REG - Chesnara PLC - Half Yearly Report <Origin Href="QuoteRef">CSN.L</Origin> - Part 6
28/08/2015 07:01
- Part 6: For the preceding part double click ID:nRSb3703Xe
The notes and information below form part of this supplementary information.
EEV Consolidated Balance Sheet (UNAUDITED)
Unaudited 30 June 31 December
2015 2014 2014
Assets Note £000 £000 £000
Value of in-force business 5, 8 264,451 279,305 243,671
Deferred acquisition costs arising on unmodelled business 398 447 523
Acquired value of customer relationships 170 323 245
Property and equipment 513 610 477
Investment in associate 4,453 4,367 4,388
Deferred tax asset 802 1,466 1,827
Reinsurers' share of insurance contract provisions 276,340 314,501 295,350
Amounts deposited with reinsurers 34,393 33,049 34,510
Investment properties 9,245 5,173 5,520
Financial assets
Equity securities at fair value through income 465,350 475,344 475,983
Holdings in collective investment schemes at fair value through income 3,563,740 3,463,411 3,516,424
Debt securities at fair value through income 385,847 344,115 377,193
Insurance and other receivables 73,813 47,201 45,360
Prepayments 5,599 5,155 4,821
Policyholders' funds held by the Group 176,267 158,461 164,858
Derivative financial instruments 2,872 2,424 3,580
Total financial assets 4,673,488 4,496,111 4,588,219
Reinsurers' share of accrued policy claims 19,744 12,457 14,722
Income taxes 4,182 1,917 1,962
Cash and cash equivalents 279,813 219,290 241,699
Total assets 5,567,992 5,369,016 5,433,113
Liabilities
Insurance contract provisions 2,297,553 2,267,960 2,266,196
Other provisions 3,017 4,052 729
Financial liabilities
Investment contracts at fair value through income 2,415,260 2,346,550 2,396,953
Borrowings 94,536 101,084 94,323
Derivative financial instruments 656 525 49
Liabilities relating to policyholders' funds held by the Group 176,267 158,461 164,858
Total financial liabilities 2,686,719 2,606,620 2,656,183
Reinsurance payables 8,288 9,613 10,150
Payables related to direct insurance and investment contracts 80,288 47,425 58,789
Deferred income 10,805 - -
Income taxes 8,704 10,756 4,168
Other payables 28,501 20,631 18,467
Bank overdraft 2,897 1,703 1,189
Total liabilities 5,126,772 4,968,760 5,015,871
Net assets 441,220 400,256 417,242
Equity
Share capital 42,600 42,024 42,600
Share premium 76,523 42,526 76,523
Treasury shares (168) (212) (168)
Foreign exchange reserve (15,030) 3,884 (3,335)
Other reserves 50 50 50
Retained earnings 337,245 311,984 301,572
Total shareholders' equity 5, 8 441,220 400,256 417,242
The notes and information below form part of this supplementary information.
Approved by the Board of Directors on 27 August 2015 and signed on its behalf by:
David Rimmington John Deane
Finance Director Chief Executive Officer
Notes to the EEV Supplementary Information (unaudited)
1 Basis of preparation
This section sets out the detailed methodology followed for producing the Group EEV Supplementary Information which is
supplementary to the Group's primary financial statements which have been prepared in accordance with International
Financial Reporting Standards ('IFRS'), as adopted by the EU. The Supplementary Information has been prepared in
accordance with the European Embedded Value ('EEV') principles issued in May 2004 by the European CFO Forum and
supplemented by Additional Guidance on EEV Disclosures issued by the same body in October 2005. The principles provide a
framework intended to improve comparability and transparency in embedded value reporting across Europe.
In order to improve understanding of the Group's financial position and performance, certain of the information presented
in the Supplementary Information is presented on a segmental basis: the business segments are the same as those described
in Note 4 to the condensed consolidated interim financial statements prepared on an IFRS basis.
Particular segment information
The Group acquired the Waard Group on 19 May 2015 which represents the Group's Dutch life and general insurance business.
As a result, a further operating segment has been added in Notes 3 to 7. Furthermore, following the Part VII transfer on
31 December 2014 of the long-term business of Protection Life Company Limited into Countrywide Assured plc, the business of
Protection Life (PL) is now reported within the CA segment, effective from 1 January 2015. Previously PL was reported as a
separate segment. Comparative information has been restated to reflect this change.
2 Covered business
The Group uses EEV methodology to value the bulk of its long-term business (the 'covered business'), which is written
primarily in the UK, Sweden and Netherlands, as follows:
(i) for the UK Business, the covered business of CA and S&P comprises the business's long-term business being those
individual life insurance, pensions and annuity contracts falling under the definition of long-term insurance business for
UK regulatory purposes.
(ii) for the Swedish Business (comprising the Movestic segment), the covered business comprises the business's long-term
pensions and savings unit-linked business. Group life and sickness business, including waiver of premium and non-linked
individual life assurance policies are not included in the covered business: the result relating to this business is
established in accordance with IFRS principles and is included within 'other operational result' within the EEV
consolidated income statement.
(iii) for the Dutch Business the covered business comprises the long-term insurance business of Waard Leven and Hollands
Welvaren. The general insurance business within Waard Schade is not included in the covered business, with the result
relating to this business being established in accordance with IFRS principles and is included within 'other operational
result' within the EEV consolidated income statement.
(iv) The operating expenses of the holding company, Chesnara plc, are allocated across the segments.
Under EEV principles no distinction is made between insurance and investment contracts, as there is under IFRS, which
accords these classes of contracts different accounting treatments.
3 Methodology
(a) Embedded value
Overview
Shareholders' equity comprises the embedded value of the covered business, together with the net equity of other Group
companies, including that of the holding company which is stated after writing down fully the carrying value of the covered
business.
The embedded value of the covered business is the aggregate of the shareholder net worth ('SNW') and the present value of
future shareholder cash flows from in-force covered business (value of in-force business) less any deduction for (i) the
cost of guarantees within S&P, and (ii) the cost of required capital. It is stated after allowance has been made for
aggregate risks in the business. SNW comprises those amounts in the long-term business, which are either regarded as
required capital or which represent surplus assets within that business.
New business
CA and S&P
Much of the covered business is in run-off and is, accordingly, substantially closed to new business. Up to 31 December
2012 the UK businesses did still sell a small amount of new business but, overall, the contribution from new business to
the results established using EEV methodology is not material. Accordingly, not all of those items related to new business
values, which are recommended by the EEV guidelines, are reported in this supplementary financial information.
Movestic
New business, in relation to the pensions and savings covered business is taken as all business where contracts are signed
and new premiums paid during the reporting period, for both new policies and premium increases on existing business, but
excluding standard renewals. New business premium volumes as disclosed in "Enhance value through new business" above are
not consistent with this definition, as they include non-covered business.
New business premium volumes for the period are as follows:
Pensions and savings covered business Unaudited Six months ended 30 June Year ended31 December
2015£m 2014£m 2014£m
New business premium income 22.1 31.2 47.4
Regular premium increments 9.0 10.0 15.8
Total new business premium income* 31.1 41.2 63.2
* Basis: annualised premium plus 1/10 single premium translated into sterling at the 2015 average rate of SEK 12.7619 = £1
(2014: SEK 11.2989) = £1).
The new business contribution has been assessed as at the end of the period, using opening assumptions.
Waard Group
Much of the covered business is in run-off and is, accordingly, substantially closed to new business. Accordingly not all
of those items relating to new business values, which are recommended by the EEV guidelines, are reported in this
supplementary information.
Value of in-force business
The cash flows attributable to shareholders arising from in-force business are projected using best estimate assumptions
for each component of cash flow.
The present value of the projected cash flows is established by using a discount rate which reflects the time value of
money and the risks associated with the cash flows which are not otherwise allowed for. There is a deduction for the cost
of holding the required capital, as set out below.
In respect of Movestic there are certain non-linear exposures of shareholder profit to asset returns arising from variable
administrative fees and variable investment fund rebates which are modelled deterministically rather than stochastically.
Participating business
For participating business within the S&P business the Group maintains the assets and liabilities in separate with-profits
funds. In accordance with the Principles and Practices of Financial Management, in the first instance all benefits, which
in some cases include guaranteed minimum investment returns, are paid from policyholder assets within the fund. The
participating business effectively operates as a smoothed unit-linked contract subject to minimum benefit guarantees. The
with-profits funds contain assets which are attributable to shareholders as well as those attributable to policyholders.
Assets attributable to shareholders can only be released from the fund subject to meeting prudent liabilities in respect of
minimum benefits and the frictional cost of this restriction has been allowed for in determining the value of the in-force
business.
Fundamentally, the value of the with-profits in-force business is driven by the fund management charges levied on the
policyholder assets, subject to the effect of minimum benefit guarantees.
Taxation
The present value of the projected cash flows arising from in-force business takes into account all tax which is expected
to be paid under current legislation, including tax which would arise if surplus assets within the covered business were
eventually to be distributed. Allowance is made for any announced changes in corporation tax affecting future periods.
The value of the in-force business has been calculated on an after-tax basis and is grossed up to the pre-tax level for
presentation in the income statement. The amount used for the grossing up is the amount of shareholder tax, excluding those
payments made on behalf of policyholders, being policyholder tax in the UK businesses and yield tax in Movestic.
Cost of capital
The valuation approach used requires consideration of 'frictional' costs of holding shareholder capital: in particular, the
cost of tax on investment returns and the impact of investment management fees can reduce the face value of shareholder
funds. For CA, the expenses relating to corporate governance functions eliminate any taxable investment return in
shareholder funds, while investment management fees are not material. The cost of holding the required capital to support
the covered business (see 3(b) below) is reflected as a deduction from the value of in-force business.
Financial options and guarantees
CA
The principal financial options and guarantees in CA are (i) guaranteed annuity rates offered on some unit-linked pension
contracts and (ii) a guarantee offered under Timed Investment Funds that the unit price available at the selected maturity
date (or at death, if earlier) will be the highest price attained over the policy's life. The cost of these options and
guarantees has been assessed, in principle, on a market-consistent basis, but, in practice, this has been carried out on
approximate bases, which are appropriate to the level of materiality of the results.
S&P
The principal financial options and guarantees in S&P are (i) minimum benefits payable on maturity or retirement for
participating business; (ii) the option to extend the term under the Personal Retirement Account contract on terms
potentially beneficial to the policyholder; (iii) the option to increase premiums under the Personal Retirement Account
contract on terms potentially beneficial to the policyholder; and (iv) certain insurability options offered.
The cost of guaranteeing a minimum investment return on participating contracts, being the only material guarantee, has
been assessed on a market consistent basis. This has involved the use of a stochastic asset model, which is designed to
establish a cost of guarantees which is consistent with prices in the market at the valuation date, for example the prices
of derivative instruments. For the remaining options and guarantees the cost has been assessed on an approximate basis,
appropriate to the level of materiality of the results.
Movestic
In respect of Movestic, some contracts provide policyholders with an investment guarantee, whereby a minimum rate of return
is guaranteed for the first 5 years of the policy, at a rate of 3% per annum. The value of the guarantee is ignored as it
is not material to the results.
Allowance for risk
Allowance for risk within the covered business is made by:
(i) setting required capital levels by reference to the assessment of capital needs made by the Directors of the
regulated entities within the respective businesses;
(ii) setting the risk discount rate, which is applied to the projected cash flows arising on the in-force business, at a
level which includes an appropriate risk margin (see 3(c) below); and
(iii) explicit allowance for the cost of financial options and guarantees and, where appropriate, for reinsurer default.
Waard Group
The unit-linked business within Hollands Welvaren contains a minimum return to policyholders, of 20% of the premium. As
this guarantee is substantially out of the money, it is ignored on materiality grounds
Internal group company
EEV Guidance requires that actual and expected profit or loss incurred by an internal group company on services provided to
the covered business should be included in allowances for expenses. The covered business in Movestic is partially managed
by an internal group fund management company. Not all relevant future income and expenses of that company have been
included in the calculation of embedded value. However, the effect is not considered to be material.
Consolidation adjustments
Consolidation adjustments have been made to:
(i) eliminate the investment in subsidiaries;
(ii) allocate group debt finance against the segment to which it refers; and
(iii) allocate corporate expenses as explained in note 4(d) below.
(b) Level of required capital
The level of required capital of the covered business reflects the amount of capital that the Directors consider necessary
and appropriate to manage the respective businesses. In forming their policy the Directors have regard to the minimum
statutory requirements and an internal assessment of the market, insurance and operational risks inherent in the underlying
products and business operations. The capital requirement resulting from this assessment represents:
(i) for CA plc (comprising the CA and S&P segments), 162.5% of the long-term insurance capital requirement ('LTICR')
together with 100% of the resilience capital requirement ('RCR'), as determined by the regulations of the Prudential
Regulatory Authority in the UK;
(ii) for Movestic, 150% of the regulatory solvency requirement as determined by the regulations of the
Finansinspektionen in Sweden.
(iii) for the Waard Group, 200% of the regulatory solvency requirements as determined by the regulations of the De
Nederlandsche Bank in the Netherlands.
The required level of regulatory capital is provided as follows:
(i) for the UK Business, by the retained surplus within the long-term business fund and by share capital and retained
earnings within the shareholder funds of the regulated entity;
(ii) for Movestic, by share capital and additional equity contributions from the parent company, net of the accumulated
deficit in the regulated entity, these components together comprising shareholder's equity. Movestic is reliant, in the
short to medium term, on further equity contributions from the parent company, Chesnara plc; and
(iii) for the Waard Group, by the retained surplus and by share capital and retained earnings within the shareholder
funds of the regulated entities.
(c) Discount rates
The discount rates are a combination of the reference rate and a risk margin. The reference rate reflects the time value of
money and the risk margin reflects any residual risks inherent in the covered business and makes allowance for the risk
that future experience will differ from that assumed. In order to reduce the subjectivity when setting the discount rates,
the Group has decided to adopt a 'bottom up' market-consistent approach to allow explicitly for market risk.
Using the market-consistent approach, each cash flow is valued at a discount rate consistent with that used in the capital
markets: in accordance with this, equity-based cash flows are discounted at an equity discount rate and bond-based cash
flows at a bond discount rate. In practice a short-cut method known as the 'certainty equivalent' approach has been
adopted. This method assumes that all cash flows earn the reference rate of return and are discounted at the reference
rate.
In general, and consistent with the market's approach to valuing financial instruments for hedging purposes, the reference
rate is based on swap yields. These have been taken as mid swap yields available in the market at the end of the reporting
period.
Allowance also needs to be made for non-market risks. For some of these risks, such as mortality and expense risk, it is
assumed that the shareholder can diversify away any uncertainty where the impact of variations in experience on future cash
flows is symmetrical. For those risks that are assumed to be diversifiable, no adjustment has been made. For any remaining
risks that are considered to be non-diversifiable risks, there is no risk premium observable in the market and, therefore,
a constant margin has been added to the risk margin.
(d) Analysis of profit
The contribution to operating profit, which is identified at a level which reflects an assumed longer-term level of
investment return, arises from three sources:
(i) new business;
(ii) return from in-force business; and
(iii) return from shareholder net worth.
Additional contributions to profit arise from:
(i) variances between the actual investment return in the period and the assumed long-term investment return; and
(ii) the effect of economic assumption changes.
The contribution from new business represents the value recognised at the end of each period in respect of new business
written in that period, after allowing for the cost of acquiring the business, the cost of establishing the required
technical provisions and after making allowance for the cost of capital, calculated on opening assumptions.
The return from in-force business is calculated using closing assumptions and comprises:
(i) the expected return, being the unwind of the discount rates over the period applied to establish the value of
in-force business at the beginning of the period;
(ii) variances between the actual experience over the period and the assumptions made to establish the value of
business in force at the beginning of the period; and
(iii) the net effect of changes in future assumptions, made prospectively at the end of the period, from those used in
establishing the value of business in force at the beginning of the period, other than changes in economic assumptions.
The contribution from shareholder net worth comprises the actual investment return on residual assets in excess of the
required capital.
(e) Assumption setting
There is a requirement under EEV methodology to use best estimate demographic assumptions and to review these at least
annually with the economic assumptions being reviewed at each reporting date. The current practice is detailed below.
Each year the demographic assumptions are reviewed as part of year-end processes and hence were last reviewed in December
2014.
The detailed projection assumptions, including mortality, morbidity, persistency and expenses reflect recent operating
experience. Allowance is made for future improvement in annuitant mortality based on experience and externally published
data. Favourable changes in operating experience, particularly in relation to expenses and persistency, are not
anticipated until the improvement in experience has been observed. Holding company expenses (for the Chesnara Group such
expenses relate largely to listed company functions) are allocated across the segments in proportion to the value before
tax of the in-force business. Hence the expense assumptions used for the cash flow projections include the full cost of
servicing this business.
For the Movestic business, persistency assumptions have been updated reflecting latest experience and Management's view of
future trends.
The economic assumptions are reviewed and updated at each reporting date based on underlying investment conditions at the
reporting date. The assumed discount rates and inflation rates are consistent with the investment return assumptions.
In addition, the demographic assumptions used at 31 December 2014 are considered to be best estimate and, consequently, no
further adjustments are required. In respect of the CA Business, the assumptions required in the calculation of the value
of the annuity rate guarantee on pension business have been set equal to best-estimate assumptions.
(f) Pension schemes
In Movestic, where the Group participates in a combined defined benefit and defined contribution scheme, future
contributions to the scheme are reflected in the value of in-force business.
(g) Financial reinsurance
In respect of Movestic the Group uses financial reinsurance to manage the impact of its new business strain. Whilst this
liability is valued at fair value within the IFRS statements, allowing for an option which provides the Group with the
right to settle the liability early on beneficial terms, when valuing the shareholder net worth within the EEV it is
considered more appropriate to assess this liability at a higher cost, reflecting the likelihood of the option not being
utilised.
4 Assumptions
(a) Investment returns
Investment returns are assumed to be equal to the reference rate, as covered in Note 3(c). For linked business, the
aggregate return has been determined by the reference rate less an appropriate allowance for tax.
The rates presented below are indicative spot rates:
CA S&P Movestic Waard Group
Unaudited 30 June 31 Dec Unaudited 30 June 31 Dec Unaudited 30 June 31 Dec Unaudited30 June
2015 2014 2014 2015 2014 2014 2015 2014 2014 2015
5 year 1.71% 2.21% 1.46% 1.71% 2.21% 1.46% 0.74% 1.35% 0.65% 0.49%
10 year 2.18% 2.86% 1.88% 2.18% 2.86% 1.88% 1.61% 2.07% 1.27% 1.17%
15 year 2.37% 3.19% 2.12% 2.37% 3.19% 2.12% 1.97% 2.40% 1.63% 1.53%
20 year 2.41% 3.34% 2.26% 2.41% 3.34% 2.26% 2.16% 2.55% 1.82% 1.69%
25 year 2.40% 3.38% 2.29% 2.40% 3.38% 2.29% 2.16% 2.55% 1.82% 1.72%
30 year 2.37% 3.38% 2.30% 2.37% 3.38% 2.30% 2.16% 2.55% 1.82% 1.74%
Inflation - RPI 2.70% 2.90% 2.60% 2.70% 2.90% 2.60% 1.81% 1.65% 1.42% 1.50%
*The PL segment is now reported within the CA segment, and as such a single rate of 1.80% is applied for all durations (30
June 2014: 2.60% and 31 December 2014: 1.80%).
(b) Actuarial assumptions
The demographic assumptions used to determine the value of the in-force business have been set at levels commensurate with
the underlying operating experience identified in the periodic actuarial investigations.
Certain products contain provisions that provide for the charges in respect of mortality risk to be reviewable. In these
cases assumptions for future experience and charges are assumed to be linked and assumptions are only updated when
decisions have been made regarding product charges, so as not to capitalise any benefits that may not accrue to
shareholders.
(c) Taxation
Projected tax has been determined assuming current tax legislation and rates continue unaltered, except where future tax
rates or practices have been announced. The tax rates for the UK business allow for changes in Corporation Tax as
announced by the Chancellor in his budget speech of 8 July 2015, so reflect a reduction from the current rate of 20% to 19%
from April 2017 and to 18% from April 2020.
(d) Expenses
The expense levels are based on internal expense analysis investigations and are appropriately allocated to the new
business and policy maintenance functions.
For CA and S&P, these have been determined by reference to:
(i) the outsourcing agreements in place with our third-party business process administrators;
(ii) anticipated revisions to the terms of such agreements as they fall due for renewal; and
(iii) corporate governance costs relating to the covered business.
For Movestic, these have been determined by reference to:
(i) an expense analysis in which all expenses were allocated to covered and uncovered business, with expenses for the
covered business being allocated to acquisition and maintenance activities; and
(ii) expense drivers, being, in relation to acquisition costs, the number of policies sold during the period and, in
relation to maintenance expenses, the average number of policies in force during the period.
For Waard Group, these have been determined by reference to:
(i) expenses within the businesses of the covered business excluding those deemed to not relate to ongoing management of
the covered business;
(ii) consideration of a suitable allocation between fixed expenses and those that vary with business volumes; and
(iii) the agreement in place with Tadas as the Group's internal administration company for the Dutch covered business.
Holding company expenses (for the Chesnara Group such expenses relate largely to listed company functions) are allocated
across the segments on a basis that reflects each segment's economic consumption of such costs.
EEV Guidance requires that no allowance is made for future productivity improvements in expense assumptions. For the UK
business, for expenses relating to policy administration this requirement is met. As the UK Company is essentially closed
to new business, those governance expenses which are not immediately variable can reasonably be expected to reduce through
management control in the future, though the timing and scale of such reductions is not fixed. A prudent estimate of the
reductions has been allowed for within the expense assumptions.
(e) Discount rate
An explicit constant margin is added to the reference rate shown in (a) above to cover any remaining risks that are
considered to be non-market, non-diversifiable risks, as there is no risk premium observable in the market. This margin,
which is 50 basis points for CA, S&P and PL (as at 30 June 2014 and 31 December 2014: 50 basis points), 100 basis points
for Movestic (as at 30 June 2014: 100 basis points and 31 December 2014: 100 basis points) and 50 basis points for the
Waard Group, gives due recognition to the relative sensitivity of the value of in-force business to the discount rate for
the different businesses, and to the fact that:
a) For CA:
(i) the covered business is closed to new business;
(ii) there is no significant exposure in the with-profit business, which is wholly reinsured;
(iii) expense risk is limited as a result of the outsourcing of substantially all policy administration and related
functions to third-party business process administrators; and
(iv) for much of the life business the Group has the ability to vary risk charges made to policyholders.
b) For S&P:
(i) the covered business is closed to new business; and
(ii) expense risk is limited as a result of the outsourcing of substantially all policy administration and related
functions to third-party business process administrators.
c) For Movestic:
(i) the covered business remains open;
(ii) reinsurance is used to significantly reduce insurance risks; and
(iii) a number of the risks provide diversification benefits within the Chesnara Group, in relation to reinsurance
counterparties, market exposures and policyholder populations.
d) For Waard Group:
(i) the covered business is substantially closed to new business;
(ii) reinsurance is used to significantly reduce insurance risks; and
(iii) there are no guarantees or other asymmetrical items within the cash flows.
5 Analysis of shareholders' equity
30 June 2015 (unaudited) CA S&P Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000
Regulated entities
Capital required 60,033 38,996 12,927 9,080 - 121,036
Free surplus 13,858 16,213 22,218 45,383 - 97,672
Regulatory capital resource of regulated entities 73,891 55,209 35,145 54,463 218,708
Adjustments to shareholder net worth:
Deferred acquisition costs - - (49,107) - - (49,107)
Financial reinsurance liability - - (4,937) - - (4,937)
Software asset adjustment - - (3,703) - - (3,703)
Deferred tax 2,132 - - - - 2,132
Adjustment to provisions on insurance contracts - 3,643 - - - 3,643
Policyholder funds - (14,361) - - - (14,361)
Other asset / liability adjustments (33) 13 5,687 (4,802) - 865
Adjusted shareholder net worth 75,990 44,504 (16,915) 49,661 - 153,240
In-force value of covered business 88,163 15,347 150,051 10,890 - 264,451
Embedded value of regulated entities 164,153 59,851 133,136 60,551 - 417,691
Less: amount financed by borrowings (39,023) (25,408) - - - (64,431)
Embedded value of regulated entities attributable to shareholders 125,130 34,443 133,136 60,551 - 353,260
Net equity of other Group companies - - 1,753 12,764 73,443 87,960
Total shareholders' equity 125,130 34,443 134,889 73,315 73,443 441,220
30 June 2014 (unaudited) CA S&P Movestic Other Group Activities Total
£000 £000 £000 £000 £000
Regulated entities
Capital required 61,780 43,328 14,514 - 119,622
Free surplus 35,662 13,899 19,320 - 68,881
Regulatory capital resource of regulated entities 97,442 57,227 33,834 - 188,503
Adjustments to shareholder net worth:
Deferred acquisition costs - - (52,254) - (52,254)
Financial reinsurance liability - - (4,322) - (4,322)
Software asset adjustment - - (4,348) - (4,348)
Adjustment to provisions on insurance contracts - 3,120 - - 3,120
Deferred tax 2,240 - - - 2,240
Policyholder funds - (14,628) - - (14,628)
Other asset / liability adjustments 681 (325) 5,989 - 6,345
Adjusted shareholder net worth 100,363 45,394 (21,101) - 124,656
In-force value of covered business 99,460 36,731 143,114 - 279,305
Embedded value of regulated entities 199,823 82,125 122,013 - 403,961
Less: amount financed by borrowings (43,443) (29,747) - - (73,190)
Embedded value of regulated entities attributable to shareholders 156,380 52,378 122,013 - 330,771
Net equity of other Group companies - - 2,032 67,453 69,485
Total shareholders' equity 156,380 52,378 124,045 67,453 400,256
31 December 2014 CA S&P Movestic Other Group Activities Total
£000 £000 £000 £000 £000
Regulated entities
Capital required 60,759 44,225 13,911 - 118,895
Free surplus 61,441 18,211 20,989 - 100,641
Regulatory capital resource of regulated entities 122,200 62,436 34,900 219,536
Adjustments to shareholder net worth:
Deferred acquisition costs - - (51,210) - (51,210)
Financial reinsurance liability - - (5,179) - (5,179)
Software asset adjustment - - (3,716) - (3,716)
Adjustment to provisions on insurance contracts - 3,667 - - 3,667
Deferred tax 2,240 - - - 2,240
Policyholder funds - (16,319) - - (16,319)
Other asset / liability adjustments (46) 5 5,644 - 5,603
Adjusted shareholder net worth 124,394 49,789 (19,561) - 154,622
In-force value of covered business 86,067 11,540 146,064 - 243,671
Embedded value of regulated entities 210,461 61,329 126,503 - 398,293
Less: amount financed by borrowings (38,960) (25,367) - - (64,327)
Embedded value of regulated entities attributable to shareholders 171,501 35,962 126,503 - 333,966
Net equity of other Group companies - - 1,936 81,340 83,276
Total shareholders' equity 171,501 35,962 128,439 81,340 417,242
EEV free surplus, as shown above, represents the balance of the shareholder net worth above the capital required. The
movement in free surplus is analysed as follows:
Six months ended 30 June 2015 (unaudited) CA S&P Movestic Waard Group Total
£000 £000 £000 £000 £000
Free surplus at beginning of the period 61,441 18,211 20,989 100,641
Dividend paid to parent (58,000) (7,000) - - (65,000)
Surplus arising in the period 9,691 1,732 245 640 12,308
Adjustments to required capital 726 5,230 984 44,743 51,683
Decrease in policyholder funds cover for capital requirement - (1,960) - - (1,960)
Free surplus at end of the period 13,858 16,213 22,218 45,383 97,672
Six months ended 30 June 2014 (unaudited) CA S&P Movestic Total
£000 £000 £000 £000
Free surplus at beginning of the period 33,783 44,750 17,969 96,502
Dividend paid to parent (17,000) (31,000) - (48,000)
Surplus arising in the period 19,038 209 (998) 18,249
Adjustments to required capital (159) 119 2,349 2,309
Decrease in policyholder funds cover for capital requirement - (179) - (179)
Free surplus at end of the period 35,662 13,899 19,320 68,881
Year ended 31 December 2014 CA S&P Movestic Total
£000 £000 £000 £000
Free surplus at beginning of the year 33,783 44,750 17,969 96,502
Dividend paid to parent (17,000) (31,000) - (48,000)
Synergies and adjustments arising from Part VII transfer, including adjustments to required capital (2,902) - - (2,902)
Surplus arising in the year 43,796 3,727 68 47,591
Adjustments to required capital 3,764 (778) 2,952 5,938
Increase in policyholder funds cover for capital requirement - 1,512 - 1,512
Free surplus at end of the year 61,441 18,211 20,989 100,641
The movement in the in-force value of covered business comprises:
Six months ended 30 June 2015 (unaudited)
CA S&P Movestic Waard Group Total
£000 £000 £000 £000 £000
Value at beginning of period 86,067 11,540 146,064 - 243,671
Amount arising on acquisition - - - 10,431 10,431
Amount charged to foreign exchange reserve - - (12,053) (144) (12,197)
Amount credited to operating profit 2,096 3,807 16,040 603 22,546
Value at end of period 88,163 15,347 150,051 10,890 264,451
Six months ended 30 June 2014 (unaudited)
CA S&P Movestic Total
£000 £000 £000 £000
Value at beginning of period 92,678 30,482 139,001 262,161
Amount charged to foreign exchange reserve - - (11,591) (11,591)
Amount credited to operating profit 6,782 6,249 15,704 28,735
Value at end of period 99,460 36,731 143,114 279,305
Year ended 31 December 2014
CA S&P Movestic Total
£000 £000 £000 £000
Value at beginning of year 92,678 30,482 139,001 262,161
Amount charged to foreign exchange reserve - - (19,817) (19,817)
Amount (charged)/credited to operating profit (6,611) (18,942) 26,880 1,327
Value at end of period 86,067 11,540 146,064 243,671
S&P
EEV shareholders equity for the S&P segment is presented net of the borrowings that were used to fund their respective
acquisitions.
Movestic
The adjusted shareholder net worth of Movestic is that of the regulated entity, which includes also the net worth
attributable to the non-covered business within the regulated entity. Accordingly, for Movestic, the embedded value of
regulated entities comprises the embedded value of covered business and the value of the non-covered business of the
regulated entity, the latter component being valued on an IFRS basis.
Waard Group
The adjusted shareholder net worth of the Waard Group is that of the regulated entities, together with the net worth of the
service company. Accordingly, for the Waard Group, the embedded value comprises the embedded value of the regulated
entities and the value of the uncovered business, the latter component being valued on an IFRS basis.
6 Summarised statement of changes in equity and analysis of profit/(loss)
(a) Changes in equity may be summarised as:
Statement of changes in equity Six months ended 30 June (unaudited) Year ended 31 December
2015 £000 2014 £000 2014 £000
Shareholders' equity at beginning of the period 417,242 376,370 376,370
Profit for the period attributable to shareholders before modelling adjustments 44,912 47,287 44,247
Effect of modelling adjustments 5,903 - -
Profit for the period 50,815 47,287 44,247
Issue of new shares
Share capital - - 576
Share premium - - 33,971
Sale of treasury shares - - 70
Foreign exchange reserve movement (11,694) (10,044) (17,261)
Dividends paid (15,143) (13,357) (20,731)
Shareholders' equity at end of the period 441,220 400,256 417,242
Effect of modelling adjustments
Period ended 30 June 2015
During the six months to 30 June 2015 an adjustment of £5.9m has been reported relating to a tax error in the EEV model
which resulted in the tax charge in the EEV model being overstated at 31 December 2014. This has been corrected in the
period.
(b) The profit/(loss) for the period before modelling adjustments is analysed as:
Six months ended 30 June 2015 (unaudited) CA S&P UKTotal Movestic Waard Group Other GroupActivities Total
£000 £000 £000 £000 £000 £000 £000
Covered business
New business contribution 173 - 173 2,408 - - 2,581
Return from in-force business
Expected return 1,675 1,088 2,763 1,462 - - 4,225
Experience variances 4,098 1,785 5,883 (3,025) 435 - 3,293
Operating assumption changes 390 (999) (609) 5,446 - - 4,837
Return on shareholder net worth 177 (139) 38 - - - 38
Operating profit of covered business 6,513 1,735 8,248 6,291 435 - 14,974
Variation from
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