset adjustments that
are not practicable to ascribe to
either operating or economic conditions.
=================== ============================================================== =================================
Acquisition Acquisition value gains reflect The EcV gain from acquisition
value gain the incremental Economic Value added will be net of any associated
(incremental by a transaction, exclusive of any increase in risk margin.
value) additional risk margin associated The risk margin is a temporary
with absorbing the additional business. Solvency II dynamic which
will run off over time.
=================== ============================================================== =================================
Leverage A financial measure that demonstrates It is an important measure
/ gearing the degree to which the company as it indicates the overall
is funded by debt financing versus level of indebtedness of
equity capital, presented as a ratio. Chesnara, and it is also
It is defined as debt divided by a key component of the bank
debt plus equity, as measured under covenant arrangements held
IFRS. by Chesnara.
=================== ============================================================== =================================
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.
BAU Cash Generation This represents divisional cash generation plus the impact of non-exceptional group
activity.
BLAGAB Basic life assurance and general annuity business
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.
Commercial Cash Generation Cash generation excluding the impact of technical adjustments, modelling changes and
exceptional
corporate activity; the underlying commercial cash generated by the business.
Divisional Cash Generation This represents the cash generated by the three operating divisions of Chesnara (UK,
Sweden
and the Netherlands), exclusive of 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., Waard Schade N.V. and Waard
Verzekeringen
B.V.
Economic Profit A measure of pre-tax profit earned from investment market conditions in the period and
any
economic assumption changes in the future (alternative performance measure - APM).
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 Cash generation This represents the absolute cash generation for the period at total group level,
comprising
divisional cash generation as well as both exceptional and non-exceptional group
activity.
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.
LACDT Loss Absorbing Capacity of Deferred Tax
KPI Key performance indicator.
Leverage (gearing) A financial measure that demonstrates the degree to which the company is funded by debt
financing
versus equity capital, usually presented as a ratio, defined as debt divided by debt
plus
equity, as measured under IFRS
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 , a previously associated company 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.
Operating Profit A measure of the pre-tax profit earned from a company's ongoing core business
operations,
excluding any profit earned from investment market conditions in the period and any
economic
assumption changes in the future (alternative performance metric - APM).
Ordinary Shares Ordinary shares of five pence each in the capital of the company.
ORSA Own Risk and Solvency Assessment
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.
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 NV.
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.
Standard Formula The set of prescribed rules used to calculate the regulatory SCR where an internal model
is
not being used.
STI Short-Term Incentive Scheme - A reward system designed to incentivise executive
directors'
short-term performance.
SCR In accordance with the UKs 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.
Transfer ratio The proportion of new policies transferred into the business in relation to those
transferred
out.
TCF Treating Customers Fairly - a central PRA principle that aims to ensure an efficient and
effective
market and thereby help policyholders achieve fair outcomes.
Tier 2 Term debt capital (Tier 2 Subordinated Notes) issued in February 2022 with a 10.5 year
maturity
and 4.75% coupon rate.
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.
UNSDG United Nations Sustainable Development Group
VA The volatility adjustment is a measure to ensure the appropriate treatment of insurance
products
with long-term guarantees under Solvency II. It represents an adjustment to the rate
used
to discount liabilities to mitigate the effect of short-term volatility bond returns.
Waard The Waard Group
NOTE ON TERMINOLOGY
As explained in the IFRS financial statements, 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; 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; 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;
====================== ==============================================================================================
CASLP - 'SLP' Sanlam Life & Pensions (UK) Limited which was acquired 28 April 2022 and includes subsidiaries
CASFS Limited and CASLPTS Limited;
====================== ==============================================================================================
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 two insurance companies; Waard Leven N.V.
and Waard Schade N.V.; and a service company, Waard Verzekeringen; and Robein Leven NV
acquired
on 28 April 2022;
====================== ==============================================================================================
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.
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FR FKLLLXXLBBBX
(END) Dow Jones Newswires
March 30, 2023 02:00 ET (06:00 GMT)
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