REG - Chesnara PLC - Half Yearly Report <Origin Href="QuoteRef">CSN.L</Origin> - Part 7
28/08/2015 07:01
- Part 7: For the preceding part double click ID:nRSb3703Xf
longer-term investment return 1,420 236 1,656 11,991 - - 13,647
Effect of economic assumption changes (888) 3,570 2,682 (419) - - 2,263
Profit of covered business before tax 7,045 5,541 12,586 17,863 435 - 30,884
Tax thereon (1,197) - - - (1,197)
Profit of covered business after tax 11,389 17,863 435 - 29,687
Results of non-covered business and of other group companies:
Profit recognised on business combination - - - 21,630 21,630
(Loss)/profit before tax - (609) 205 (7,483) (7,887)
Tax - (34) - 1,516 1,482
Profit after tax 11,389 17,220 640 15,663 44,912
Six months ended 30 June 2014 (unaudited) CA S&P UKTotal Movestic Other GroupActivities Total
£000 £000 £000 £000 £000 £000
Covered business
New business contribution 378 6 384 5,787 - 6,171
Return from in-force business
Expected return 1,215 129 1,344 2,582 - 3,926
Experience variances 3,487 1,842 5,329 601 - 5,930
Operating assumption changes 24,102 (3,095) 21,007 (3,885) - 17,122
Return on shareholder net worth 804 3,215 4,019 - - 4,019
Operating profit of covered business 29,986 2,097 32,083 5,085 - 37,168
Variation from longer-term investment return 7,673 7,600 15,273 10,572 - 25,845
Effect of economic assumption changes (1,311) (3,048) (4,359) (253) - (4,612)
Profit of covered business before tax 36,348 6,649 42,997 15,404 - 58,401
Tax thereon (10,306) - - (10,306)
Profit of covered business after tax 32,691 15,404 - 48,095
Results of non-covered business and of other group companies:
Profit/(loss) before tax - 2,092 (2,765) (673)
Tax - (730) 595 (135)
Profit /(loss) after tax 32,691 16,766 (2,170) 47,287
Year ended 31 December 2014 CA S&P UKTotal Movestic Other GroupActivities Total
£000 £000 £000 £000 £000 £000
Covered business
New business contribution 794 - 794 8,904 - 9,698
Return from in-force business
Expected return 2,552 (548) 2,004 5,145 - 7,149
Experience variances 5,437 (4,803) 634 (93) - 541
Operating assumption changes 20,851 (4,632) 16,219 (5,219) - 11,000
Return on shareholder net worth 1,626 7,508 9,134 - - 9,134
Operating profit/(loss) of covered business 31,260 (2,475) 28,785 8,737 - 37,522
Variation from longer-term investment return 22,458 (8,582) 13,876 18,164 - 32,040
Effect of economic assumption changes (4,651) (3,121) (7,772) 321 - (7,451)
Profit/(loss) of covered business before tax 49,067 (14,178) 34,889 27,222 - 62,111
Tax thereon (12,237) - - (12,237)
Profit of covered business after tax 22,652 27,222 - 49,874
Results of non-covered business and of other group companies:
Profit/(loss) before tax - 262 (7,671) (7,409)
Tax - 894 888 1,782
Profit/(loss) after tax 22,652 28,378 (6,783) 44,247
The results of the non-covered business and of other group companies before tax and before exceptional items are presented
as 'other operational result' in the consolidated income statement.
7 Sensitivities to alternative assumptions
The following tables show the sensitivity of the embedded value as reported at 30 June 2015 and of the new business
contribution of Movestic, to variations in the assumptions adopted in the calculation of the embedded value. Sensitivity
analysis is not provided in respect of the new business contribution of CA and the Waard Group for the six months ended 30
June 2015 as the reported level of new business contribution is not considered to be material.
Embedded Value New business contribution
UK business Swedish business Dutchbusiness Swedish business
CA Pre-tax S&PPre-tax Tax UKPost-tax Post-tax Post-tax
£m £m £m £m £m £m £m
Published value as at 30 June 2015 187.2 59.9 (23.1) 224.0 133.1 60.6 2.4
Changes in embedded value/new business contribution arising from:
Economic sensitivities
100 basis point increase in yield curve (3.8) 6.3 (0.9) 1.6 0.5 (0.1) (0.1)
100 basis point reduction in yield curve 4.4 (8.7) 0.4 (3.9) (0.5) (0.5) 0.1
10% decrease in equity and property values (7.5) (10.2) 2.2 (15.5) (13.4) - (0.1)
Operating sensitivities
10% decrease in maintenance expenses 3.1 4.6 (0.9) 6.8 6.8 1.0 0.4
10% decrease in lapse rates 2.4 (1.1) - 1.3 9.5 - 0.7
5% decrease in mortality/morbidity rates:
Assurances 2.4 0.4 (0.2) 2.6 0.1 1.3 -
Annuities (2.0) (0.6) - (2.6) n/a - n/a
Reduction in the required capital to statutory minimum 1.4 0.4 - 1.8 - 0.2 -
The key assumption changes represented by each of these sensitivities are as follows:
Economic sensitivities
(i) 100 basis point increase in the yield curve: The reference rate is increased by 1% and the rate of future
inflation has also been increased by 1% so that real yields remain constant;
(ii) 100 basis point reduction in the yield curve: The reference rate is reduced by 1% (with a minimum of zero to
avoid negative yields where relevant) and the rate of future inflation has also been reduced by 1% so that real yields
remain constant; and
(iii) 10% decrease in the equity and property values. This gives rise to a situation where, for example, a Managed
Fund unit liability with a 60% equity holding would reduce by 6% in value.
Operating sensitivities
(i) 10% decrease in maintenance expenses, giving rise to, for example, a base assumption of £20 per policy pa reducing
to £18 per policy pa;
(ii) 10% decrease in persistency rates giving rise to, for example, a base assumption of 10% of policy base lapsing pa
reducing to 9% pa;
(iii) 5% decrease in mortality/morbidity rates giving rise to, for example, a base assumption of 95% of the parameters
in a selected mortality/morbidity table reducing to 90.25% of the parameters in the same table, assuming no changes are
made to policyholder charges or any other management actions; and
(iv) the sensitivity to the reduction in the required capital to the statutory minimum shows the effect of reducing the
required capital from that defined in Note 3(b) to the minimum requirement prescribed by regulation.
In each sensitivity calculation all other assumptions remain unchanged except where they are directly affected by the
revised economic conditions: for example, as stated, changes in interest rates will directly affect the reference rate.
8 Reconciliation of shareholders' equity on the IFRS basis to shareholders' equity on the EEV basis
30 June 2015 (unaudited) CA S&P Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000
Shareholders' equity on the IFRS basis 99,926 53,308 57,403 67,295 8,748 286,680
Reclassifications:
Debt finance (39,023) (25,408) - - 64,431 -
Other (264) - - - 264 -
Adjustments:
Deferred acquisition costs (3,294) - (27,963) - - (31,257)
Deferred income 6,024 - - - - 6,024
Adjustment to provisions on investment contracts, net of amounts deposited with reinsurers (7,542) - - - - (7,542)
Adjustments to provisions on insurance contracts, net of reinsurers' share 26 (4,457) - - - (4,431)
Acquired in-force value (19,974) (4,347) (35,550) (6,088) - (65,959)
Acquired value of customer relationships - - (778) - - (778)
Software assets - - (3,726) - - (3,726)
Adjustment to borrowings - - (6,699) - - (6,699)
Deferred tax 1,088 - 2,151 1,218 - 4,457
Shareholder net worth 36,967 19,096 (15,162) 62,425 73,443 176,769
Value of in-force business 88,163 15,347 150,051 10,890 - 264,451
Shareholders' equity on the EEV basis 125,130 34,443 134,889 73,315 73,443 441,220
Shareholder net worth comprises:
Shareholder net worth in regulated entities 75,990 44,504 (16,915) 49,661 - 153,240
Shareholders' net equity in other Group companies - - 1,753 12,764 73,443 87,960
Debt finance (39,023) (25,408) - - - (64,431)
Total 36,967 19,096 (15,162) 62,425 73,443 176,769
30 June 2014 (unaudited) CA S&P Movestic Other Group Activities Total
£000 £000 £000 £000 £000
Shareholders' equity on the IFRS basis 129,175 69,331 59,405 (5,991) 251,920
Reclassifications:
Debt finance (43,443) (29,747) - 73,190 -
Other (254) - - 254 -
Adjustments:
Deferred acquisition costs (3,763) - (24,964) - (28,727)
Deferred income 6,804 - - - 6,804
Adjustment to provisions on investment contracts, net of amounts deposited with reinsurers (9,290) - - - (9,290)
Adjustments to provisions on insurance contracts, net of reinsurers' share 31 (19,107) - - (19,076)
Acquired in-force value (23,873) (4,830) (44,317) - (73,020)
Acquired value of customer relationships - - (1,013) - (1,013)
Software assets - - (4,348) - (4,348)
Adjustment to borrowings - - (5,864) - (5,864)
Deferred tax 1,533 - 2,032 - 3,565
Shareholder net worth 56,920 15,647 (19,069) 67,453 120,951
Value of in-force business 99,460 36,731 143,114 - 279,305
Shareholders' equity on the EEV basis 156,380 52,378 124,045 67,453 400,256
Shareholder net worth comprises: -
Shareholder net worth in regulated entities 100,363 45,394 (21,101) - 124,656
Shareholders' net equity in other Group companies - - 2,032 67,453 69,485
Debt finance (43,443) (29,747) - - (73,190)
Total 56,920 15,647 (19,069) 67,453 120,951
31 December 2014 CA S&P Movestic Other Group Activities Total
£000 £000 £000 £000 £000
Shareholders' equity on the IFRS basis 150,181 53,059 58,840 16,753 278,833
Reclassifications: -
Debt finance (38,960) (25,367) - 64,327 -
Other (260) - - 260 -
Adjustments: -
Deferred acquisition costs (3,516) - (26,910) - (30,426)
Deferred income 6,427 - - - 6,427
Adjustment to provisions on investment contracts, net of amounts deposited with reinsurers (7,582) - - - (7,582)
Adjustments to provisions on insurance contracts, net of reinsurers' share (23) 1,284 - - 1,261
Acquired in-force value (21,995) (4,554) (40,205) - (66,754)
Acquired value of customer relationships - - (898) - (898)
Software assets - - (3,715) - (3,715)
Adjustment to borrowings - - (7,027) - (7,027)
Deferred tax 1,162 - 2,290 - 3,452
Shareholder net worth 85,434 24,422 (17,625) 81,340 173,571
Value of in-force business 86,067 11,540 146,064 - 243,671
Shareholders' equity on the EEV basis 171,501 35,962 128,439 81,340 417,242
Shareholder net worth comprises:
Shareholder net worth in regulated entities 124,394 49,789 (19,561) - 154,622
Shareholders' net equity in other Group companies - - 1,936 81,340 83,276
Debt finance (38,960) (25,367) - - (64,327)
Total 85,434 24,422 (17,625) 81,340 173,571
9 Profit recognised on business combination
An EEV profit of £21,630,000 has arisen as a result of the purchase of 100% of the share capital of the Waard Group on 19
May 2015. The profit was measured as the difference between the purchase consideration of £50,123,000 and the European
Embedded Value of the Waard Group at the purchase date, being £71,753,000, which was established in accordance with the
methodology set out in Note 3 of the EEV supplementary financial information.
10 Earnings per share
Six months ended 30 June Year ended 31 December
2015 2014 2014
p p p
Basic earnings per share
Based on profit for the period 40.20 41.17 38.24
Based on profit for the period before exceptional items 18.42 41.17 38.24
Diluted earnings per share
Based on profit for the period 40.14 41.17 38.20
Based on profit for the period before exceptional items 18.39 41.17 38.20
11 Foreign exchange translation reserve
A foreign exchange translation reserve arises on the translation of the financial statements of Movestic and the Waard
Group, the functional currency of which is the Swedish Krona and the Euro respectively, into pounds sterling, which is the
presentational currency of the Group financial statements. For Movestic, items in the consolidated income statement are
translated at the average exchange rate of SEK 12.7619 = £1 in the six months ended 30 June 2015 (year ended 31 December
2014: SEK 11.2989 = £1), while all items in the balance sheet are stated at the closing rates at the reported balance sheet
date, being SEK 13.0522 = £1 at 30 June 2015 (SEK 12.0680 = £1 at 31 December 2014). For the Waard Group, items in the
consolidated income statement are translated at the average exchange rate of Euro 1.3919 = £1 in the post acquisition
period between 19 May and 30 June 2015. All items in the balance sheet are stated at the closing rate at the reported
balance sheet date, being Euro 1.4118 = £1 at 30 June 2015. The differences arising on translation using this methodology
are recognised directly in shareholders' equity within the foreign exchange translation reserve.
The reported embedded value is sensitive to movements in the SEK/Euro: £ exchange rate. For Movestic, had the exchange
rate as at 30 June 2015 been 10% weaker at SEK 14.3574 = £1, then the reported embedded value of £441.2m as at 30 June 2015
would have been reduced to £428.2m. Had the Euro exchange rate as at 30 June 2015 been 10% weaker at Euro 1.5530 = £1, then
the reported embedded value of £441.2m as at 30 June 2015 would have been reduced to £434.7m.
ADDITIONAL INFORMATION
BOARD OF DIRECTORS
Peter Mason was appointed as Chairman of Chesnara plc and Chairman of the Nomination Committee on 1 January 2009 and was
appointed as Chairman of Movestic Livförsäkring AB with effect from 23 July 2009. He is also a member of the Remuneration
Committee. He was the Investment Director and Actuary of Neville James Group, an investment management company and was
admitted as a Fellow of the Institute of Actuaries in 1979. He has over 40 years' experience in financial services and
has held several non-executive posts within the industry.
John Deane was appointed as a director of Chesnara plc on 3 December 2014. He assumed the role of CEO from 1 January 2015
on the resignation of Graham Kettleborough. John is a qualified Actuary and has over 30 years' experience in the life
assurance industry. John joined Century Life, a closed book acquisition company in 1993. As CEO, he oversaw the creation
of the outsourcing company Adepta in 2000. He joined Old Mutual plc in 2003 becoming their Corporate Development Director
later that year. In 2007 he joined the Board of Royal London with responsibility for their open businesses in the UK,
Ireland and Isle of Man. Since 2013, John has been leading a financial services consultancy which has been advising UK and
overseas companies on a variety of strategic projects. John is a non-executive Director of Crossco (1337) plc, which is
seeking to become a challenger bank (Atom).
David Rimmington was appointed as Group Finance Director with effect from 17 May 2013. He trained as a chartered
accountant with KPMG, has more than 17 years' experience in financial management within the life assurance and banking
sectors and has had a significant role in a number of major acquisitions and business integrations. Prior to joining
Chesnara plc in 2011 as Associate Finance Director David held a number of financial management positions within the Royal
London Group including 6 years as Head of Group Management Reporting.
Frank Hughes is the Business Services Director of Chesnara plc. He joined Countrywide Assured plc in November 1992 as an IT
Project Manager and was appointed to the Board as IT Director in May 2002. He has 30 years' experience in the life
assurance industry gained with Royal Life, Norwich Union and CMG.
Peter Wright is an Independent Non-executive Director who was appointed to the Chesnara plc Board on 1 January 2009. At
the same date he was appointed as Chairman of the Audit & Risk Committee. He was appointed as a member of the Nomination
Committee with effect from 9 July 2009. He retired as a Principal of Towers Perrin on 1 January 2008 and is a former Vice
President of the Institute of Actuaries, having been admitted as a Fellow in 1979. He is Chairman of the Risk Committee
and of the With-profits Committee of Countrywide Assured plc.
Veronica Oak (née France) is an Independent Non-executive Director who was appointed to the Chesnara plc Board on 16
January 2013. She serves on the Nomination and Audit & Risk Committees and took over the role of Chairman of the
Remuneration Committee on 17 May 2013. On 16 February 2015, Veronica was appointed to the Board of the Hanley Economic
Building Society as a Non-Executive Director and is a former Non-Executive of Family Assurance. Having held a number of
positions within life companies, including Marketing Director, in 1992, Veronica set up her own financial services
consultancy business advising on strategy, business development, product development and related activities. Veronica was
Chairman of the trade body, the Investment and Life Assurance Group in 2002/3 and served on its Management Committee for
over ten years before stepping down in 2010.
David Brand is an Independent Non-executive Director who was appointed to the Chesnara plc Board and the Board of Movestic
Livförsäkring AB on 16 January 2013. He serves on the Nomination, and Audit & Risk Committees. He is a Non-executive
Director at Exeter Friendly Society, where he is Chairman of the Investment Committee and also sits on the Audit, Risk and
Compliance and the Nomination and Remuneration Committees. He is a qualified actuary who, prior to his retirement in June
2012, had worked for the Hannover Re Group in the UK, acting as the Managing Director of the UK life reinsurance subsidiary
since 2003. David had been with the company since 1988, and a Director since 1990. During his career David has also held
various roles with the Institute of Actuaries, including being a member of Council and he also served on the ABI Health
Committee from 2006 to 2012.
Mike Evans is an Independent Non-executive Director who was appointed to the Chesnara plc Board on 4 March 2013. He serves
on the Audit & Risk, Nomination and Remuneration Committees. Mike became Senior Independent Director on 17 May 2013. He is
currently Non-executive Chairman of Hargreaves Lansdown plc, a FTSE 100 listed company, a position he has held since 2009.
He chairs their Nomination Committee and sits on their Remuneration Committee. He originally joined the Hargreaves Lansdown
Board as a Non-executive Director in 2006. Mike is also the Non-executive Chairman of Zoopla Property Group plc. In this
role he also chairs the Nomination Committee and is a member of the Remuneration Committee. Mike is a qualified actuary and
served in a number of Director level positions within Skandia UK between 1991 and 2006.
financial calendar
28 August 2015
Interim results for the six months ending 30 June 2015 announced.
10 September 2015
Ex dividend date.
11 September 2015
Dividend record date.
15 October 2015
Interim dividend payment date.
19 November 2015
Interim Management Statement for the quarter ending 30 September 2015 announced.
31 March 2016
Results for the year ending 31 December 2015 announced.
key contacts
Registered and Head Office
2nd Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
Tel: 01772 972050
Fax: 01772 482244
www.chesnara.co.uk
Legal Advisors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2HA
Addleshaw Goddard LLP
100 Barbirolli Square
Manchester
M2 3AB
Auditor
Deloitte LLP
Chartered Accountants and Statutory Auditor
1 Little New Street
London
EC4A 3TR
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Stockbrokers
Panmure Gordon
One New Change
London
EC4M 9AF
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Bankers
National Westminster Bank plc
135 Bishopsgate
London
EC2M 3UR
The Royal Bank of Scotland
8th Floor, 135 Bishopsgate
London
EC2M 3UR
Lloyds TSB Bank plc
3rd Floor, Black Horse House
Medway Wharf Road
Tonbridge
Kent
TN9 1QS
Public Relations Consultants
Newgate Threadneedle
5th Floor
33 King William Street
London
EC4R 9AS
Corporate Advisors
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
GLOSSARY
ABI Association of British Insurers - Represents the collective interests of the UK's insurance industry. LTICR Long-Term Insurance Capital Requirement - Capital required to be held for regulatory purposes in respect of investment, expense and insurance risks.
AGM Annual General Meeting. LTI Long-Term Incentive Scheme - A reward system designed to incentivise employees' long-term performance.
ALM Asset Liability Management - management of risks that arise due to mismatches between assets and liabilities. MCEV Market Consistent Embedded Value.
APE Annual Premium Equivalent - an industry wide measure that is used for measuring the annual equivalent of regular and single premium policies. Movestic Movestic Livförsäkring AB.
CA Countrywide Assured plc. Modernac Modernac SA , an associated company which is 49% owned by Movestic.
CALH Countrywide Assured Life Holdings Limited and its subsidiary companies. Official List The Official List of the Financial Conduct Authority.
DNB De Nederlandsche Bank, being the Dutch Financial Supervisory Authority.
Directors or Board The directors of the Company as at the date of this document whose names are set out above of this document. Ordinary Shares Ordinary shares of five pence each in the capital of the Company.
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. ORSA Own Risk and Solvency Assessment.
Dutch Business Waard Group, consisting of Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V. and Tadas Verzekeringen B.V. PRA Prudential Regulation Authority.
EEV European Embedded Value. PL Protection Life Company Limited.
FCA Financial Conduct Authority. QRT Quantitative Reporting Template.
FI Finansinspektionen, being the Swedish Financial Supervisory Authority. RCR Risk Capital Requirement - additional amounts of capital required to be held for regulatory purposes as a result of two stress tests.
Form of Proxy The form of proxy relating to the General Meeting being sent to Shareholders with this document. Resolution The resolution set out in the notice of General Meeting set out in this document.
FSMA The Financial Services and Markets Act 2000 of England and Wales, as amended. RMF Risk Management Framework.
GCR Group Capital Resources - 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 Shareholder(s) Holder(s) of Ordinary Shares.
those capital resources.
GCRR Group Capital Resource Requirement - 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. 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 that will replace the current Solvency I
requirements.
Group The Company and its existing subsidiary undertakings. STI Short-Term Incentive Scheme - A reward system designed to incentivise employees' short-term performance.
Guardian Guardian Assurance plc. Swedish Business Movestic and its subsidiaries and associated companies.
HCL HCL Insurance BPO Services Limited. S&P Save & Prosper Insurance Limited and Save & Prosper Pensions Limited.
IFRS International Financial Reporting Standards. TCF Treating Customers Fairly - a central PRA principle that aims to ensure an efficient and effective market and thereby help policyholders achieve a fair deal.
IFA Independent Financial Adviser. TSR Total Shareholder Return, measured with reference to both dividends and capital growth.
IGD Insurance Groups Directive - The European directive setting out the current capital adequacy regime for insurance groups. UK or United Kingdom The United Kingdom of Great Britain and Northern Ireland.
KPI Key performance indicator UK Business CA, S&P and CALH
London Stock Exchange London Stock Exchange plc. VIF Value of In-force business.
Waard Group Comprising the combined business of Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V.,and Tadas Verzekeringen
This information is provided by RNS
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