REG - Chesnara PLC - Final Results <Origin Href="QuoteRef">CSN.L</Origin> - Part 3
31/03/2015 07:40
- Part 3: For the preceding part double click ID:nRSe9226Ib
16.2 18.7
S&P (11.7) 33.9
PL 1.6 -
Movestic 18.5 18.4
Total 24.6 71.1
The CA segment has benefited from a number of positive items in the period, the most significant being the impact of
investment returns in the year, driven by Government bond values increasing (c£14m) and the positive impact of tax gains of
c£5m. Off-setting this are negative economic assumption changes of c£5m.
The S&P segment reported a loss as a result of prevailing economic conditions. This is almost exclusively due to the
impact that the reduction in Government bond yields in the year has had on the reserves required for those products which
contain options and guarantees.
PL has reported positive economic profits in the year. This is largely due to the positive impact that increasing bond
values has had on this segment during the year.
Movestic is sensitive to movements in equity markets, largely due to its core income stream being dependent upon management
charges generated from policyholders. These management charges are based on the level of funds under management, which are
primarily equity invested. Strong equity returns in Sweden have driven this positive change in EEV over the year.
New business contribution
The new business contribution relates primarily to the Movestic Pensions and Savings business. Movestic also writes Risk
and Health policies, but due to its more short-term nature the Risk and Health business is reported as uncovered business
and hence does not contribute to the new business result. Movestic has contributed £8.9m (2013: £7.2m) of the £9.7m (2013:
£7.9m) new business profits. This is made up of profit on brand new contracts of £6.0m (2013: £4.5m) coupled with £2.9m
(2013: £2.7m) which is attributable to increments on policies that were in force at the start of the year. The reason for
the increase in new contract profits is as a result of a notable increase in the margins on new products, coupled with
slightly higher volumes of new policies sold year on year.
Experience variances
2014£m 2013£m
CA 6.1 7.6
S&P (4.8) 4.7
PL (0.7) -
Movestic (0.1) (6.5)
Total 0.5 5.8
The CA segment has reported positive experience variances in the year. This is predominately due to positive lapse
experience, which has benefitted the EEV result by c£5m. Off-setting this, the S&P segment has reported experience losses
of £4.8m, the majority of which is due to better than expected policy attrition, resulting in additional strain arising
from the reserves that are held to cover the associated policy options and guarantees. The PL result is driven by the
allocation of additional central costs to the segment in the period. Regarding the Swedish business, it has reported a
small negative experience in 2014. This is made up of a number of items, the most significant being positive lapse and
transfers experience of c£2.3m, off-set by adverse expense variance of c£2.6m. The expense variance in the year has
resulted in Movestic re-assessing its expense assumptions, leading to a small strengthening at the end of the year (see
"Operating assumption changes" section below).
Operating assumption changes
2014£m 2013£m
CA 23.7 (4.3)
S&P (4.6) 4.5
PL (2.9) -
Movestic (5.2) (10.2)
Total 11.0 (10.0)
The CA segment has reported a strong assumption change profit in the year. This is primarily due to a one off positive
item of £17.3m arising from a change around how the assumptions for future bonus units that are allocated to policyholders
are determined. The EEV impact of this assumption change is higher than IFRS due to the positive impact on the VIF, an
asset that is not recognised for IFRS reporting purposes. In addition to this the CA segment has benefited from the
positive impact of the new HCL contract, amounting to £4.2m. An equal and opposite effect can be seen in the S&P segment.
The S&P segment has reported a negative operation assumption change in the period. As referred to above, the main item
that contributes to this a £4.2m strain arising from the modelling of the new HCL outsource contract.
The PL segment has reported an operating assumption change loss of £2.9m. This is as a result of a number of items, the
most significant being the impact of new expense assumptions which capture additional central costs that were not allocated
in the prior year.
Movestic has reported an operating assumption change loss of £5.2m in the year. This is driven by the need to increase the
maintenance cost assumptions at the end of the year, resulting in an adverse impact of £3.4m.
Gain on acquisition of PL Ltd
The EEV result in 2013 benefitted from the impact of one-off gain of £12.3m arising from the purchase of PL Ltd.
Uncovered business and other group activities
2014£m 2013£m
Chesnara (7.7) (5.0)
Movestic 0.3 2.7
Total (7.4) (2.3)
The Chesnara segment of the uncovered business relates to Chesnara parent company costs, such as corporate governance and
business development, that are not attributable to the covered business. The increase in costs when compared with 2013
largely relates to the costs associated with the Part VII transfer of the PL business into CA plc. Both 2013 and 2014
include similar amounts of costs associated with acquisition activities, being the Waard Group in 2014 and the purchase of
PL Ltd in 2013.
The Movestic result contains a number of components which are not modelled on an EEV basis. The main component is the Life
and Health business, which has reported a profit of £0.4m during 2014, £1.8m lower than the prior year profit of £2.2m. In
addition the Movestic segment includes the impact of financial reinsurance valuation movements and the results of
Movestic's associate business, Modernac.
European Embedded Value £417.2m (2013: £376.4m)
EEV movement 31 December 2013 to 31 December 2014
£m
EEV actual 2013 376.4
Net of tax profit arising in the year* 44.2
Equity raised for Waard Group acquisition 34.6
Foreign exchange reserve movement (17.3)
Dividend paid (20.7)
EEV actual 2014 417.2
EEV movement 31 December 2012 to 31 December 2013
£m
EEV actual 2012 311.1
Net of tax profit arising in the year* 70.4
Exceptional surplus on acquisition 12.3
Effect of modelling adjustments 4.1
Foreign exchange reserve movement (1.4)
Dividend paid (20.1)
EEV actual 2013 376.4
* stated before exceptional items
Summary
The EEV of the Chesnara Group represents the present value of the estimated future profits of the Group plus an adjusted
net asset value. Movements between different periods are a function of the following components:
- Net of tax profit arising in the period, pre exceptional items;
- Exceptional items, such as:
- The impact of raising new equity;
- the surpluses arising on acquisitions; and
- Modelling adjustments;
- Foreign exchange movements arising from retranslating the EEV of Movestic into Sterling; and
- Dividends that are paid in the year.
More detail behind each of these components has been provided below:
Net of tax profit
The EEV profit arising during the year is analysed in more detail within the preceding section.
Equity raised for acquisition
During November 2014 we announced the acquisition of the Waard Group in the Netherlands for E67.8m. To finance the deal we
raised £34.5m of equity through a well supported share placing exercise. With a Euro-denominated purchase price, to
mitigate the downside risk of a strengthening Euro the capital raised was converted to Euros at the time of the capital
raise.
Exceptional surplus on acquisition
The purchase of PL Ltd during 2013 resulted in an acquisition surplus of £12.3m. The surplus arose because the EEV of PL
Ltd at the acquisition date amounted to £51.6m, which is £12.3m higher than the purchase price of £39.3m.
Effect of modelling adjustments
Year ended 31 December 2014
There were no modelling adjustments during the year.
Year ended 31 December 2013
Positive modelling adjustments during 2013 of £4.1m related entirely to the Movestic business. These arose due to
refinements being made to the way in which commissions were modelled.
Foreign exchange reserve movements
The £17.3m foreign exchange reserve movement during 2014 has arisen as a result of a significant weakening of the Swedish
Krona against Sterling by 14% since the end of 2013.
Dividends paid
Dividends of £20.7m were paid during 2014, being the final dividend from 2013 of £13.3m and the interim dividend from 2014
of £7.4m.
Analysis of EEV
The information below provides some further analysis of the EEV of the Group, both in terms of the split between different
operating segments and also the split between the adjusted shareholder net worth and the value of the in-force (VIF)
business. The adjusted shareholder net worth represents the IFRS net worth of the Group, but adjusted for items that are
measured differently under EEV measurement rules and the VIF represents Management's best estimate of the present value of
the future profits that will arise out of each book of business.
EEV - Value in force (VIF) and adjusted shareholder net worth (SNW)(£m at year end)
2012 2013 2014
VIF 210.0 262.2 243.7
SNW 101.1 114.2 173.5
Total EEV 311.1 376.4 417.2
Analysis of VIF at 31 December 2014 - £243.7m
£m
Movestic 146
CA 67
S&P 12
PL 19
Total 244
Analysis of EEV at 31 December 2014 - £417.2m
£m
Movestic 128
CA 148
S&P 61
PL 63
Other Group Activities 17
Total 417
In the above segmental analysis any outstanding debt in relation to the S&P and PL acquisitions is included in "Other Group
Activities".
Highlights
There is a good balance in EEV across the core business segments, with the UK businesses representing the majority (65%) of
the total EEV, which includes the supplementary addition of the PL business last year. The value in-force component is
dominated by the Swedish business which represents 61% of the total Group VIF.
The Group EEV includes £17.1m in "Other Group Activities" which includes the £34.5m equity raised through a share placing
to finance the acquisition of the Waard Group.
There is a significant level of product diversification within the VIF. When adjusted to recognise the impact of the S&P
cost of guarantees which are predominantly pension contract related, 64.0% of the total product level value in-force
relates to pension contracts, 23.5% to protection business and 10.3% to endowments.
Analysis of VIF by policy type
The tables below set out the value of in-force business by major product line at each year end. Analysis of the
composition of the VIF by business and major product category provides a useful insight into the commercial dynamics
underpinning the value of Chesnara.
31 December 2014 Number of policies Value of in-force business
CA S&P PL Movestic Total CA S&P PL Movestic Total
000's 000's 000's 000's 000's £m £m £m £m £m
Endowment 29 3 - 10 42 19.0 4.1 - 8.3 31.4
Protection 36 4 136 - 176 45.8 2.4 23.2 - 71.4
Annuities 6 - - - 6 4.6 0.6 - - 5.2
Pensions 37 115 - 88 240 37.8 39.1 - 147.0 223.9
Other 2 10 - - 12 2.2 4.2 - - 6.4
Total at product level 110 132 136 98 476 109.4 50.4 23.2 155.3 338.3
Valuation adjustments:
Holding company expenses (6.4) (3.0) (1.4) (9.1) (19.9)
Other (12.4) (34.6) - - (47.0)
Cost of capital/frictional costs (1.1) (1.3) (2.8) (0.1) (5.3)
Value in-force pre-tax 89.5 11.5 19.0 146.1 266.1
Taxation (22.4) - - - (22.4)
Value in-force post-tax 67.1 11.5 19.0 146.1 243.7
31 December 2013 Number of policies Value of in-force business
CA S&P PL Movestic Total CA S&P PL Movestic Total
000's 000's 000's 000's 000's £m £m £m £m £m
Endowment 33 4 - 11 48 24.1 2.9 - 8.0 35.0
Protection 39 5 146 - 190 46.2 3.9 36.0 - 86.1
Annuities 6 - - - 6 4.0 1.1 - - 5.1
Pensions 39 120 - 82 241 29.7 44.6 - 140.0 214.3
Other 3 11 - - 14 3.9 4.9 - - 8.8
Total at product level 120 140 146 93 499 107.9 57.4 36.0 148.0 349.3
Valuation adjustments:
Holding company expenses (6.5) (3.4) - (8.9) (18.8)
Other (16.5) (21.2) - - (37.7)
Cost of capital/frictional costs (1.0) (2.3) (4.0) (0.1) (7.4)
Value in-force pre-tax 83.9 30.5 32.0 139.0 285.4
Taxation (16.7) - (6.5) - (23.2)
Value in-force post-tax 67.2 30.5 25.5 139.0 262.2
The policy numbers in the table at 31 December 2013 have been restated to capture a change in the definition of a policy,
following on from the migration of some actuarial services to Towers Watson. Whilst the change in policy numbers is not
significant using the new definition, not adjusting would have meant that the movement in policy numbers in the year would
have been misleading.
The value-in-force represents the discounted value of the future surpluses arising from the insurance and investment
contracts in force at each respective year end. The future surpluses are calculated by using realistic assumptions for
each component of the cash flows.
Holding company expenses are apportioned across the segments pro-rata to the total product-based VIF.
'Other' valuation adjustments in CA principally comprise expenses for managing policies which are not attributed at product
level. In S&P they represent the estimated cost of guarantees to with-profits policyholders.
Taxation in the value-in-force is modelled on a combined CA and S&P basis and, in the analysis above, is attributed wholly
to the CA segment.
FINANCIAL MANAGEMENT
"The Group's financial management framework is designed to provide security for all stakeholders, while meeting the
expectations of policyholders and shareholders."
The following diagram illustrates the aims, approach and outcomes from the financial management framework:
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:
1. Maintain solvency targets
2. Meet the dividend expectations of shareholders
3. Optimise the gearing ratio to ensure an efficient capital base
4. Ensure there is sufficient liquidity to meet obligations to policyholders, debt financiers and creditors
5. Maintain the Group as a going concern.
HOW WE DELIVER TO 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
OUTCOMES
Key outcomes from our financial management process, in terms of meeting our objectives are set out below:
1. SOLVENCY - Group Solvency Ratio of 284%
2. SHAREHOLDER RETURNS - 2014 TSR 11%; 2014 dividend yield 5.4% (based on share price as at 31 December 2014 of
339.25p and full year 2014 dividend of 18.4p).
3. CAPITAL STRUCTURE - Gearing ratio of 23.1% (This does not include the financial reinsurance that is held within the
Swedish business).
4. LIQUIDITY AND POLICYHOLDER RETURNS - Competitive fund performance; Policyholders' realistic expectations
maintained.
5. MAINTAIN THE GROUP AS A GOING CONCERN - Group remains a going concern
How we Deliver our Financial Management Objectives
1. Monitor & Control RISK & SoLVENCY
The Board sets internal solvency targets that are based on solvency requirements imposed by our regulators. The targets
are set with the intention of balancing the requirements of both our shareholders and policyholders.
(i) a Pillar 1 calculation, which compares regulatory capital resource requirements, based on the characteristics of
the in-force life business, with an associated measure of capital as prescribed by regulation; and
(ii) a Pillar 2 calculation which compares a risk-based assessment of solvency capital with an associated measure of
capital based on a realistic assessment of insurance liabilities; and
(iii) the amount of required regulatory solvency capital is then determined by the method which gives rise to the lower
excess of regulatory capital over requirements.
These calculations are monitored regularly.
2. LONGER-TERM PROJECTIONS
Long term projections are performed covering, as a minimum:
(i) Segmental earnings and surplus arising in the long-term insurance funds;
(ii) Chesnara holding company cash flows;
(iii) Regulatory solvency and capital resources and requirements; and
(iv) European embedded value.
The projections are prepared for a base case, using latest board-approved assumptions, and for various individual and
multiple economic and non-economic sensitivities.
In addition:
Financial condition reports are prepared on an annual basis which includes assessments of the ability of the business to
withstand key adverse events, including increased rates of policy lapse, expense overruns and unfavourable market
conditions.
Reverse stress testing techniques are employed which assess events and circumstances which would cause the business to
become unviable. In this context, unviable is defined as the point at which the market loses confidence in the firm being
able to carry out its normal business activities.
3. RESPONSIBLE INVESTMENT Management
Investment management
We aim to promote customer retention by pursuing good relative investment performance across both our UK and Swedish
businesses.
We use third party investment managers in both the UK and Sweden. They are charged with operating within pre-determined
guidelines which are set having regard to the nature of the fund and to contractual obligations to policyholders. For the
with-profits funds these are also in accordance with the published Principles and Practices of Financial Management. In
Sweden a larger number of fund managers are used, which are subject to very stringent initial selection and ongoing
monitoring criteria.
A conservative approach to the investment of shareholders' funds is also adopted within the Group.
OUTCOMES FROM IMPLEMENTING OUR FINANCIAL MANAGEMENT OBJECTIVES
Key outcomes from our financial management process, in terms of meeting our objectives are set out below:
1. Solvency
The solvency and regulatory capital of the Group and its regulated subsidiaries is monitored continually. Further detail
of the year end solvency positions has been summarised in the Business Review section above.
2. Shareholder returns
The Board's primary aim is to provide an attractive dividend flow to its shareholders. With Movestic in its growth phase,
shareholder dividend flows are currently generated by the UK run-off businesses within CA plc, by way of the emergence of
surpluses in, and transfer of surpluses from, its long-term insurance funds to shareholder funds and by the return on
shareholder net assets.
Dividend flows from CA plc to Chesnara are utilised in the first instance for the repayment and servicing of debt, coupled
with bearing central corporate governance costs which cannot be fairly attributed to the long-term insurance funds, and
which arise largely in connection with Chesnara's obligations as a listed company.
Returns to shareholders can be assessed by reference to many measures including the actual share price, the yields on the
shares and the comparison of total market capital to embedded value. Looking back over a five year period the EEV per
share has increased from 258.7p at 31 December 2009 to 330.1p at 31 December 2014, which compares with the share price
increasing from 191.1p to 339.25p over the same period. This shows that the share price, when stated as a percentage of
EEV, has increased from 73.9% at 31 December 2009 to 102.8% at 31 December 2014. Full year dividends over this same period
have increased from 16.4p per share in 2010 to 18.40p per share in 2014.
Throughout 2014 and up to 23 March 2015 there has been a general appreciation in the share price, having increased by 10%
from 321.75p per share at 1 January 2014 to 355.0p per share at 23 March 2015. The combined impact of the share price
growth throughout 2014 and the continuing attractive dividends means shareholders have achieved strong total shareholder
return.
3. Capital structure
The Group's UK operations are financed through a combination of retained earnings and debt finance. Surplus emerging from
the UK business is used to:
(i) to repay our debt obligations;
(ii) to support dividend distributions to shareholders; and
(iii) to support the medium-term requirements of Movestic to meet regulatory solvency capital requirements as it expands.
The borrowings in place that part-finance the UK operations arose as follows:
· S&P, which was purchased in December 2010 for £63.5m, was accomplished by way of debt: equity financing broadly in
a ratio of 2:1.
· PL, which was acquired in November 2013 for £39.3m, was funded using a combination of debt and existing cash
resources. The process for raising the debt to fund the purchase of PL also gave rise to a restructuring of the existing
facilities that were initially arranged to fund the purchase of S&P. The result is that, at 31 December 2014 bank
borrowings amounted to £64.3m. This is a five year loan that has four years remaining.
The purchase of Movestic was financed by internal cash resources. On an ongoing basis the Movestic business is financed by
a combination of external financial reinsurance arrangements and capital contributions from Chesnara, if required.
With respect to acquisitions the Group seeks to finance these through a suitable mix of debt, existing cash resources, and
equity, within the constraints imposed by the operation of regulatory rules over the level of debt finance which may be
borne by Insurance Groups without breaching solvency requirements.
Other factors which may place a demand on capital resources in the future include the costs of unavoidable large scale
systems developments such as those which may be involved with changing regulatory requirements. To the extent that ongoing
administration of the UK life businesses is performed within the terms of its third-party outsourcing agreements, the Group
is sheltered, to a degree, from these development costs as they are likely to be on a shared basis.
4. Liquidity and policyholder returns
Key aspects of policyholder fund performance in respect of the UK Business and in respect of the Swedish Business are set
out in the Business Review.
The current profile and mix of investment asset holdings between fixed-interest securities and cash deposits is such that
realisations to meet obligations to third parties and to support dividend distributions can be made in an orderly and
efficient way.
5. Maintain the Group as a going concern
The Group's cash flow position, together with the return on financial assets in the parent company, supports the ability to
trade in the short term. Accordingly, the underlying solvency position of the UK life business and its ongoing ability to
generate surpluses which support cash transfers to shareholders' funds is critical to the ongoing ability of the Group to
continue trading and to meet its obligations as they fall due.
The information set out in the "Chesnara culture and values" section above indicates a strong solvency position as at 31
December 2014 as measured at both the individual regulated life company levels in both the UK and Sweden and at the Group
level. In addition, in respect of the UK business, the financial condition report and reverse stress testing assessments
indicate that it is able to withstand the impact of adverse scenarios, including the effect of significant investment
market falls, while the business's outsourcing arrangements protect it from significant expense overruns.
The Group is well capitalised, and has a healthy level of cash reserves to be able to meet its debt obligations as they
fall due. The Group does not rely on the renewal or extension of bank facilities to continue trading - indeed, as
indicated, its day to day operations are cash generative. The Group does, however, rely on cash flow 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 reassurers. We monitor their financial position and are
satisfied that any associated credit default risk is low. It is noteworthy that we have negligible exposure to
Euro-denominated sovereign debt.
In light of the above, our expectation is that the Group will continue to generate surplus in its UK long-term business
sufficient to meet its debt obligations as they fall due, to continue to pursue an attractive dividend policy and to meet
the short-term financing requirements of Movestic. The Director's Report in the 2014 Annual Report & Accounts provides
confirmation that the IFRS Financial Statements have been prepared on the Going Concern basis.
CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS
Consolidated Statement of Comprehensive Income
Year ended 31 December 2014 2013
£000 £000
Insurance premium revenue 128,384 109,938
Insurance premium ceded to reinsurers (51,646) (35,469)
Net insurance premium revenue 76,738 74,469
Fee and commission income 66,592 69,990
Net investment return 430,673 567,463
Total revenue net of reinsurance payable 574,003 711,922
Other operating income 23,624 22,270
Total income net of investment return 597,627 734,192
Insurance contract claims and benefits incurred
Claims and benefits paid to insurance contract holders (303,521) (281,800)
Net increase in insurance contract provisions 39,676 (62,249)
Reinsurers' share of claims and benefits 44,627 57,004
Net insurance contract claims and benefits (219,218) (287,045)
Change in investment contract liabilities (267,140) (320,132)
Reinsurers' share of investment contract liabilities 2,272 5,568
Net change in investment contract liabilities (264,868) (314,564)
Fees, commission and other acquisition costs (21,707) (19,450)
Administrative expenses (42,494) (38,761)
Other operating expenses
Charge for amortisation of acquired value of in-force business (9,281) (7,530)
Charge for amortisation of acquired value of customer relationships (263) (301)
Other (8,840) (6,483)
Total expenses net of change in insurance contract provisions and investment contract liabilities (566,671) (674,134)
Total income less expenses 30,956 60,058
Share of profit of associate 855 1,252
Profit recognised on business combination - 2,807
Financing costs (3,008) (3,527)
Profit before income taxes 28,803 60,590
Income tax expense (3,228) (11,227)
Profit for the year 25,575 49,363
Foreign exchange translation differences arising on the revaluation of foreign operations (7,844) (516)
Total comprehensive income for the year 17,731 48,847
Basic earnings per share (based on profit for the year) 22.10p 42.98p
Diluted earnings per share (based on profit for the year) 22.08p 42.98p
Consolidated Balance Sheet
31 December 2014 2013
£000 £000
Assets
Intangible assets
Deferred acquisition costs 31,298 28,162
Acquired value of in-force business 73,469 88,615
Acquired value of customer relationships 1,143 1,583
Software assets 3,715 5,004
Property and equipment 477 673
Investment in associates 4,388 4,088
Investment properties 5,520 20,387
Reinsurers' share of insurance contract provisions 335,936 379,894
Amounts deposited with reinsurers 35,498 34,293
Financial assets
Equity securities at fair value through income 475,983 479,617
Holdings in collective investment schemes at fair value through income 3,516,424 3,440,992
Debt securities at fair value through income 377,193 370,666
Policyholders' funds held by the Group 164,858 130,237
Insurance and other receivables 45,360 46,382
Prepayments 4,821 4,889
Derivative financial instruments 3,580 2,956
Total financial assets 4,588,219 4,475,739
Reinsurers' share of accrued policyholder claims 14,722 11,399
Income taxes 1,962 2,608
Cash and cash equivalents 241,699 184,263
Total assets 5,338,046 5,236,708
Liabilities
Insurance contract provisions 2,308,043 2,362,063
Other provisions 729 5,348
Financial liabilities
Investment contracts at fair value through income 2,389,812 2,283,403
Liabilities relating to policyholders' funds held by the Group 164,858 130,237
Borrowings 87,296 94,377
Derivative financial instruments 49 387
Total financial liabilities 2,642,015 2,508,404
Deferred tax liabilities 8,340 11,007
Reinsurance payables 10,499 11,539
Payables related to direct insurance and investment contracts 58,789 47,137
Deferred income 6,974 7,865
Income taxes 4,168 8,012
Other payables 18,467 27,104
Bank overdrafts 1,189 1,127
Total liabilities 5,059,213 4,989,606
Net assets 278,833 247,102
Shareholders' equity
Share capital 42,600 42,024
Share premium 76,523 42,526
Treasury shares (168) (212)
Other reserves (641) 7,203
Retained earnings 160,519 155,561
Total shareholders' equity 278,833 247,102
Consolidated Statement of Cash Flows
Year ended 31 December 2014 2013
£000 £000
Profit for the year 25,575 49,363
Adjustments for:
Depreciation of property and equipment 206 177
Amortisation of deferred acquisition costs 9,729 9,386
Amortisation of acquired value of in-force business 9,281 7,530
Amortisation of acquired value of customer relationships 263 301
Amortisation of software assets 1,802 2,580
Share based payments 114 -
Tax paid /(recovered) 3,228 11,227
Interest receivable (26,975) (19,256)
Dividends receivable (30,032) (19,049)
Interest expense 3,008 3,527
Change in fair value of investment properties (2,526) 6,197
Fair value gains on financial assets (370,641) (523,938)
Profits on sale of property and equipment - (10)
Profit arising on business combination - (2,807)
Share of profit of associate (855) (1,252)
Interest received 27,346 18,701
Dividends received 29,835 19,252
Increase in intangible assets related to insurance and investment contracts (16,219) (19,397)
Changes in operating assets and liabilities:
Decrease in financial assets 44,847 46,539
Increase in reinsurers share of insurance contract provisions 34,654 (14,596)
Increase in amounts deposited with reinsurers (1,205) (4,048)
(Increase)/decrease in insurance and other receivables (2,492) (5,267)
(Increase)/decrease in prepayments (317) (1,792)
Increase in insurance contract provisions (44,940) 51,570
Increase in investment contract liabilities 369,838 351,630
(Decrease)/increase in provisions (4,600) (1,829)
(Decrease)/increase in reinsurance payables 222 (5,182)
Increase/(decrease) in payables related to direct insurance and investment contracts 12,820 2,110
Increase/(decrease) in other payables (7,402) 3,690
Cash (utilised by)/generated from operations 64,564 (34,643)
Income tax received/(paid) (8,839) 1,405
Net cash (utilised by)/generated from operating activities 55,725 (33,238)
Cash flows from investing activities
Business combinations - (31,924)
Development of software (1,079) (1,882)
Purchases of property and equipment (224) (485)
Proceeds from the disposal of property and equipment 152 -
Net cash utilised by investing activities (1,151) (34,291)
Cash flows from financing activities
Proceeds from issue of share capital 34,573 3
Proceeds from/(repayment of) borrowings (4,469) 46,728
Sale treasury shares 44 5
Dividends paid (20,731) (20,099)
Interest paid (2,593) (3,975)
Net cash generated by/(utilised by) financing activities 6,824 22,662
Net (decrease)/increase in cash and cash equivalents 61,398 (44,867)
Cash and cash equivalents at beginning of year 183,136 228,074
Effect of exchange rate changes on cash and cash equivalents (4,024) (71)
Cash and cash equivalents at end of the year 240,510 183,136
Consolidated Statement of Changes in Equity
Year ended 31 December 2014
Share capital Share premium Other reserves Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000
Equity shareholders' funds at 1 January 2014 42,024 42,526 7,203 (212) 155,561 247,102
Profit for the year - - - - 25,575 25,575
Dividends paid - - - - (20,731) (20,731)
Foreign exchange translation differences - - (7,844) - - (7,844)
Share based payment - - - - 114 114
Issue of new shares 576 33,971 - - - 34,547
Sale of treasury shares - 26 - 44 - 70
Equity shareholders' funds at 31 December 2013 42,600 76,523 (641) (168) 160,519 278,833
Year ended 31 December 2013
Share capital Share premium Other reserves Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000
Equity shareholders' funds at 1 January 2013 42,024 42,523 7,719 (217) 126,297 218,346
Profit for the year - - - - 49,363 49.363
Dividends paid - - - - (20,099) (20,099)
Foreign exchange translation differences - - (516) - - (516)
Equity shareholders' funds at 31 December 2013 - 3 - 5 - 8
42,024 42,526 7,203 (212) 155,561 247,102
Notes to the consolidated financial statements - IFRS Basis
1. Basis of presentation
The preliminary announcement is based on the Group's financial statements for the year ended 31 December 2014, which are
prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union
('Adopted IFRSs') as adopted by the EU.
The financial information contained in the preliminary announcement does not constitute the company's consolidated
statutory financial statements for the years ended 31 December 2014 or 2013, but is derived from those financial
statements. Financial Statements for the year ended 31 December 2013 have been delivered to the Registrar of Companies and
those for the year ended 31 December 2014 will be delivered following the company's annual general meeting. The auditors
have reported on those financial statements; their reports were unqualified, did not draw attention to any matters by way
of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006.
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 except for the adoption of IFRS 2 "Share-based Payment"
and amendments to IAS 36 "Impairment of Assets" regarding 'Recoverable Amount Disclosures for Non-Financial Assets". The
impact of these new standards is not material.
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 2014 comprise:
CA: This segment is part of the Group's UK life insurance and pensions run-off portfolio and comprises the original
business of Countrywide Assured plc, the Group's principal UK operating subsidiary, and 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
during 2006. It is responsible for conducting unit-linked and non-linked business.
S&P: This segment, which was acquired on 20 December 2010, comprises the historical business of Save & Prosper Insurance
Limited and its then subsidiary Save & Prosper Pensions Limited. It is responsible for conducting both unit-linked and
non-linked business, including a with-profits portfolio, which carries significant additional market risk, as described in
Note 6 'Management of financial risk'. On 31 December 2011 the whole of the business of this segment was transferred to
Countrywide Assured plc under the provisions of Part VII of the Financial Services and Markets Act 2000.
PL: This segment represents the business of Protection Life Company Limited, which was purchased on 28 November 2013. PL
is included within the Group's UK business. It is responsible for conducting non-linked business. On 31 December 2014 the
whole of the business of this segment was transferred to Countrywide Assured plc under the provisions of Part VII of the
Financial Services and Markets Act 2000.
Movestic: This segment comprises the Group's Swedish life and pensions business, Movestic Livförsäkring AB ('Movestic')
and its subsidiary and associated companies, which are open to new business and which are responsible for conducting both
unit-linked and non-linked business.
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.
There were no changes to the basis of segmentation during the year ended 31 December 2014.
The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the
business segments are on normal commercial terms in normal market conditions. The Group evaluates performance of operating
segments on the basis of the profit before tax attributable to shareholders and on the total assets and liabilities of the
reporting segments and the Group. There were no changes to the measurement basis for segment profit during the year ended
31 December 2014.
(i) Segmental income statement for the year ended 31 December 2014
CA S&P PL UK Total Movestic Other Group Activities Total
£000 £000 £000 £000 £000 £000 £000
Net insurance premium revenue 40,763 6,330 14,183 61,276 15,462 - 76,738
Fee and commission income 30,773 2,333 - 33,106 33,486 - 66,592
Net investment return 114,343 90,292 1,414 206,049 224,278 346 430,673
Total revenue (net of reinsurance payable) 185,879 98,955 15,597 300,431 273,226 346 574,003
Other operating income 3,011 11,664 - 14,675 6,086 2,863 23,624
Segmental income 188,890 110,619 15,597 315,106 279,312 3,209 597,627
Net insurance contract claims and benefits incurred (99,382) (106,986) (4,959) (211,327) (7,891) - (219,218)
Net change in investment contract liabilities (38,319) (2,637) - (40,956) (223,912) - (264,868)
Fees, commission and other acquisition costs (627) (26) (1,364) (2,017) (19,690) - (21,707)
Administrative expenses
Amortisation charge on software assets - - - - (2,188) - (2,188)
Depreciation charge on property and equipment (22) - - (22) (187) - (209)
Other (9,069) (9,741) (2,121) (20,931) (11,273) (7,893) (40,097)
Other operating expenses
Charge for amortisation of acquired value of in-force business (2,345) (701) (2,433) (5,479) (3,802) - (9,281)
Charge for amortisation of acquired value of customer relationships - - - - (263) - (263)
Other (173) (411) (1,636) (2,220) (5,973) (647) (8,840)
Segmental expenses (149,937) (120,502) (12,513) (282,952) (275,179) (8,540) (566,671)
Segmental income less expenses 38,953 (9,883) 3,084 32,154 4,133 (5,311) 30,956
Share of profit from associates - - - - 855 - 855
Financing costs - (4) - (4) (663) (2,341) (3,008)
Profit/(loss) before tax 38,953 (9,887) 3,084 32,150 4,325 (7,672) 28,803
Income tax credit/(expense) (5,045) 929 888 (3,228)
Profit/(loss) after tax 27,105 5,254 (6,784) 25,575
(ii) Segmental balance sheet as at 31 December 2014
CA S&P PL Movestic Other Group Activities Total
£000 £000 £000 £000 £000 £000
Total assets 1,848,094 1,234,780 172,769 1,999,102 83,301 5,338,046
Total liabilities (1,755,521) (1,181,721) (115,161) (1,940,262) (66,548) (5,059,213)
Net assets 92,573 53,059 57,608 58,840 16,753 278,833
Investment in associates - - - 4,388 - 4,388
Additions to non-current assets - - - 17,297 - 17,297
(iii) Segmental income statement for the year ended 31 December 2013
CA S&P PL UK Total Movestic Other Group Activities Total
£000 £000 £000 £000 £000 £000 £000
Net insurance premium revenue 49,331 7,325 1,183 57,839 16,630 - 74,469
Fee and commission income 31,893 2,499 - 34,392 35,598 - 69,990
Net investment return 198,807 152,413 (143) 351,077 216,182 204 567,463
Total revenue (net of reinsurance payable) 280,031 162,237 1,040 443,308 268,410 204 711,922
Other operating income 6,484 11,761 - 18,245 4,025 - 22,270
Segmental income 286,515 173,998 1,040 461,553 272,435 204 734,192
Net insurance contract claims and benefits incurred (159,179) (120,333) (249) (279,761) (7,284) - (287,045)
Net change in investment contract liabilities (92,878) (6,163) - (99,041) (215,523) - (314,564)
Fees, commission and other acquisition costs (738) (32) (92) (862) (18,588) - (19,450)
Administrative expenses
Amortisation charge on software assets - - - - (2,188) - (2,188)
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