REG - Chesnara PLC - Final Results <Origin Href="QuoteRef">CSN.L</Origin> - Part 5
31/03/2017 07:06
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associated with
the cost of guarantee reserve.
Key observations
Based on the audit procedures performed, we found that the assumptions underpinning the stochastic modelling were
reasonable and had been applied appropriately.been made following our reassessment of what matters require communicating.
We also report to the Audit & Risk Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
Valuation of the Protection Life acquired value in-force ('PtL AVIF') business intangible
The risk
At 31 December 2016 the Group carried an intangible asset for the PtL AVIF of £11.6m (31 December 2015: £15.0m).
Following a review of the PtL AVIF business intangible in the prior year, we continued to focus on the valuation of this
asset as it is the AVIF intangible which is most sensitive to changes in key assumptions used.
Assessing the recoverable value of the acquired in-force business intangible asset requires significant judgment in the
estimation of the net present value of cash flows expected to arise from the pre-acquisition policies acquired in past
business combinations. The key assumptions are persistency rates, discount rates and economic assumptions.
How the scope of our audit responded to this risk
We evaluated the carrying value of the PtL AVIF intangible asset by reviewing and challenging:
- the mechanical accuracy of the net present value calculation;
- the future cash flows within the model to assess whether these were the latest available and were those used
consistently throughout the business;
- the level of headroom this calculation generated by reference to the post amortisation carrying value of the asset;
and
- the appropriateness of the key assumptions used within the model by reference to actual experience and performance
of sensitivity analysis where appropriate.
We assessed the design and implementation of the controls over the impairment test performed by management to evaluate the
suitability of the carrying value of the intangible asset.
Key observations
We found that the assumptions underpinning the impairment test were appropriate and applied consistently. We found that the
carrying value of the intangible asset remains appropriate.
Valuation of the Protection Life acquired value in-force ('PtL AVIF') business intangible
The risk
Actuarial liabilities are calculated using an appropriate discount rate to take account of the time value of future
expected payments. The discount rate used to determine the UK actuarial liabilities includes an adjustment to reflect the
credit risk of those future cash flows. The determination of the credit risk adjustment which is applied to non-government
bond yields is a source of significant judgment and is material to the Balance Sheet.
How the scope of our audit responded to this risk
We evaluated the appropriateness of the principal assumptions relating to the credit risk element of the valuation interest
rates assumption for discounting the technical provisions. This involved benchmarking the credit risk assumptions used
against those obtained from external data, including a comparison with those adopted by industry peers, where available.
We substantively agreed a sample of non-government bonds used within the calculation of the valuation rate of interest to
the value of those bonds on the balance sheet to check whether they were consistent.
We evaluated the design and implementation of the internal controls around the determination and application of the credit
element of the valuation rate of interest applied in discounting actuarial liabilities.
Key observations
We found that the methodology for credit risk adjustments applied to the valuation interest rate is appropriate and applied
consistently.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these matters.
Our liability for this report, and for our full audit report on the financial statements is to the company's members as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we
might state to the company's members those matters we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company
and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have
formed.
Deloitte LLP
Chartered Accountants and Statutory Auditor
CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2016 2015
£000 £000
Insurance premium revenue 109,450 114,749
Insurance premium ceded to reinsurers (44,900) (46,811)
Net insurance premium revenue 64,550 67,938
Fee and commission income 72,932 66,249
Net investment return 515,681 148,514
Total revenue net of reinsurance payable 653,163 282,701
Other operating income 17,614 18,586
Total income net of investment return 670,777 301,287
Insurance contract claims and benefits incurred
Claims and benefits paid to insurance contract holders (346,117) (318,721)
Net increase in insurance contract provisions 11,392 191,850
Reinsurers' share of claims and benefits 62,364 32,004
Net insurance contract claims and benefits (272,361) (94,867)
Change in investment contract liabilities (274,724) (100,469)
Reinsurers' share of investment contract liabilities 5,617 733
Net change in investment contract liabilities (269,107) (99,736)
Fees, commission and other acquisition costs (23,838) (20,875)
Administrative expenses (46,615) (41,301)
Other operating expenses
Charge for amortisation of acquired value of in-force business (10,419) (9,274)
Charge for amortisation of acquired value of customer relationships (236) (222)
Other (4,394) (5,866)
Total expenses net of change in insurance contract provisions and investment contract liabilities (626,970) (272,141)
Total income less expenses 43,807 29,146
Share of profit of associate 150 455
Profit recognised on business combination - 16,644
Financing costs (3,272) (3,457)
Profit before income taxes 40,685 42,788
Income tax expense (5,405) (3,000)
Profit for the year 35,280 39,788
Foreign exchange translation differences arising on the revaluation of foreign operations 20,114 (173)
Total comprehensive income for the year 55,394 39,615
Basic earnings per share (based on profit for the year) 27.67p 31.48p
Diluted earnings per share (based on profit for the year) 27.56p 31.41p
CONSOLIDATED BALANCE SHEET
31 December 2016 2015
£000 £000
Assets
Intangible assets
Deferred acquisition costs 48,318 36,061
Acquired value of in-force business 62,943 68,341
Acquired value of customer relationships 736 875
Software assets 6,560 4,720
Property and equipment 519 537
Investment in associates 5,433 4,707
Investment properties 245 245
Reinsurers' share of insurance contract provisions 254,859 282,628
Amounts deposited with reinsurers 37,437 33,941
Financial assets
Equity securities at fair value through income 485,165 486,243
Holdings in collective investment schemes at fair value through income 4,104,602 3,499,355
Debt securities at fair value through income 474,091 423,754
Policyholders' funds held by the Group 229,397 189,919
Mortgage loan portfolio 54,756
Insurance and other receivables 39,646 43,674
Prepayments 5,271 6,565
Derivative financial instruments 2,773 2,721
Total financial assets 5,395,701 4,652,231
Reinsurers' share of accrued policyholder claims 19,307 19,042
Income taxes 3,352 3,611
Cash and cash equivalents 260,353 260,863
Total assets 6,095,763 5,367,802
Liabilities
Insurance contract provisions 2,242,446 2,232,083
Other provisions 823 1,905
Financial liabilities
Investment contracts at fair value through income 3,028,269 2,457,521
Liabilities relating to policyholders' funds held by the Group 229,397 189,919
Borrowings 86,843 79,025
Derivative financial instruments 1,348 444
Total financial liabilities 3,345,857 2,726,909
Deferred tax liabilities 5,420 7,906
Reinsurance payables 6,899 9,660
Payables related to direct insurance and investment contracts 61,416 62,284
Deferred income 5,438 6,212
Income taxes 8,624 6,328
Other payables 23,657 18,401
Bank overdrafts 1,622 952
Total liabilities 5,702,202 5,072,640
Net assets 393,561 295,162
Shareholders' equity
Share capital 43,766 42,600
Share premium 142,058 76,516
Treasury shares (161) (161)
Other reserves 19,300 (814)
Retained earnings 188,598 177,021
Total shareholders' equity 393,561 295,162
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2016 2015
£000 £000
Profit for the year 35,280 39,788
Adjustments for:
Depreciation of property and equipment 173 203
Amortisation of deferred acquisition costs 12,162 9,251
Amortisation of acquired value of in-force business 6,797 9,274
Amortisation of acquired value of customer relationships 172 222
Amortisation of software assets 794 1,346
Share based payment 623 212
Tax paid 5,405 2,999
Interest receivable (20,882) (24,693)
Dividends receivable (30,209) (31,501)
Interest expense 3,272 3,457
Change in fair value of investment properties - (4,277)
Fair value gains on financial assets (205,870) (87,934)
Profit arising on business combination - (16,644)
Share of profit of associate (150) (455)
Increase in intangible assets related to insurance and investment contracts (16,448) (14,759)
Interest received 20,281 24,458
Dividends received 29,446 31,532
Changes in operating assets and liabilities:
Decrease in financial assets (280,333) 62,365
Decrease in reinsurers share of insurance contract provisions 34,177 54,253
Increase/(decrease) in amounts deposited with reinsurers (3,496) 1,557
Increase/(decrease) in insurance and other receivables 10,294 1,754
Increase in prepayments 1,795 (1,710)
Decrease in insurance contract provisions (16,530) (201,453)
Increase in investment contract liabilities 362,641 149,011
Decrease in provisions (1,306) (1,893)
(Decrease)/increase in reinsurance payables (3,660) (578)
Increase in payables related to direct insurance and investment contracts (2,114) 1,708
Decrease in other payables 2,808 (1,630)
Net cash generated from operations (54,878) 5,863
Income tax paid (4,709) (4,248)
Net cash generated from operating activities (59,587) 1,615
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired - 54,258
Development of software (3,502) (2,418)
Purchases of property and equipment 948 (265)
Net cash generated from/( utilised by) investing activities (2,554) 51,575
Cash flows from financing activities 66,708
Proceeds from issue of share capital 4,268 -
Proceeds from borrowings - -
Repayment of borrowings (7,815)
Dividends paid (24,181) (23,498)
Interest paid (3,095) (3,382)
Net cash (utilised by)/generated from financing activities 43,700 (34,695)
Net increase in net cash and cash equivalents (18,441) 18,495
Net cash and cash equivalents at beginning of year 259,911 240,510
Effect of exchange rate changes on net cash and cash equivalents 17,261 906
Net cash and cash equivalents at end of the year 258,731 259,911
Note: Net cash and cash equivalents includes overdrafts.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2016
Share capital Share premium Other reserves Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000
Equity shareholders' funds at 1 January 2016 42,600 76,516 (814) (161) 177,021 295,162
Profit for the year - - - - 35,280 35,280
Dividends paid - - - - (24,181) (24,181)
Foreign exchange translation differences - - 20,114 - - 20,114
Share based payment - - - - 478 478
Issue of new shares 1,166 65,542 - - - 66,708
Equity shareholders' funds at 31 December 2016 43,766 142,058 19,300 (161) 188,598 393,561
Year ended 31 December 2015
Share capital Share premium Other reserves Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000
Equity shareholders' funds at 1 January 2015 42,600 76,523 (641) (168) 160,519 278,833
Profit for the year - - - - 39,788 39,788
Dividends paid - - - - (23,498) (23,498)
Foreign exchange translation differences - - (173) - - (173)
Share based payment - - - - 212 212
Sale of treasury shares - (7) - 7 - -
Equity shareholders' funds at 31 December 2015 42,600 76,516 (814) (161) 177,021 295,162
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 2016, which are
prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union
('Adopted IFRSs') as adopted by the EU.
2. Significant accounting policies
The accounting policies applied by the group in determining the IFRS basis results in this report are the same as those
previously applied in the Group's consolidated financial statements.
3. Operating segments
The Group considers that it has no product or distribution-based business segments. It reports segmental information on the
same basis as reported internally to the Chief Operating Decision Maker, which is the Board of Directors of Chesnara plc.
The segments of the Group as at 31 December 2016 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. This segment also contains the business of Protection Life, which was purchased on 28 November 2013.
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. CA 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. On 31 December
2011 the whole of the business of this segment was transferred to Countrywide Assured plc under the provisions of Part VII
of the Financial Services and Markets Act 2000.
Movestic: This segment comprises the Group's Swedish life and pensions business, Movestic Livförsäkring AB ('Movestic')
and its subsidiary and associated companies, which are open to new business and which are responsible for conducting both
unit-linked and pensions and savings business and providing some life and health product offerings.
Waard Group: This segment represents the Group's Dutch life and general insurance business, which was acquired on 19 May
2015 and comprises the three insurance companies Waard Leven N.V., Hollands Welvaren Leven N.V. and Waard Schade N.V., and
a servicing company, Tadas Verzekering. The Waard Group's policy base is predominantly made up of term life policies,
although also includes unit-linked policies and some non-life policies, covering risks such as occupational disability and
unemployment.
Other Group Activities: The functions performed by the parent company, Chesnara plc, are defined under the operating
segment analysis as Other Group Activities. Also included therein are consolidation and elimination adjustments.
The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the
business segments are on normal commercial terms in normal market conditions. The Group evaluates performance of operating
segments on the basis of the profit before tax attributable to shareholders 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 2016.
(i) Segmental income statement for the year ended 31 December 2016
CA S&P UK Total Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000 £000
Net insurance premium revenue 42,103 4,886 46,989 14,903 2,658 - 64,550
Fee and commission income 29,000 2,610 31,610 41,296 26 - 72,932
Net investment return 206,748 131,155 337,903 169,130 8,464 184 515,681
Total revenue (net of reinsurance payable) 277,851 138,651 416,502 225,329 11,148 184 653,163
Other operating income 2,568 10,792 13,360 3,751 503 - 17,614
Segmental income/(expenses) 280,419 149,443 429,862 229,080 11,651 184 670,777
Net insurance contract claims and benefits incurred (139,748) (123,454) (263,202) (7,695) (1,464) - (272,361)
Net change in investment contract liabilities (98,393) (2,206) (100,599) (168,508) - - (269,107)
Fees, commission and other acquisition costs (1,641) (23) (1,664) (25,089) (330) - (27,083)
Administrative expenses:
Amortisation charge on software assets - - - (1,243) - - (1,243)
Depreciation charge on property and equipment - - - (197) - - (197)
Other (11,017) (9,443) (20,460) (12,800) (3,664) (8,251) (45,175)
Operating expenses (1,203) (1) (1,204) (3,209) - 19 (4,394)
Financing costs - (2) (2) (1,629) - (1,641) (3,272)
Share of profit from associates - - - 150 - - 150
Profit before tax and consolidation adjustments 28,417 14,314 42,731 8,860 6,193 (9,689) 48,095
Other operating expenses:
Charge for amortisation of acquired value of in-force business (5,643) (604) (6,247) (3,554) (618) - (10,419)
Charge for amortisation of acquired value of customer relationships - - - (236) - - (236)
Fees, commission and other acquisition costs - - - 3,245 - - 3,245
Segmental income less expenses 22,774 13,710 36,484 8,315 5,575 (9,689) 40,685
Profit before tax 22,774 13,710 36,484 8,315 5,575 (9,689) 40,685
Income tax (expense)/credit (6,663) (7) (1,721) 2,986 (5,405)
Profit after tax 29,821 8,308 3,854 (6,703) 35,280
(ii) Segmental balance sheet as at 31 December 2016
CA S&P Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000
Total assets 1,829,944 1,217,546 2,718,156 207,160 122,957 6,095,763
Total liabilities (1,728,019) (1,155,556) (2,638,490) (122,655) (57,482) (5,702,202)
Net assets 101,925 61,990 79,666 84,505 65,475 393,561
Investment in associates - - 5,433 - - 5,433
Additions to non-current assets - - 11,894 - - 11,894
(iii) Segmental income statement for the year ended 31 December 2015
CA S&P UK Total Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000 £000
Net insurance premium revenue 47,880 5,413 53,293 13,515 1,130 - 67,938
Fee and commission income 30,216 2,513 32,729 33,502 18 - 66,249
Net investment return 24,539 37,605 62,144 87,163 (1,238) 445 148,514
Total revenue (net of reinsurance payable) 102,635 45,531 148,166 134,180 (90) 445 282,701
Other operating income 2,854 11,331 14,185 4,399 2 - 18,586
Segmental income/(expenses) 105,489 56,862 162,351 138,579 (88) 445 301,287
Net insurance contract claims and benefits incurred (54,093) (37,282) (91,375) (6,079) 2,587 - (94,867)
Net change in investment contract liabilities (13,240) 641 (12,599) (87,137) - - (99,736)
Fees, commission and other acquisition costs (1,986) (21) (2,007) (21,864) 83 - (23,788)
Administrative expenses:
Amortisation charge on software assets - - - (1,340) - - (1,340)
Depreciation charge on property and equipment (22) - (22) (180) - - (202)
Other (10,691) (9,628) (20,319) (9,884) (1,715) (7,841) (39,759)
Operating expenses (1,501) - (1,501) (4,481) - - (5,982)
Financing costs - - - (1,340) - (2,116) (3,456)
Share of profit from associates - - - 455 - - 455
Profit before tax and consolidation adjustments 23,956 10,572 34,528 6,729 867 (9,512) 32,612
Other operating expenses:
Charge for amortisation of acquired value of in-force business (4,975) (661) (5,636) (3,282) (356) - (9,274)
Charge for amortisation of acquired value of customer relationships - - - (107) - - (107)
Fees, commission and other acquisition costs - - - 2,913 - - 2,913
Segmental income less expenses 18,981 9,911 28,892 6,253 511 (9,512) 26,144
Profit arising on business combinations - - - - - 16,644 16,644
Profit before tax 18,981 9,911 28,892 6,253 511 7,132 42,788
Income tax (expense)/credit (4,139) (14) (124) 1,277 (3,000)
Profit after tax 24,753 6,239 387 8,409 39,788
(iv) Segmental balance sheet as at 31 December 2015
CA S&P Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000
Total assets 1,809,494 1,181,272 2,134,143 188,993 53,900 5,367,802
Total liabilities (1,702,363) (1,125,113) (2,070,860) (120,216) (54,088) (5,072,640)
Net assets 107,131 56,159 63,283 68,777 (188) 295,162
Investment in associates - - 4,707 - - 4,707
Additions to non-current assets - 26 17,368 73 - 17,467
4. Borrowings
31 December
2016 2015
£000 £000
Bank loan 52,697 52,522
Amount due in relation to financial reinsurance 34,146 26,503
Total 86,843 79,025
Current 61,471 18,448
Non-current 25,372 60,577
Total 86,843 79,025
The bank loan subsisting at 31 December 2016, comprises the following:
- on 7 October 2013 tranche one of a loan facility was drawn down, amounting to £30.0m. This facility is unsecured and
is repayable in five increasing annual instalments on the anniversary of the draw down date. The outstanding principal on
the loan bears interest at a rate of 2.25 percentage points above the London Inter-Bank Offer Rate and is repayable over a
period which varies between one and six months at the option of the borrower. During the year, £6.05.m was repayable, but
the amount was deferred due pending arrangement of the new loan facility to part fund the LGN acquisitions.
- on 27 November 2013 tranche two of the loan facility was drawn down, amounting to £31.0m. As with tranche one, this
facility is unsecured and is repayable in five increasing annual instalments on the anniversary of the draw down date. The
outstanding principal on the loan bears interest at a rate of 2.25 percentage points above the London Inter-Bank Offer Rate
and is repayable over a period which varies between one and six months at the option of the borrower. During the year,
£6.05.m was repayable, but the amount was deferred due pending arrangement of the new loan facility to part fund the LGN
acquisitions.
- on 27 November 2013 a short-term loan of £12.8m was drawn down. This was originally repayable in full on 27 May 2015.
During 2014, the repayment date of this loan has been extended to December 2018. The outstanding principal on the loan
bears interest at a rate of 2.75 percentage points above the London Inter-Bank Offer Rate.
The fair value of the bank loan at 31 December 2016 was £52,800,000 (31 December 2015: £52,800,000).
Bank loans are presented net of unamortised arrangement fees. Arrangement fees are recognised in profit or loss using the
effective interest rate method.
The fair value of amounts due in relation to financial reinsurance was £34,396,000 (31 December 2015: £26,879,000). The
fair value of other borrowings is not materially different from their carrying value.
The bank loan has been classified as current as at the balance sheet date due to the timing of the LGN acquisition, which
is anticipated to complete in the first half of 2017. At this point in time, the existing facility will be re-paid in full
and replaced with a new facility.
5. Earnings per share
Year ended 31 December 2016 2015
Profit for the year attributable to shareholders (£000) 35,280 39,788
Weighted average number of ordinary shares 127,488,681 126,401,635
Basic earnings per share 27.67p 31.48p
Diluted earnings per share 27.56p 31.41p
The weighted average number of ordinary shares in respect of the years ended 31 December 2016 is based upon 149,885,761
shares in issue less 147,535 own shares held in treasury. The weighted average number of ordinary shares in respect of the
years ended 31 December 2015 was based upon 126,552,427 shares in issue less 147,535 own shares held in treasury.
There were 526,000 share options outstanding at 31 December 2016 (2015: 271,000). Accordingly, there is dilution of the
average number of ordinary shares in issue in respect of 2016.
6. Retained earnings
Year ended 31 December
2016£000 2015£000
Retained earnings attributable to equity holders of the parent company comprise:
Balance at 1 January 177,021 160,519
Profit for the year 35,280 39,788
Share based payment 478 212
Dividends
Final approved and paid for 2013 - -
Interim approved and paid for 2014 - -
Final approved and paid for 2014 (15,586) (15,143)
Interim approved and paid for 2015 (8,595) (8,355)
Balance at 31 December 188,598 177,021
The interim dividend in respect of 2015, approved and paid in 2015 was paid at the rate of 6.61p per share. The final
dividend in respect of 2015, approved and paid in 2016, was paid at the rate of 12.33p per share so that the total dividend
paid to the equity shareholders of the parent company in respect of the year ended 31 December 2015 was made at the rate of
18.94p per share.
The interim dividend in respect of 2016, approved and paid in 2016, was paid at the rate of 6.80p per share to equity
shareholders of the parent company registered at the close of business on 8 September 2016, the dividend record date.
A final dividend of 12.69p per share in respect of the year ended 31 December 2016 payable on 24 May 2017 to equity
shareholders of the parent company registered at the close of business on 18 April 2017, the dividend record date, was
approved by the directors after the balance sheet date. The resulting total final dividend of £19.0m has not been provided
for in these financial statements and there are no income tax consequences.
The following summarises dividends per share in respect of the year ended 31 December 2016 and 31 December 2015:
Year ended 31 December
2016p 2015p
Interim - approved and paid 6.80 6.61
Final - proposed/paid 12.69 12.33
Total 19.49 18.94
7. Related parties
(a) Identity of related parties
The shares of the company were widely held and no single shareholder exercised significant influence or control over the
company.
The company has related party relationships with:
(i) key management personnel who comprise only the directors of the company;
(ii) its subsidiary companies;
(iii) its associated company;
(iv) other companies over which the directors have significant influence; and
(v) transactions with persons related to key management personnel.
(b) Related party transactions
(i) Transactions with key management personnel.
Key management personnel comprise of the directors of the company. There are no executive officers other than certain of
the directors. Key management compensation is as follows:
2016£000 2015£000
Short-term employee benefits 1,849 1,713
Post-employment benefits 84 71
Total 1,933 1,784
In addition to their salaries the company also provides non-cash benefits to directors, and contributes to a post
employment defined contribution pension plan on their behalf, or where regulatory contribution limits are reached, pay an
equivalent amount as an addition to base salary.
The following amounts were payable to directors in respect of bonuses and incentives:
2016£000 2015£000
Annual bonus scheme (included in the short-term employee benefits above) 521 495
These amounts have been included in Accrued Expenses.
The amounts payable under the annual bonus scheme were payable within one year.
(ii) Transactions with subsidiaries
The company undertakes centralised administration functions, the costs of which it charges back to its operating
subsidiaries. The following amounts which effectively comprised a recovery of expenses at no mark up were credited to the
Consolidated Statement of Comprehensive Income of the company for the respective periods:
Year ended 31 December
2016 2015
£000 £000
Recovery of expenses 3,470 3,054
(iii) Transactions with associate
Movestic Livförsäkring AB and its associate Modernac SA
Year ended 31 December
2016 2015
£000 £000
Reinsurance premiums paid (9,245) (8,456)
Reinsurance recoveries received 4,983 4,200
Reinsurance commission received 1,761 1,570
(2,501) (2,686)
Amounts outstanding as at balance sheet date (3,570) (5,321)
Movestic Livförsäkring AB had the following amounts outstanding at the balance sheet date:
2016 2015
Amounts owed by associate£000 Amounts owed to associate £000 Amounts owed by associate£000 Amounts owed to associate £000
Modernac S.A. - 3,570 - 5,321
These amounts have been included in other payables.
(iv) Transactions with persons related to key management personnel
During the year, the company engaged the professional services of Clare Rimmington and Trisha Hughes, who are related to
David Rimmington and Frank Hughes respectively.
Clare Rimmington is an on-line marketing expert with many years of experience developing and managing web based solutions
in the Financial Services sector. Trisha Hughes has many years of project management experience including managing projects
in the Financial Services sector. Their engagements are deemed to have been on terms that are more beneficial to Chesnara
than would need to have been offered in an open consultancy market.
In the year an amount of £11,830 was paid by the company to Clare Rimmington for web-site related consultancy services. In
addition, an amount of £65,610 was paid to Trisha Hughes for business consultancy services. These amounts have been
included in administration expenses.
8. Post balance sheet event
On 24 November 2016 the company announced its proposed acquisition of Legal & General Nederland Levensverzekering
Maatschappij N.V. At the time of the announcement the completion of the acquisition was subject to certain conditions
being met. These included obtaining a declaration of no objection from the Dutch regulator, De Nederlandsche Bank (DNB),
and completing the Works Council consultation process in the Netherlands. A declaration of no objection was received by
DNB on 30 March 2017 and the consultation process with the Works Council of Legal & General Nederland has now been
completed. The acquisition is expected to be completed by 6 April 2017 and therefore at the time of signing these
financial statements the acquisition has not yet completed. As such full disclosures in accordance with IFRS 3 "Business
combinations" will be reported in the next set of financial statements following completion.
The Prospectus and Notice of EGM that was issued on 24 November 2016 reported the following key financial metrics in
relation to the proposed acquisition:
Consideration:
The headline consideration for the Acquisition is E160 million, to be paid in cash. The Acquisition consideration is
proposed to be financed by a combination of a Firm Placing and Placing and Open Offer to raise in aggregate approximately
£70 million (before expenses), New Debt Facilities totalling £100.2 million (£40 million and E71 million), which replace an
existing debt facility of £52.8 million and raises £47.4 million of incremental debt and the balance from Chesnara's
existing cash resources. In addition to the headline consideration, deferred capital related consideration will accrue from
1 October 2016 to the date of completion of the Acquisition, which is expected to occur during the first quarter of 2017.
The company has calculated the maximum interest payable to be E2.3 million.
Key metrics:
Key Legal & General Nederland financial metrics at 30 June 2016 were as follows:
- E219.8 million of Solvency II own funds;
- E2.2 billion of funds under management;
- Approximately 170,600 policies;
- Solvency ratio of 219 per cent; and
- IFRS net assets of E138.6 million.
GLOSSARY
AGM Annual General Meeting.
ALM Asset Liability Management - management of risks that arise due to mismatches between assets and liabilities.
APE Annual Premium Equivalent - an industry wide measure that is used for measuring the annual equivalent of regular and single premium policies.
CA Countrywide Assured plc.
CALH Countrywide Assured Life Holdings Limited and its subsidiary companies.
Own Funds Own Funds - in accordance with the UK's regulatory regime for insurers it is the sum of the individual capital resources for each of the regulated related undertakings less the book-value of investments by the company in those capital resources.
SCR In accordance with the UK's regulatory regime for insurers it is the sum of individual capital resource requirements for the insurer and each of its regulated undertakings
Directors or Board The directors of the company as at the date of this document whose names are set out above.
DNB De Nederlandsche Bank is the central bank of the Netherlands and is the regulator of our Dutch subsidiary,
DPF Discretionary Participation Feature - A contractual right under an insurance contract to receive, as a supplement to guaranteed benefits, additional benefits whose amount or timing is contractually at the discretion of the issuer.
Dutch Business Waard Group, consisting of Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V. and Tadas Verzekeringen B.V.
EcV Economic Value.
FCA Financial Conduct Authority.
FI Finansinspektionen, being the Swedish Financial Supervisory Authority.
Form of Proxy The form of proxy relating to the General Meeting being sent to Shareholders with this document.
FSMA The Financial Services and Markets Act 2000 of England and Wales, as amended.
Group Own Funds In accordance with the UK's regulatory regime for insurers it is the sum of the individual capital resources for each of the regulated related undertakings less the book-value of investments by the group in those capital resources.
Group SCR In accordance with the UK's regulatory regime for insurers it is the sum of individual capital resource requirements for the insurer and each of its regulated undertakings.
Cash Generation This represents the operational cash that has been generated in the period. The cash generating capacity of the group is largely a function of the movement in the solvency position of the insurance subsidiaries within the group, and takes account of the buffers that management has set to hold over and above the solvency requirements imposed by our regulators.
Group The company and its existing subsidiary undertakings.
HCL HCL Insurance BPO Services Limited.
IFRS International Financial Reporting Standards.
IFA Independent Financial Adviser.
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