REG - Chesnara PLC - Half-year Report <Origin Href="QuoteRef">CSN.L</Origin> - Part 4
31/08/2016 07:06
- Part 4: For the preceding part double click ID:nRSe4739Ic
acquired value of customer relationships - - - (112) - - (112)
Fees, commission and other acquisition costs - - - 1,354 - - 1,354
Segmental income less expenses 11,498 7,126 18,624 3,077 (27) (7,485) 14,189
- - - - - 16,209 16,209
Profit/(loss) before tax 11,498 7,126 18,624 3,077 (27) 8,724 30,398
Income tax (expense)/credit (3,628) (14) (12) 1,516 (2,138)
Profit/(loss) after tax 14,996 3,063 (39) 10,240 28,260
(v) Segmental balance sheet as at 30 June 2015 (re-stated)*
CA S&P Movestic Waard Group Other Group Activities Total
£000 £000 £000 £000 £000 £000
Total assets 1,903,488 1,227,757 2,048,599 194,583 74,888 5,449,315
Total liabilities (1,803,562) (1,174,449) (1,991,196) (127,288) (66,140) (5,162,635)
Net assets 99,926 53,308 57,403 67,295 8,748 286,680
Investment in associates - - 4,453 - - 4,453
Additions to non-current assets - 26 8,607 26 - 8,659
* CA includes Protection Life Company Limited (previously shown separately).
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
(vi) 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
.
5 Borrowings
Unaudited 30 June 31 December
2016 2015 2015
£000 £000 £000
Bank loan 52,580 64,431 52,522
Amount due in relation to financial reinsurance 31,157 23,406 26,503
Total 83,737 87,837 79,025
The bank loan subsisting at 30 June 2016 comprises the following:
- on 7 October 2013 tranche one of a new 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. To date, £10.4m of the debt has been repaid.
- on 27 November 2013 tranche two of the new 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. To date, £10.6m
of the debt has been repaid.
- 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 the loan was 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 30 June 2016 was £52,800,000 (31 December 2015: £52,800,000).
The fair value of amounts due in relation to financial reinsurance was £31,736,000 (31 December 2015: £26,879,000).
Bank loans are presented net of unamortised arrangement fees. Arrangement fees are recognised in profit or loss using the
effective interest rate method.
6 Financial instruments fair value disclosures
The table below shows the determination of the fair value of financial assets and financial liabilities according to a
three-level valuation hierarchy. Fair values are generally determined at prices quoted in active markets (Level 1).
However, where such information is not available, the Group applies valuation techniques to measure such instruments.
These valuation techniques make use of market-observable data for all significant inputs where possible (Level 2), but, in
some cases it may be necessary to estimate other than market-observable data within a valuation model for significant
inputs (Level 3).
The Group held the following financial instruments at fair value at 30 June 2016. There have not been any transfers of
assets or liabilities between levels of the fair value hierarchy. There are no non-recurring fair value measurements.
Fair value measurement at 30 June 2016 using
Level 1 Level 2 Level 3 Total
Financial Assets £000 £000 £000 £000
Equities
Listed 479,452 - - 479,452
Holdings in collective investment schemes 3,682,362 - - 3,682,362
Debt securities - fixed rate
Government Bonds 375,822 - - 375,822
Listed 93,916 - - 93,916
Debt securities - floating rate Listed 3,432 21,604 - 25,036
Total debt securities 473,170 21,604 - 494,774
Policyholders' funds held by the group 209,073 - - 209,073
Derivative financial instruments 125 3,318 - 3,443
Total 4,844,182 24,922 - 4,869,104
Current 2,347,461
Non-current 2,521,643
Total 4,869,104
Financial liabilities
? Investment contracts at fair value through income - 2,678,190 - 2,678,190
Liabilities related to policyholders' funds held by the group 209,073 - - 209,073
Derivative financial instruments 3,740 144 - 3,884
Total 212,813 2,678,334 - 2,891,147
Included within Holdings in collective investment schemes are amounts held with JPMorgan Life Limited through a reinsurance
arrangement, under which the Group has reassured certain unit-linked liabilities. The contract does not transfer
significant insurance risk and is accounted for as Holdings in collective investment schemes, representing the substance of
the arrangement in place. These amounts have been classified as level 2 in the above hierarchy table as the reinsurance
contract itself is not quoted but is valued using market-observable data.
The debt securities classified as Level 2 are structured bond-type or non-standard debt products, held by our newly
acquired Dutch subsidiaries, for which there is no active market. These products were structured such that the principal
amount invested was protected by high security assets, with the returns being linked to underlying pools of riskier,
higher-return assets. At acquisition and the balance sheet date, the underlying assets supporting the coupon had under
performed such that no coupon is being paid, resulting in these assets all now behaving like zero coupon bonds.
These assets are valued using counterparty or broker quotes and are periodically validated against third-party models.
These assets have been classified as Level 2 because the third-party valuation models include observable inputs to the
valuation of these assets, including counterparty default spreads, yield curve swaps and foreign exchange swaps.
Within derivative financial instruments is a financial reinsurance embedded derivative related to our Movestic operation.
The Group has entered into a reinsurance contract with a third party that has a section that is deemed to transfer
significant insurance risk and a section that is deemed not to transfer significant insurance risk. The element of the
contract that does not transfer significant insurance risk has two components and has been accounted for as a financial
liability at amortised cost and an embedded derivative asset at fair value.
The embedded derivative represents an option to repay the amounts due under the contract early at a discount to the
amortised cost, with its fair value being determined by reference to market interest rate at the balance sheet date. It is,
accordingly, determined at Level 2 in the three-level fair value determination hierarchy set out above.
The Investment contract liabilities in Level 2 of the valuation hierarchy represent the fair value of non-linked and
guaranteed income and growth bonds liabilities valued using established actuarial techniques utilising market observable
data for all significant inputs, such as investment yields.
Except as detailed in the following table, the Directors consider that the carrying value amounts of financial assets and
financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values:
Carrying amount Fair value
30 June 30 June 31 December 30 June 30 June 31 December
2016 2015 2015 2016 2015 2015
£000 £000 £000 £000 £000 £000
Financial liabilities:
Borrowings 83,737 87,837 79,025 84,536 88,744 79,679
Borrowings consist of bank loans and an amount due in relation to financial reinsurance.
The fair value of the bank loans are taken as the principal outstanding at the balance sheet date.
The amount due in relation to financial reinsurance is fair valued with reference to market interest rates at the balance
sheet date.
There were no transfers between levels 1, 2 and 3 during the period.
The Group holds no Level 3 liabilities as at the balance sheet date.
7 Approval of consolidated report for the six months ended 30 June 2016
This condensed consolidated report was approved by the Board of Directors on 30 August 2016. A copy of the report will be
available to the public at the Company's registered office, 2nd Floor, Building 4, West Strand Business Park, West Strand
Road, Preston, PR1 8UY and at www.chesnara.co.uk.
ADDITIONAL INFORMATION
BOARD OF DIRECTORS
PETER MASON: CHAIRMAN MIKE EVANS: SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
Non-executive Chairman of the Board, Peter is responsible for the leadership of the Board, setting the agenda and ensuring the Board's effectiveness on all aspects of its Appointment to the Board: Appointed to the Chesnara plc Board in March 2013. Mike became Senior Independent Director in May 2013. Committee membership: Nomination and Governance, Audit & Risk and Remuneration. Current directorships/business interests:- Hargreaves Lansdown plc, Chairman- Zoopla Property Group plc, Chairman- Chesnara Holdings BV- Countrywide Assured plc
role. Appointment to the Board: Appointed to the Board in March 2004 and as Chairman in January 2009. Committee membership: Nomination & Governance (Chairman) and a
member of the Remuneration Committee. Peter attends the Audit & Risk Committee by invitation. Current directorships/business interests:- Chairman of Movestic
Livförsäkring AB- Chairman of Chesnara Holdings BV- Chairman of Countrywide Assured plc- Non-executive Director of Countrywide Assured Life Holdings Limited
PETER WRIGHT: NON-EXECUTIVE DIRECTOR AND CHAIRMAN OF THE AUDIT & RISK COMMITTEE VERONICA OAK: NON-EXECUTIVE DIRECTOR, CHAIRMAN OF THE REMUNERATION COMMITTEE
Appointment to the Board: Appointed to the Chesnara plc Board and as Chairman of the Audit & Risk Committee in January 2009. Committee membership: Audit & Risk and Appointment to the Board: Appointed to the Chesnara plc Board in January 2013. Committee membership: Nomination & Governance, Audit & Risk, and Remuneration. Current directorships/business interests: - Hanley Economic Building Society, NED - With-Profits Committee, Countrywide Assured plc- Countrywide Assured plc- Investment and Life Assurance Group Limited - Sanlam UK Limited and Sanlam Investments Holdings UK Limited, NED.
Nomination & Governance. Current directorships/business interests:- Chairman of the With-Profits Committee Countrywide Assured plc- Countrywide Assured plc
DAVID BRAND: NON-EXECUTIVE DIRECTOR JANE DALE: NON-EXECUTIVE DIRECTOR
Appointment to the Board: Appointed to the Chesnara plc Board and the Board of Movestic Livförsäkring AB in January 2013. Committee membership: Nomination & Appointment to the Board: Appointed to the Chesnara plc Board and the Board of Countrywide Assured plc in May 2016. Committee membership: Nomination & Governance and Audit & Risk Current directorships/business interests: - Countrywide Assured plc- BHSF Group Limited - Chairman- British Gas Services Limited
Governance, Audit & Risk, and Remuneration. Current directorships/business interests: - Exeter Friendly Society, Chairman of the Investment Committee- Movestic
Livförsäkring AB, Chair of the Audit & Risk Committee- Countrywide Assured plc
JOHN DEANE: CHIEF EXECUTIVE DAVID RIMMINGTON: GROUP FINANCE DIRECTOR
Appointment to the Board: Appointed as Chief Executive in January 2015.Career, skills and experience: John is a qualified Actuary and has over 30 years experience in the Appointment to the Board: Appointed as Group Finance Director with effect from May 2013. Career, skills and experience: David 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.
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 its
open businesses in the UK, Ireland and Isle of Man.
FRANK HUGHES: BUSINESS SERVICES DIRECTOR
Appointment to the Board: Appointed as an executive director in March 2004. Career, skills and experience: Frank joined Countrywide Assured plc in November 1992 as an IT
Project Manager and was appointed to the CA board as IT Director in May 2002 and to the Chesnara board as Business Services Director in May 2004. He has 27 years'
experience in the life assurance industry gained in CA and Chesnara and also with Royal Life, Norwich Union and CMG.
financial calendar
31 August 2016
Interim results for the six months ending 30 June 2016 announced.
8 September 2016
Ex dividend date.
9 September 2016
Interim dividend record date.
14 October 2016
Interim dividend payment date.
31 March 2017
Results for the year ending 31 December 2016 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
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2DB
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Stockbrokers
Panmure Gordon
One New Change
London
EC4M 9AF
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
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
FWD
145 Leadenhall Street
London
EC3V 4QT
Corporate Advisors
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
GLOSSARY
ABI Association of British Insurers - represents the collective interests of the UK's insurance industry.
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.
Directors or Board The directors of the Company as at the date of this document whose names are set out on pages 44 and 45 of this document.
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.
EEV European Embedded Value.
EcV Economic Value, representing adjusted Solvency II own funds.
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.
Gross 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.
Guardian Guardian Assurance plc.
HCL HCL Insurance BPO Services Limited.
IFRS International Financial Reporting Standards.
IFA Independent Financial Adviser.
KPI Key performance indicator.
London Stock Exchange London Stock Exchange plc.
LTI Long-Term Incentive Scheme - a reward system designed to incentivise employees' long-term performance.
Movestic Movestic Livförsäkring AB.
Modernac Modernac SA, an associated company which is 49% owned by Movestic.
Net cash generation This represents the cash that has become available for distribution to shareholders during the period. It builds on "gross cash generation" and makes adjustments for items (either positive or negative) that affect the availability of cash for distribution. For example, capital releases arising from capital restructuring and one-off cash generation from acquisitions.
Official List The Official List of the Financial Conduct Authority.
Ordinary shares Ordinary shares of five pence each in the capital of the Company.
ORSA Own Risk and Solvency Assessment.
PRA Prudential Regulation Authority.
PL Protection Life Company Limited.
QRT Quantitative Reporting Template.
RCR Risk Capital Requirement - additional amounts of capital required to be held for regulatory purposes as a result of two stress tests.
Resolution The resolution set out in the notice of General Meeting set out in this document.
RMF Risk Management Framework.
SCR Solvency Capital Requirement, representing the amount of capital required to be held under Solvency II.
Shareholder(s) Holder(s) of Ordinary Shares.
Solvency II A fundamental review of the capital adequacy regime for the European insurance industry. Solvency II aims to establish a set of EU-wide capital requirements and risk management standards that will replace the current Solvency I requirements.
STI Short-Term Incentive Scheme - a reward system designed to incentivise employees' short-term performance.
Swedish Business Movestic and its subsidiaries and associated companies.
S&P Save & Prosper Insurance Limited and Save & Prosper Pensions Limited.
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.
TSR Total Shareholder Return, measured with reference to both dividends and capital growth.
UK Business CA, S&P, CALH and PL.
VIF Value of In-force business.
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