REG - Chesnara PLC - Half Yearly Report <Origin Href="QuoteRef">CSN.L</Origin> - Part 1

ChesnaraAnnouncement

29/10/2014 16:08

RNS Number : 2947Q
Chesnara PLC
29 August 2014
Chesnara plc
Continued strong results underpin 2.7% dividend increase at Chesnara
29 August 2014
Chesnara is pleased to report interim results for the half-year ended 30 June 2014. The Group continues to offer shareholders an attractive long-term income stream arising from the profits of its life assurance businesses.
 IFRS profit before tax increased by 25.7% for the six months ended 30 June 2014 to 27.4m (30 June 2013: 21.8m)
 Increase of 6.3% in EEV to 400.3m (31 December 2013: 376.4m)
 Increase of 33.6% in EEV post-tax profit to 47.3m (30 June 2013: 35.4m, excluding modelling adjustments) 
 Movestic increases EEV new business contribution to 5.8m (30 June 2013: 2.3m)
 Strong gross cash generation of 16.0m (30 June 2013: 21.9m)
 Group solvency ratio remains, post dividend, strong at 192% (31 December 2013: 194%)
 Subsidiary solvency ratios also strong and above targets. CA at 250% (31 December 2013: 218%), Protection Life at 176% (31 December 2013: 156%) and Movestic at 350% (31 December 2013: 311%)
 Shareholder equity of 348.5p per share on an EEV basis (31 December 2013: 327.7p per share)
 Earnings per share (on an IFRS basis) of 19.87p (30 June 2013: 15.01p)
 6.42p interim dividend per share declared (2013: 6.25p), an increase of 2.7%
 Board remains focussed on offering shareholders an attractive dividend flow
 Search for value adding acquisition opportunities continues
Commenting on the results, Graham Kettleborough, Chief Executive said:
"I am, again, pleased to be able to deliver another strong set of results. All our businesses are performing well and, consequently, we are able to continue our dividend growth and declare a 2.7% increase in the interim dividend to 6.42p per share."
The Board approved this statement on 28 August 2014.
Enquiries:
Graham Kettleborough
Chief Executive, Chesnara plc - 07799 407519
Roddy Watt, Newgate Threadneedle - 0207 653 9855 / 07714 770 493
Notes to Editors 
Chesnara plc ('Chesnara'), which listed on the London Stock Exchange in May 2004, is the owner of Countrywide Assured plc ('CA plc'), Protection Life Company Limited ('PL') and Movestic Livfrskringar AB ('Movestic').
CA plc is a UK life assurance subsidiary that is closed to new business.In June 2005 Chesnara acquired a further closed life insurance company - City of Westminster Assurance - for 47.8m.With effect from 30 June 2006, CWA's policies and assets were transferred into CA plc.Save & Prosper Insurance Limited and its subsidiary, Save & Prosper Pensions Limited, were acquired on 20 December 2010 for 63.5 million.With effect from 31 December 2011, the business of Save & Prosper was transferred into CA plc.On 28 November 2013 Chesnara acquired Direct Line Life Insurance Company Limited (subsequently renamed Protection Life Company Limited) from Direct Line Group plc for 39.3m.A process to transfer the PL business into CA plc is underway.CA plc operates an outsourced business model.
Movestic, a Swedish life assurance company which originally focused on pensions and savings, was acquired on 23 July 2009 for 20 million.The company is open to new business and seeks to grow its position in the Swedish unit-linked market.Its proposition was strengthened in February 2010 with the acquisition of the operations of Aspis Frskringar Liv AB which has a risk and health product bias.
FORWARD-LOOKING STATEMENTS
This document may contain forward-looking statements with respect to certain of the plans and current expectations relating to the future financial condition, business performance and results of Chesnara plc. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of Chesnara plc including, amongst other things, UK domestic, Swedish domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates, currency exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which Chesnara plc and its subsidiaries operate. As a result, Chesnara plc's actual future condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements.
NOTE ON TERMINOLOGY
The principal reporting segments of the Group are:
CA,which comprises the original business of Countrywide Assured plc, the Group's original UK operating subsidiary, and of City of Westminster Assurance Company Limited, which was acquired by the Group in 2005 and the long-term business of which was transferred to Countrywide Assured plc during 2006;
S&P, which was acquired on 20 December 2010. This business was transferred from Save & Prosper Insurance Limited and Save & Prosper Pensions Limited to Countrywide Assured plc on 31 December 2011 under the provisions of Part VII of the Financial Services and Markets Act 2000;
PL, which was purchased on 28 November 2013 from Direct Line Insurance Group plc. On acquisition the company was called Direct Line Life Insurance Company, and was subsequently renamed Protection Life Company Limited. PL is included within the Group's UK business; and
Movestic, which was purchased on 23 July 2009 and comprises the Group's Swedish business, Movestic Livfrskring AB and its subsidiary and associated companies.
In this announcement:
(i) The CA, S&P and PL segments may also be collectively referred to as the 'UK Business';
(ii) The Movestic segment may also be referred to as the 'Swedish Business';
(iii) 'CA plc' refers to the legal entity Countrywide Assured plc, which includes the long term business of CA, CWA and S&P;
(iv) 'CWA' refers to City of Westminster Assurance Company Limited or to its long-term business funds transferred to Countrywide Assured plc;
(v) 'S&P' may also refer collectively to Save & Prosper Insurance Limited and Save & Prosper Pensions Limited, as the context implies. Where it is necessary to distinguish reference to Save & Prosper Insurance Limited and Save & Prosper Pensions Limited, or to the businesses subsisting in those companies prior to the transfer referred to above, they are designated 'SPI' and 'SPP' respectively;
(vi) PL refers to Protection Life Company Limited (previously Direct Line Life Insurance Company Limited), which was purchased on 28 November 2013; and 
(vii) 'Movestic' may also refer to Movestic Livfrskring AB, as the context implies.
OVERVIEW
HIGHLIGHTS - SIX MONTHS ENDED 30 JUNE 2014 
FINANCIAL
 Increase in IFRS pre-tax profit for six months to 30 June 2014 to 27.4m (six months ended 30 June 2013: 21.8m)
 Gross cash generated for six months ended 30 June 2014 16.0m (six months ended 30 June 2013: 21.9m).
 Increase in EEV of 23.9m from 376.4m at 31 December 2013 to 400.3m at 30 June 2014 after dividend distributions of 13.4m in the period.
 EEV earnings net of tax increased by 11.9m to 47.3m for the six months ended 30 June 2014 compared with the same period in 2013 of 35.4m (excluding modelling adjustments).
 Movestic has generated a new business contribution of 5.8m on an EEV basis in the six months ended 30 June 2014 (six months ended 30 June 2013: 2.3m).
 Strong Insurance Group Directive solvency cover of 192% (31 December 2013: 194%).
 Proposed interim dividend increased by 2.7% to 6.42p per share.
OPERATIONAL
 The integration of Protection Life is being effectively implemented and encouragingly all the value items are emerging slightly ahead of expectations.
 Good regulatory compliance record continues.
 27.8% increase in like for like new business volumes.
 Share of total unit-linked pensions market continues to be strong in the first half of 2014 at 8.5% (six months ended 30 June 2013: 7.1%).
Notes
1. Throughout the Chairman's Statement, Business Review and Financial Review sections, all results quoted at a business segment level exclude the impact of consolidation adjustments, which are analysed further below.
2. Net cash generation in the year is defined as the net amount of the following items:
(i) Gross cash generation, defined as:
(a) the change in the excess of actual regulatory capital resources over target capital resources in respect of the CA, S&P and PL operating segments 
(b) less capital contributions made by the Group to the Movestic operating segment; and
(c) less cash utilised by Parent Company operations.
(ii) Plus the cash impact of one-off management actions coupled with movements in the restrictions of policyholder funds to shareholder funds. 
As such, the net and gross cash generation KPIs defined above do not align to the Cash Flow Statement as included in the IFRS Financial Statements.
CHAIRMAN'S STATEMENT
"Continued good performance across all of our stated strategic objectives has resulted in an impressive growth in the embedded value of the Group during the first half of 2014. Value growth has emerged from both strong operational performance and also generally beneficial investment market conditions. A reassessment of a specific product liability has created an additional one off value enhancement. Cash generation has been strong with half year cash representing 78% of the 2013 full year total dividend. The integration of Protection Life is being effectively implemented and, encouragingly, all the value items are slightly ahead of expectations."
I am pleased to report that Chesnara has performed well across all aspects of the corporate strategy.
Objective
Outcome Headline
1. Maximise value from the in-force books
16.0m of gross cash generation represents 78% of the 2013 annual dividend
2. Enhance value through new business
5.8m of Swedish new business profit (on an EEV basis)
3. Acquire Life and Pension businesses
Value emergence from Protection Life is slightly ahead of expectations
4. Maintain a strong solvency position
Group solvency of 192%
5. Adopt good regulatory practice at all times
Continued good regulatory record.
The strong performance has enabled the continuation of our attractive dividend policy and this is reflected in the 2.7% increase in our interim dividend. The performance has not however resulted in a corresponding increase in the share price with the share price at 30 June 2014 being broadly in line with the opening value. The implications of this are two fold. Firstly, as at 30 June 2014 we were trading at an increased discount to embedded value and secondly the TSR during the six month period to 30 June 2014 is more modest than during 2013 and includes only the benefits of the dividend yield with no capital growth. The TSR over the medium to long term remains impressive and ahead of comparable indices. My statement considers the more material components of our strategy in a little more detail as follows:
1. Maximise value from the in-force book
The UK in-force book is the primary source of IFRS surplus and cash generation. I am pleased to report that significant value has emerged from the UK in-force book during the period. As explained in more detail in the Financial Review section of the Management Report, the in-force book can be characterised into two components in terms of value emergence dynamics. The "stable core", consisting of the CA, CWA and PL books, has performed broadly in accordance with the expected dynamics albeit generating surpluses higher than long term expectations. In particular, I am pleased to report that Protection Life has, during our first full period of ownership, generated surplus at levels slightly higher than the levels assumed in our initial valuation of the business. The "variable element", namely S&P, is known to be more sensitive to investment market conditions. 
During the first six months of 2014 investment market conditions have been beneficial, resulting in a reduction in the expected exposure to policy guarantees. Gross cash generation of 16.0m continues to correlate closely to IFRS surplus and the gross cash generated in the first six months provides 78% coverage of the 2013 full year dividend.
Cash available for distribution: Six months to 30 June 2014: 15.6m
(Six months to 30 June 2013: 9.9m)
During the period our outsourcer partner performance has remained strong, so it is particularly pleasing that we have signed a revised long-term contract with HCL, who administer our CA, S&P and PL books. The revised deal gives us the on-going operational security and cost run-off certainty our UK business model requires.
2. Enhance value through new business
"New business profit from Movestic continues to grow. The total profit for the six months to 30 June 2014 of 5.8m (on an EEV basis) is at a level such that our new business operation has become a material component in the value and investment proposition of the Chesnara Group."
There has been significant improvement in the new business profit in Movestic. This is underpinned by a 27.8% increase in APE new business volumes compared with 2013. This growth has been achieved without any discernible increase in the acquisition cost base and hence the results show a significant new business contribution for the period.
Movestic EEV new business contribution for the six months to 30 June 2014: 5.8m
(Six months to 30 June 2013: 2.3m) 
I expect Movestic, now that it has re-established its strong market position, to continue to make a significant contribution to the Embedded Value of the Group from its new business operations in the future.
3. Acquiring life and pensions businesses
In my statement within the 2013 Annual Report & Accounts I stated that "The acquisition of Protection Life during 2013 was a good transaction" and that "the business fits well with the existing UK product portfolio and operating model". As such I am encouraged that performance during the first six months of ownership has validated our expectations. The operational integration is running to plan, the Part VII transfer is progressing well and the surplus emergence from the business is slightly ahead of expectations.
"The Protection Life acquisition continued to give momentum to our acquisition strategy and reaffirmed the strength of our proposition. We remain committed to further acquisitions and are optimistic about both the market opportunity and our strategic, operational and financial capability."
There has been a steady flow of acquisition opportunities to assess during the first half of 2014. We will retain our discipline and only progress opportunities where the direct financial benefits of the deal together with any strategic potential are adequate to meet our risk based value assessment criteria.
4. Maintain strong solvency position
Our 2013 closing Group Solvency position was adversely affected by the acquisition of Protection Life. The impact was as expected based on our assessment of the PL acquisition. The Part VII transfer is progressing well and is planned to complete during 2014. It is expected to bring capital synergies such that some of the adverse effect on a Group solvency basis will be reversed. In advance of the expected positive Part VII impact, the financial performance during the six months to 30 June 2014 has sustained the Group Solvency position which remains strong and significantly higher than the internal governance target.
Group solvency 192%(31 December 2013: 194%)
5. Adopt good regulatory practice at all times
The level of regulatory change during the first half of 2014 has been less marked than in 2013, although the regulatory regime in which the Group operates continues to demand high standards of the Group. Group management continues to operate such that these demands are fulfilled in order to continue to deliver to this core strategic objective, with further detail provided in the business review.
Risk Management
Risk Management is not stated as a specific objective. It is ingrained in the culture and decision making in all we do as a business and is seen as an integral and key priority that feeds into all our objectives. We simply do not consider the delivery of any strategic objective as being successful if the appropriate balance between risk and reward has not been retained.
Pension reforms and FCA legacy review
In my statement within the 2013 Annual Report & Accounts I mentioned that the Chancellor of the Exchequer had announced significant changes which would affect the pensions and annuity markets. I stated that we were not expecting any immediate or significant change to our book of business, or the value of it. Performance of the Group during the first half of 2014 supports my initial view. Separately, the FCA has announced its intention to undertake a review of legacy books. I am confident that the areas specifically mentioned, such as inappropriate exit charges and inappropriate cost allocations between open and legacy business, should not be significant risk areas for Chesnara.
Outlook
During 2014 we have built upon our strong 2013 performance, solvency margins are healthy and on-going cash generation provides a reassuring buffer against future potential earnings variability and a good source of funding for future potential acquisitions and dividend payments. Whilst I can report no further specific acquisition developments during the six months to 30 June 2014, I remain optimistic that acquisition opportunities in our target markets exist and that we have the reputation, capability and financial strength to progress any that meet our stringent assessment criteria.
Peter Mason
Chairman
28 August 2014
MANAGEMENT REPORT
OUR VISION & STRATEGY
MISSION
Our mission is to deliver value for shareholders, while maximising returns to policyholders. Underpinning everything we do is a desire to maintain regulatory and legal compliance. Meeting these aims is achieved through attracting and retaining highly talented people who not only bring expertise and quality thinking into our business and industry, but also have a passion for improving outcomes for our customers and shareholders. All members of the Chesnara team share a common value in recognising their responsibility to shareholders and policyholders.
VISION
To be recognised as a responsible and profitable company engaged in the management of life and pensions books in the UK and Western Europe through: 
 Commitment to the core business of closed UK life and pensions book management;
 Further acquisitions where they meet stringent assessment criteria; 
 Realisation of increasing economies of scale; and 
 Continued delivery of competitive returns to shareholders and policyholders.
While we focus on delivering value to shareholders primarily through dividend streams arising from strong cash generation as the UK life and pensions books run off, we also consider the acquisition of open businesses where there is clear value enhancement and where the scale is such that our core proposition of being principally a closed book consolidator and manager does not become unbalanced.
STRATEGIC OBJECTIVES
At Chesnara the strategic objectives, which support the fulfilment of our mission and the realisation of our vision, are embedded in day-to-day business operations and underpin Management decisions. At the core of the business is the recognition by the Board and Management Team of their responsibilities to policyholders and shareholders, so that the values and principles of Management wholly align with strategic objectives. This value of responsibility is at the heart of the Chesnara business model. Our core strategic objectives are explained and evidenced below.
STRATEGIC OBJECTIVES
1. MAXIMISE VALUE FROM THE IN-FORCE BOOKS
Why is this of strategic importance?
Chesnara is primarily a "closed book" operation and as such generating surplus and cash from the existing in-force books is at the heart of its investment proposition.
How do we deliver this strategic objective?
We proactively manage continuing financial exposures. Significant financial exposures in life and pensions portfolios typically arise from onerous policy options and guarantees, and compensation claims for past misselling of products. The Group's portfolios had, in earlier years, had very little exposure to the impact of investment market performance on options and guarantees. However, just over 29% of the policies managed by S&P, which was acquired in December 2010, contain guarantees to policyholders and therefore the Group's exposure to market performance increased. Furthermore, the Group continues to have exposure to market weakness by way of the impact on policyholders' linked funds, from which surplus is generated. We seek to minimise this exposure by regular review of investment asset holdings and by adjusting investment manager guidelines where appropriate and within the boundaries of our obligations to policyholders.
We operate in a manner that aims to ensure that policy attrition is as low as possible, as this is a key determinant of our future profitability and of the level and longevity of the emergence of surplus, which underpins our dividend-paying capacity. As such we continue to maintain a focus on the retention of policies where it is in the interest of customers to continue with their arrangements.
We continue to manage investment performance so as to provide a competitive level of return to our policyholders. The CA funds are primarily managed by Schroder Investment Management Limited while the CWA funds continue to be managed by Irish Life Investment Managers Limited. The S&P funds are managed by JPMorgan Asset Management (UK) Limited in order to maintain continuity for policyholders. We meet formally with fund managers on a quarterly basis to assess past performance and future strategy.
The Movestic funds are managed by a carefully selected range of fund managers who have strong performance records in the relevant sector. Performance is monitored very closely and regular meetings are held with fund managers. Should under-performance continue then an alternative manager is sourced and appointed to manage the relevant assets. Where a new market niche or specific opportunity is identified new funds may also be added.
We adopt a business operating model which ensures unit expenses remain appropriate for the scale of the in-force book.
UK operations are predominantly outsourced, with contract charging structures that ensure a significant element of the cost base varies in line with the run-off of the business.
Acquisitions are integrated into the Chesnara Group in a manner to ensure optimum operational and financial synergies.
Risks associated with this strategic objective
 Sustained adverse investment market conditions challenge our ability to manage financial risks inherent in the in-force portfolio.
 Despite the effective cost management model, in the absence of further acquisitions or management action, there remains a risk that unit costs will increase in the long-term.
 A number of factors including economic recession, adverse investment performance and a deterioration in customer servicing standards could lead to an increase in policy attrition.
2. ENHANCE VALUE THROUGH NEW BUSINESS IN SELECTED MARKETS
Why is this of strategic importance?
 The Chesnara business model primarily focuses on "closed book" consolidation. However, where acquisitions offer the potential to write new business at an adequate return on capital we will continue to invest in the new business operations so as to maximise value for the Group.
 Maintaining a flexible position regarding the willingness to remain open to new business will potentially increase the number of acquisition targets and indeed our attractiveness to such targets.
How do we deliver this strategic objective?
Currently the only part of the Chesnara Group writing material levels of new business is Movestic, our Swedish business. Movestic has a new business operation that delivers a positive new business contribution. There are detailed business plans in place that aim to increase new business profits through a combination of new product launches and improvements to operational effectiveness. Local and Group management receive management information to enable a continuous assessment of the performance to ensure being open to new business continues to enhance value.
Risks associated with this strategic objective
 New business volumes fall below levels required to ensure sufficient return on the acquisition cost base.
 Product margins fall to unsustainable levels due to factors including: market price pressures, reduced investment growth, increased policy lapse rates and increasing maintenance unit costs.
3. ACQUIRE LIFE AND PENSION BUSINESSES
Why is this of strategic importance?
 As with any business, it is important that we use our capital efficiently to provide optimum return to shareholders.
 As a primarily "closed book" operation, further acquisitions can maintain and increase the Group's cash flow and operational economies of scale.
How do we deliver this strategic objective?
Ultimately we rely on acquisition opportunities being available in the market, our target market being the UK and Western Europe.
We actively engage with various investment advisers (including Canaccord Genuity Limited on a retained basis) to ensure we are aware of acquisition opportunities.
We will leverage our proven track record in the consolidation market. Past experience suggests we maintain a high degree of credibility with regulators, policyholders, lenders and shareholders. All prior acquisitions have been delivered with no adverse impact in terms of treating customers fairly, regulatory standing or our reputation in the life and pensions consolidation market.
We will not pursue opportunities which do not meet very stringent assessment criteria.
Risks associated with this strategic objective
 If Chesnara makes no further acquisitions there will be a potential strain on the per policy unit costs of the existing business, with the potential impact on dividend sustainability.
 Any departure from the current, stringent acquisition assessment criteria and due diligence procedures could result in an acquisition that, under certain stress scenarios, adversely impacts the financial strength of the Group.
4. MAINTAIN A STRONG SOLVENCY POSITION
Why is this of strategic importance? 
Adequate solvency capital:
 Protects against volatility particularly due to external economic conditions outside management control.
 Ensures compliance with regulatory requirements.
 Supports potential acquisition opportunities.
 Supports ongoing dividend capability.
How do we deliver this strategic objective?
The Board considers comprehensive information covering the actual solvency position, together with projections for expected and stressed scenarios. The management team tracks the performance of the key factors known to impact the solvency position. Trigger points are set and documented such that management action will be instigated should any of the key trigger points be reached. The setting and review of trigger points is an integral component of the Group's risk appetite model.
Potential acquisitions are assessed by taking a prudent view on not only the short-term impact on the Group's solvency position but also on the potential risk to long-term solvency.
Risks associated with this strategic objective
 Sustained adverse economic conditions outside of risk appetite tolerances will erode the solvency surplus.
 Changes in legal or regulatory requirements.
5. ADOPT GOOD REGULATORY PRACTICE AT ALL TIMES
Why is this of strategic importance?
Chesnara management fully recognises the benefits to both shareholders and policyholders of adherence to good regulatory practice. We comply not solely because the regulations insist but because the rules clearly reflect good, responsible business management and governance.
How do we deliver this strategic objective?
We maintain a strong internal risk management culture and regime throughout the Group and we maintain systems and controls which satisfy regulatory requirements at all levels.
The UK and Swedish life assurance and pensions industries are both highly regulated, in terms of the conduct of business operations and financial reporting. We place particular emphasis on managing our regulatory compliance through a proactive and prudent approach and on maintaining a positive relationship with our principal regulators, the Prudential Regulation Authority ('PRA') the Financial Conduct Authority ('FCA'), and the Finansinspektionen ('FI').
Accordingly, significant effort is directed towards ensuring that the operations are effectively managed in terms of conduct of business regulations and prudential solvency requirements and towards the significant change that is required in the business to implement Solvency II and to ensure continuing compliance with its requirements.
We have developed a strong Governance structure which sits at the heart of the Chesnara operating model, supported by a robust and effective Corporate Governance framework.
 All Governance roles, with direct impact on regulatory compliance, are carried out by people with significant industry experience.
 The level of investment in the Governance team reflects the Board's desire to ensure effective adherence to all regulatory best practice.
 The Chesnara culture ensures other objectives do not conflict with the objective of adopting good regulatory practice at all times.
Risks associated with this strategic objective 
The key risk relating to regulatory compliance is that rules and regulations are poorly understood or implemented, resulting in policyholder detriment.
"Underlying the fulfilment of strategic objectives is the core value shared by the Board and Management team of recognising responsibilities to all stakeholders on a balanced basis.
Often decisions are required that may have conflicting impacts on the different stakeholders. Maintaining a balanced view across the stakeholder groups is critical to ensuring Management continues to make decisions that benefit all stakeholders in the longer term."
The governance framework ensures controls and procedures are in place to protect all stakeholders."
the chesnara business
"The history of the development of the Chesnara Group, together with a description of the characteristics of our operating businesses, illustrates how we have endeavoured to achieve our strategic objectives and how we have created the platform for their ongoing realisation."
The successive acquisitions made by Chesnara have progressively increased the overall longevity of its run-off portfolio, while diversifying the policy base. At 30 June 2014, the Group had 254,000 (31 December 2013: 255,000) pension policies and 631,000 (31 December 2013: 647,000) life policies in-force.
"Chesnara continues to seek to participate in the consolidation of life assurance and pension businesses in the UK and Western Europe."
We primarily target acquisitions with an acquisition value of between 50m and 200m, although other opportunities are considered. All opportunities are assessed against a number of key criteria including size, risk (including actual or potential product and financial liabilities), discount to embedded value, capital requirements and the pattern and quality of predicted profit emergence. Our strategic approach, however, remains that such potential acquisitions should not detract significantly from, and should contribute to, the primary aim of delivering an attractive dividend yield, although opportunities which present a significant value uplift orgrowth opportunity will also be evaluated.


History (2004 - 2014)
2014
Chesnara signed a new 10 year contract for administration services with HCL, our primary outsource partner. The revised deal gives us the on-going operational security and cost run-off certainty our UK business model requires.
2013
Chesnara acquired Direct Line Life Insurance Company Limited (now renamed Protection Life Company Limited) from Direct Line Group plc for 39.3m, funded by a mixture of bank debt and internal cash resources. PL is closed to new business, with a portfolio containing non-linked products, including mortgage life cover, fixed term life cover (both with and without critical illness cover) and over 50's life cover to UK customers.
2012
SPI and SPP were de-authorised from conducting activities regulated under the provisions of the Financial Services and Markets Act 2000, thereby releasing 7.0m of solvency capital.
2011
The long-term business funds and part of the shareholder funds of SPI and SPP were transferred to CA plc under the provisions of Part VII of FSMA, thereby realising significant financial and operational synergies.
2010
Chesnara acquired SPI and its subsidiary, SPP, from JPMorgan Asset Management Limited for a consideration of 63.5m, funded by a mixture of debt and new equity capital. SPI and SPP are also closed UK Life and Pensions businesses whose portfolios predominantly comprise pensions policies (both unit-linked and with-profits), endowments (some with-profits) and protection policies.
Movestic acquired the in-force business, personnel, expertise and systems of Aspis Frskrings Liv AB, a small Swedish life and health insurer, thereby complementing Movestic's existing focus on pensions and savings contracts.
2009
Chesnara acquired Movestic Liv, an open predominantly unit-linked Swedish Life and Pensions business, for 20m, representing a significant discount to its embedded value. Subsequently a new subsidiary, Movestic Kapitalfrvaltning was established to separate out fund selection and management activities from Movestic Liv and to develop these services in the wider marketplace.
2006
The long-term business of CWA was transferred to CA plc under the provisions of Part VII of the Financial Services and Markets Act 2000 ('FSMA'), thereby realising significant financial and operational synergies.
2005
Chesnara acquired CWA from Irish Life and Permanent plc for a consideration of 47.8m, funded principally by a mixture of debt and new equity capital. CWA is also a substantially closed UK Life and Pensions business. Its portfolio, which is also predominantly unit-linked, comprises endowments, protection and pensions policies.
2004
Chesnara listed on the London Stock Exchange, following its acquisition of CA plc on the latter's demerger from Countrywide plc, a large estate agency group. CA is a substantially closed UK Life and Pensions business whose portfolio predominantly comprises unit-linked endowment and protection policies.
business model
Business model
The following sets out the key operating characteristics of the Chesnara business:
Chesnara plc and the UK business activities are based in Preston, Lancashire, while Movestic is based in Stockholm in Sweden. Chesnara has 23 (31 December 2013: 21) full-time equivalent employees in its corporate governance team in the UK. In Sweden, the headcount is 125 (31 December 2013: 123).
UK
 The primary focus of the UK businesses is the efficient run-off of their existing life and pensions portfolios. This gives rise to the emergence of surplus which supports our primary aim of delivering an attractive dividend yield to our shareholders. By the very nature of the life business assets, the surplus arising will deplete over time as the policies mature, expire or are the subject of a claim.
 In the UK we maintain a small professional corporate governance team which is responsible for both the regulatory and operational requirements of the listed entity Chesnara and those of the UK business. Our team in the UK is intentionally small and focused in the interests of keeping the overall expense base tight. It has the capability to manage the UK business and to assess acquisition opportunities, and is supplemented from time to time by temporary resource if justified by operational or strategic demands.
 The operating model of our UK business is directed towards maintaining shareholder value by outsourcing all support activities to professional specialists. This typically embraces policy administration, systems, accounting, actuarial and investment management and reduces the impact of potential fixed and semi-fixed cost issues which would otherwise occur as the income streams arising from a declining in-force portfolio diminish. By securing long-term contracts to support these activities we aim to enhance the variability of the expense base with the size of the in-force policy portfolio. This also leads to the avoidance of the full weight of systems development costs, as these will, where possible, be shared with other users of the outsourcers' platforms.
 Oversight of the outsourced functions is a significant part of the responsibility of the central governance team. The maintenance of service and performance standards, and thereby the core interests of shareholders and policyholders, is maintained through a strict regime of service level agreements and through continuous monitoring of performance. This is reinforced by adherence to the principles and practice of treating customers fairly.
Sweden
 The primary focus of the Swedish business is to grow market share in the company-paid and individual pensions market, whilst developing further profitable business in other areas, in particular in the risk and health market. Writing new business requires funding to support the initial costs incurred: this is provided by way of external financial reinsurance or cash contributions from Chesnara. As the in-force business portfolio grows in scale the income generated by it eventually allows the business to self-fund and become a net generator of cash.
 In Sweden, as the Movestic book is open and in a growth phase, we retain a broader-based management and operational team. Rather than outsource core functions, we believe that it is important that the drive and team ethic of Movestic is preserved as they seek to grow profitable market share in our target markets. Whilst Movestic manages the selection of appropriate investment funds, investment decisions are made solely by the fund managers.
Business review
Introduction
The Business Review is structured to report on how we have performed against each of our stated strategic objectives. For each objective the review reports separately for our UK and Swedish operations to the extent separate reporting is relevant. For each objective the review focuses on:
 How we have performed generally
 Key developments or challenges
 Key performance indicators
 Risks associated with each objective 
The strategic objectives are reassessed on an annual basis as part of the Group business planning process. The continued relevance of the objectives gives consideration to recent performance, emerging risks and future opportunity. They are assessed giving full regard to both internal and external influences e.g. changes to regulatory requirements.
The strategic objectives have not changed during the first six months of 2014 nor is there expected to be any significant change in focus during the remaining six months of 2014.
In addition to the five core objectives there is an over-arching objective to "Deliver value to stakeholders on a responsible and balanced basis". That is, over-arching the fulfilment of strategic objectives is the core value shared by the Board and Management team of recognising responsibilities to all stakeholders on a balanced basis. Often decisions are required that may have conflicting impacts on the different stakeholders. Maintaining a balanced view across the stakeholder groups is critical to ensuring Management continues to make decisions that benefit all stakeholders in the longer term.
The governance framework seeks to ensure that controls and procedures are in place to protect all stakeholders. The control environment has remained effective and robust throughout the period. Further details of the operation of the governance framework are included in Section C - Corporate Governance of the 2013 Annual Report & Accounts.
Our over-arching objective is to "Deliver value to stakeholders on a responsible and balanced basis". We maintain this over-arching objective when delivering to our stated five core key objectives:
1. Maximise value from the in-force book
2. Enhance value through new business
3. Acquire Life and Pension businesses
4. Maintain a strong solvency position
5. Adopt good regulatory practice at all times
Maximise value from the in-force book - UK
Significant levels of cash have emerged from the in-force book during first half of the year with gross cash generation equal to 78% of the 2013 total dividend.
Highlights
 19m of gross cash generation (excluding Chesnara parent company cash).
 Funds under management remain resilient to the impact of book run-off.
 Positive EEV development.
 One-off value enhancement of 17.3m on an EEV basis due to the reassessment of CWA bonus unit policy liabilities.
 Strong fund performance.
 Improved policy attrition levels.
Review of the six months ended 30 June 2014
Operational performance has been strong across the three key areas of focus for the in-force book, namely: management of the assets, regulatory compliance and ensuring we continue to provide a high quality service to policyholders in terms of administration service levels and investment return.
Our administration and asset management outsource partners have all performed well during the period and generally exceeded service level arrangements and relevant benchmarks.
In light of the strong outsource partner performance, the signing of a revised long-term contract with HCL, who administer our CA, S&P and PL books, is particularly positive. The revised deal gives us the on-going operational security and cost run-off certainty our business model requires.
The estimated financial impact of the new contract terms was included in the 2013 results and given the final terms were in line with expectations, there is no further financial impact during the six months to 30 June 2014.
Cash generation during the half year has been strong. This is primarily due to the core product based surpluses remaining resilient, coupled with the one off emergence of cash arising from a reassessment of policyholder liabilities relating to a book of CWA policies to which bonus units are assigned under certain circumstances. During the period it has become apparent that practice and associated reserving did not recognise the impact of premium discontinuance in line with the policy terms and conditions. Practice and the reserving models have been updated accordingly and this has resulted in incremental cash generation of c6m during the period. The impact on the Embedded Value is more significant and the changes have resulted in an increase in embedded value of 17.3m.
Unit-linked funds under management
The continuing strong level of unit-linked funds under management supports the on-going level of profitability of the UK businesses, as fund-related charges are an important component of profit.
The movement in the value of unit-linked funds under management is a function of:
i) performance of the funds across UK equities, international equities, property and fixed interest securities;
ii) received and invested premiums; and
iii) policies closed, due to surrender, transfer or claim.
Good performance by our administration and investment management business partners has contributed positively to all three of the above factors.
The CA plc Investment Committee has continued its oversight of policyholder funds through regular meetings with the investment managers. Our investment managers have continued to produce good performance which benefits shareholders and policyholders alike.
Unit-linked funds under management

30 June 
2014
m
31 December
2013
m
30 June 
2013
m
Total UK
2,305
2,331
2,270
Fund performance (annual return)

Twelve
months to
30 June
2014
Twelve
months to
30 June
2013
CA Pension Managed
11.3%
17.4%
CWA Balanced Managed Pension
9.1%
15.7%
S&P Managed Pension
11.2%
18.8%
Benchmark - ABI Mixed Inv 40%-85% shares
8.6%
14.9%
Annual policy attrition rate, based on policy count

Six months
to 30 June 
2014
Six months
to 30 June 
2013
CA
8.2%
8.9%
S&P
5.8%
6.5%
Total UK
7.0%
7.6%
Risks associated with the strategic objective
S&P, as signalled at the time of the acquisition, has added an increased level of earnings volatility for the UK business. S&P has a proportion of its product base that provides guaranteed returns. The probability of guarantees being of value to policyholders increases when the value of assets held to match the policy liabilities fall or when, particularly for those guarantees expressed as an amount of pension, bond yields fall. To mitigate this risk, to some extent, assets held by shareholders to provide security for these guarantees are invested in cash and long bonds. As a consequence, our results will be negatively affected by falls in equity and property values, which impact assets backing policyholder liabilities and/or falls in bond yields, which impacts the cost of providing the guarantees were they to occur. Conversely, increasing markets and yields will positively affect the results. Close management of the portfolio backing these liabilities continues.
Maximise value from the in-force book - sweden
Following a favourable investment market performance and the continued growth in new business flows, Movestic's funds under management have increased by 14% during the six months to 30 June 2014 and stand above SEK 20bn for the first time.
Highlights
 Strong growth in funds under management; increase of 14% during the six months to 30 June 2014.
 Positive EEV development.
 Continued improvement in the ratio of transferred-in business to transferred-out business, such that transfers in have exceeded transfers out for the year to date.
 Whilst the Swedish business has performed well to enhance value from the in-force book, the value has been adversely affected by the strengthening of Sterling against the Swedish Krona.
Review of the period
During the first six months of 2014 Movestic's re-established market strength was evident not only in impressive new sales but also in the large amount of transferred in business and in the stabilised position for transferred out business. The focus to ensure that we continue to provide a high quality service to IFAs and policyholders in terms of administration service levels and investment return continues and independent market surveys show continuously improving ratings.
Within the Life & Health book of business, the portfolio continues to deliver high quality in terms of overall claims development with a gross loss ratio of 52.9% for the six months to 30 June 2014 being broadly in line with the six months to 30 June 2013 of 51.8%.
The scale of the Pension and Savings in-force book in Sweden is such that profits emerging from it are relatively modest in comparison to UK equivalents. As such, the challenge is to increase the value of the funds under management from which we earn income in the form of management charges and fund rebates. The following matrix illustrates the factors that directly influence the growth of the in-force book:
 New business;
 Policy attrition;
 Fund performance; and
 Premium income.
The general performance on all four factors has been positive resulting in strong fund growth. The factors are considered in more detail below:
New business
The review of the new business operation is covered in the "Enhance value from new business" objective review below.
Policy attrition
The strengthened IFA support so evident in the new business results has had a less marked impact on policy attrition levels. Following a period of gradual improvement during 2013, the position has stabilised during the first half of 2014. We believe this indicates that the current levels of transfers-out experienced are reflective of the broader dynamics of the IFA market and hence are assuming no discernible change in the future. The modest positive persistency experience variance reported during the first half of 2014 confirms the appropriateness of the assumptions. That said, Management still believes that, in time, the impact of continued improvements in service levels, together with general external market developments, should have a positive impact on the long term persistency levels. Any positive impact will only be recognised if improvements are seen in actual attrition rates. As can be seen in figure 1 policy attrition rates have historically been seasonal and this trend has continued into Q1 and Q2 of 2014.
Despite transfer out levels having remained broadly stable, the ratio of transferred-in to transferred-out business has improved significantly, with transfers in now exceeding transfers out during the first half of 2014.
Policy attrition trend analysis

Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Transfers (Pensions)
5.6%
5.8%
4.5%
5.0%
4.8%
4.4%
Lapses/Paid-ups (Pensions and Endowments)
21.1%
15.5%
13.0%
9.5%
19.4%
17.1%
Policy attrition 2013 vs. 2012

Six months
to 30 June 
2014
Six months
to 30 June 
2013
Transfers (Pensions)
4.5%
5.2%
Lapses/Paid-ups (Pensions and Endowments)
17.9%
18.4%
Fund performance
One of Movestic's key differentiators is its approach to selecting the funds available to investors. Rather than adopt mainstream funds, which, in Sweden, are those predominantly managed by subsidiaries of banks which also have life assurance subsidiaries, we select a limited number of funds from a wide range of independent fund managers.
The funds selected are, in general, actively managed funds with a value approach. The performance of all funds is closely monitored and regular contact is made with managers to ensure that the underlying reason for fund performance, whether positive or negative, is fully understood. Funds that do not perform favourably compared with the relevant index are wholly replaced if there are no acceptable strategies for improvement. Where applicable we continue to add further funds to fill perceived gaps in the range.
The relative fund performance measure focuses on the number of funds under or over performing their relevant indices and does not recognise the weighting of investments in each fund. As such it does not necessarily directly reflect the investment performance experienced by the unit linked policyholders. An alternative and well established fund performance measure, produced by a respected industry magazine, compares the value of savers' average fund holdings. This measure best reflects the investment performance from a policyholder perspective. Movestic's fund range has performed consistently well on this measure and it retains a competitive market position. 
Relative fund performance

Six months
to 30 June 
2014
Six months
to 30 June 
2013
Under-performed against relevant index
31
26
Outperformed against relevant index
35
39
Premium income
The increase in premium income is predominantly due to an increase in new business levels. The recurring regular premiums have increased marginally period on period for the Pensions and Savings business which is key to achieving sustained growth. Regular premiums for the Life and Health business have remained broadly flat period on period.
Total premium income (m)

2013
2014

Q1
Q2
Q3
Q4
Q1
Q2
Pensions & Savings - Unit Linked
45.6
49.1
48.2
59.3
67.3
70.3
Pensions & Savings - Deposit insurance
8.0
21.6
8.1
19.3
16.0
13.6
Risk & Health
10.0
8.4
9.2
9.1
9.3
9.4
Total
63.6
79.1
65.5
87.7
92.6
93.3
Risks associated with the strategic objective
The risk of high levels for persistency rates has somewhat altered during the period. It has become more evident that there is inherent risk in the Swedish market where customer awareness of the ability to transfer their pension is a feature with increasing influence as a consequence of intensified public discussion. The Movestic product proposition already offers significantly more portability for transferring pensions than the general market. As such, although higher transfer rates would create challenges, an increased right to transfer would be beneficial to Movestic in terms of its market position compared with other more traditional competitors. 
enhance value from new business - SWEDEN
IFA support of the Movestic proposition has continued to gain momentum as evidenced by a 27.8% increase in APE new business volumes compared with the same period in 2013.
Highlights
 27.8% increase in new business volumes compared with six months to 30 June 2013. 
 IFA support as measured by the number of IFA's that sell Movestic products, shows an increase of 6% compared with the same date in 2013.
 The new business profit during the half year has reached a level that is of material significance to the Chesnara Group value proposition.
 Recovery in average gross margin rate.
 The development of innovative product concepts continues.
Review of the period
In light of the strong recovery of new business levels in 2013 the continued growth during 2014 is particularly pleasing and slightly surpasses management's original expectations. The re-engineered processes have coped well with the sharp increase in new business volumes.
The business continues to benefit from changes to the senior management structure together with the transfer of certain IFA-critical processes to Stockholm to support the acquisition and marketing proposition.
There is a positive management environment which means that staff are well motivated and there is a strong collective sense of commitment to continue with improvements required to fully recover and consolidate its market position. The Group Chairman made a statement in the 2013 Annual Report & Accounts that "I expect Movestic, now that it has re-established its strong market position, to continue to make a significant contribution to the Embedded Value of the Group from its new business operations in the future".
The total new business profit for the six months to 30 June 2014 of 5.8m validates the above explanation, having increased to a level, that on an annualised basis, implies the Movestic new business operation is becoming an increasingly relevant component of the Group's appraisal value.
New business premium income
New sales in the unit-linked business have shown substantial growth in six months to 30 June 2014, with a 27.6% increase compared to six months to 30 June 2013. A key driver of this is the recovery in IFA sentiment towards Movestic following the significant improvements in service levels when compared with prior periods. Although the monthly trend is upwards we expect future new business growth to continue at a more modest growth rate following the significant recovery.
New business markets, as ever, remain challenging. Whilst some companies have continued to offer traditional investment products which have a lower risk profile and contain guarantees (which we believe to be unsustainable) we have started to see some movement to equity-linked products as a consequence of strong market performance. Further momentum in this area would have a positive impact on future new business potential.
Trend analysis of new business premium income (m)

Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Total
13.1
15.5
14.3
17.6
18.7
17.9

Six months
to 30 June 
2014
Six months
to 30 June 
2013
New business premium income (m)
36.5
28.6
Market share
Movestic operates in a mature market with low levels of overall growth. The new business market share statistics, both for the company-paid business and total business, show that Movestic continues to write a significant portion of new business in this sector, and continues to be within the top five suppliers in the core unit-linked company-paid pension market.
During the first six months Movestic had a 14.2% share of the unit-linked company-paid market and 8.5% of the total market.
As can be seen from the tables below, Movestic's market share of total business and company-paid business for the first six months of 2014 has exceeded the same period in 2013, although they have reduced slightly when compared with the latter half of 2013. A flattening of Movestic's market share has been expected, with recent increases being attributable to Movestic having resolved historic systems issues.
Trend analysis of Movestic's share of new business




H1
2013
H2
2013
H1
2014
Total business



7.1%
8.9%
8.5%
Unit-linked company-paid business (excluding 'tick the box' market)



12.4%
15.1%
14.2%
Movestic's share of new unit-linked company paid pension business year on year (total business only)
(excluding 'tick the box' market)







H1
2014
H1
2013
New business premium income (m)






8.5%
7.1%
Development of innovative product concepts
The trend within the company-paid insurance solutions market in Sweden is to look for overall concepts where the pension plan is complemented by risk insurance products to cover the entire need of companies and their employees. Movestic's full range offering within both pension and risk products makes it possible to create such concepts and smaller variations to existing risk products packaged together with competitive pension plans can provide the adapted solutions the market asks for.
A differentiating feature of Movestic is the carefully selected fund range which over time has proven to perform very well compared to similar offerings. The work to further develop and improve the fund range is continually given high priority.
Risks associated with the strategic objective
Economic conditions in Sweden have remained stable and have proved to be relatively immune to economic pressures experienced across the rest of Europe. However, there remains a general sense of uncertainty that has led to consumers preferring more traditional investment products to equity-based unit-linked investments. Recent improvements in confidence and good equity market performance has led to a shift to equities and Movestic remains committed to the unit-linked market. We believe that as equity market confidence continues to recover and that as the traditional investment offerings become less sustainable for providers, there will be a gradual shift back towards unit-linked investments. New business volumes remain sensitive to market preferences and continued IFA support.
New business remains relatively concentrated towards several large IFA's. This is inevitable to some extent, however, the fact that Movestic has extended the breadth of IFA support in the period, has reduced the concentration risk to some extent. The competitive market puts pressure on new sales margins and even though Movestic's margins have held up well, these external pressures have led to management focussing on achieving better terms in the fund operation.
acquire life and pensions businesses 
The focus during the first half of 2014 has been on integrating Protection Life into the Chesnara Group to ensure we deliver value in accordance with the assumptions upon which the deal was assessed. Much effort has been spent on the operational migration to HCL and the Part VII transfer both of which are progressing in line with plan and within budget.
Highlights
 PL surplus has emerged at a slightly higher level than expected.
 Part VII transfer progressing in line with plan.
 Operational migration progressing to plan and budget.
 General increase in acquisition market activity in the sector.
Review of the period
There has been a general increase in general market activity in the UK and across Europe. The activity is due to a number of factors including larger financial organisations wishing to re-focus on core activities and the desire to release capital or generate funds from potentially capital intensive Life and Pension businesses. Chesnara continues to be made aware of opportunities and has progressed to various stages dependent on our view of how well the opportunities align to our assessment criteria. It is encouraging that Chesnara continues to be invited to consider many of the known opportunities which reflects well on our presence and credibility in the market. We remain optimistic that our reputation, operational capability and financial strength positions us well to take advantage of the improved market activity in due course.
Acquisition process and approach
Chesnara is an established Life and Pensions consolidator with a proven track record. This together with a good network of contacts in the adviser community, who understand the Chesnara acquisition model and are mindful of our good reputation with the regulator, ensure we are aware of most viable opportunities in the UK and many opportunities in Europe.
We assess the financial impact of potential acquisition opportunities by estimating the impact on three financial measures namely; the cash flow of the Group, the incremental embedded value and the internal rate of return. The financial measures are assessed under best estimate and stress scenarios.
The measures are considered by the Board and Audit & Risk Committee, in the context of other non-financial measures including the level of risk, the degree of strategic fit and the opportunity of alternative acquisitions.
We engage specialists to support stringent due diligence procedures and the actual acquisition process.
Risks associated with the strategic objective
The risk of not effectively delivering this objective is two-fold. Firstly, there is the risk that Chesnara makes no further acquisitions and secondly there is the risk that we make an inappropriate acquisition that adversely impacts the financial strength of the Group. The general increase in market activity together with the momentum created by the Protection Life acquisition suggests that the risk of no further value adding acquisitions has actually somewhat reduced over the past six months.
The Protection Life deal does not mean that other opportunities cannot be fully progressed should they become available.
During recent years and through the Protection Life assessment process, we have enhanced our financial projection modelling capabilities which improves the quality of financial information available to the Board. This strongly mitigates the risk of inappropriate opportunities being pursued. In addition, the increased financial strength of the Group means that any perceived risk that pressure to do a deal could result in a departure from the stringent assessment criteria will have reduced.
Acquisition outlook
We continue to see a reasonable flow of possible acquisition opportunities and assess them appropriately. The general market background is positive with, in particular, the now firm implementation date for Solvency II, leading portfolio holders and owners to review their strategic options.
maintain strong solvency position - UK & SWEDEN
We have continued to deliver to our strategic objective of maintaining a strong solvency position, with Group solvency being 192% at 30 June 2014.
Highlights
 Group solvency continues to be strong at 192% (31 December 2013: 194%). This is stated after a proposed interim dividend of 7.4m.
 The combined surpluses of the regulated entities in the Group of 19.6m in the period has more than offset the proposed interim dividend of 7.4m, although full recognition of this surplus has not been seen in the Group Solvency due to IGD surplus restriction rules, which had an adverse impact of 14.6m in the period.
 Solvency ratios at a regulated entity level have all improved since 31 December 2013, and remain well in excess of Board- imposed targets. 
Objectives
One of the Group's key strategic objectives is to maintain a strong, but not excessive, solvency position. This brings a number of benefits, including supporting:
 one of our key financial management objectives of safeguarding policyholder interests.
 delivering to the dividend expectations of our shareholders.
 potential acquisition opportunities.
 our ability to absorb volatility created by external economic conditions.
Regulatory capital:

30 June 2014
31 December 2013

Minimum resource requirement
m
Target resource requirement
m
Capital resources
m
Solvency ratio over minimum 
%
Minimum resource requirement
m
Target resource requirement
m
Capital resources
m
Solvency ratio over minimum 
%
Group
80.3
80.3
154.3
192
81.9
81.9
158.7
194
CA plc
45.0
68.1
112.3
250
44.1
67.2
96.4
218
PL
24.3
36.5
42.7
176
25.2
37.8
39.2
156
Movestic
9.7
14.5
33.8
350
11.2
16.8
34.8
311
Notes:
 The percentages in the table above represent the excess of the capital resources over the minimum regulatory capital resources requirement.
 The target capital requirements stated above are based on the Board's internal minimum targets, and are set as follows:
o Group - 100% of minimum regulatory capital resources requirement
o CA plc - 162.5% of the minimum long-term insurance capital requirement plus 100% of the resilience capital requirement
o PL - 150% of the minimum long-term insurance capital requirement
o Movestic - 150% of the capital resources requirement
Group solvency (IGD)
The IGD represents the solvency of the Group, and is calculated using requirements imposed by the PRA. The IGD ratio at 30 June 2014 is 192% (31 December 2013: 194%) with the surplus having moved from 76.8m at 31 December 2013 to 74.0m at 30 June 2014. IGD is stated after foreseeable dividends of 7.4m (31 December 2013: 13.4m). The movement in IGD since the year end is a function of the following key items:
 The Group surplus in the six months to 30 June 2014
The combined surplus of the regulated entities within the Group has been strong in the first six months of 2014, amounting to 19.6m. This has been offset by an increase in the temporary surplus restriction on CA plc, as required when applying the rules for calculating Group Solvency, amounting to 14.6m in the period. This, coupled with the impact of the 2014 interim dividend of 7.4m, has resulted in a slight reduction in Group regulatory assets compared with 31 December 2013.
 Reduction in Group capital resources requirement
The Group capital resources requirement at 31 December 2013 amounted to 81.9m. This has reduced to 80.3m at 30 June 2014, representing a small positive benefit to the Group IGD at 30 June 2014.
Solo solvency
The Board sets internal solvency targets for each of its regulated subsidiaries, which have remained unchanged when compared with the year end. The table above shows that the solvency positions of each regulated subsidiary continue to exceed the internal targets imposed by the Board:
 CA plc solvency has moved from 218% at 31 December 2013 to 250% at 30 June 2014. The year end solvency position is stated after proposed dividends of 48.0m that were paid during the first six months of 2014. No further dividends have been proposed in the period, with the increase in the ratio being attributable to the strong regulatory surplus of 16.0m in the period.
 Protection Life solvencyis 175% at 30 June 2014. The movement when compared to 31 December 2013 is driven by the surplus in the first six months of the year, amounting to 3.2m. The solvency ratio has improved from 156% at 31 December 2013 as a result of the surplus in the period, coupled with a small reduction in the solvency capital requirement. No dividends have been paid by Protection Life during the period.
 Movestic had a solvency ratio of 338% at 30 June 2014. Whilst it has a very strong solvency ratio, there are additional asset and liability matching rules that are imposed by the Swedish FI which means that Movestic does not currently pay dividends to Chesnara.
Solvency II
The introduction of Solvency II will change the capital requirements of both the Group and its regulated subsidiaries. The final impact of Solvency II continues to be uncertain although we expect the Group impact to be manageable. Solvency II may also result in the Board re-assessing the internal targets imposed on each regulated entity. Further detail over the status of our Solvency II programme is reported below.
adopt good regulatory practice at all times - UK & SWEDEN
Chesnara continues to operate to high regulatory standards in both its day to day operations and its acquisition activity.
UK
 Regulation and legal
As ever in this highly regulated industry there have been a number of new and ongoing initiatives that have led to various levels of attention and challenge. It is pleasing to report that none of these have given rise to significant issues. The commentary below sets out a list of the key activities during the period.
 PRA
The PRA, a subsidiary of the Bank of England, focuses on prudential supervision. To assist its supervisory work we have responded in a timely manner to its regular and one off requests for information, for example on Solvency II.
 FCA
The FCA's focus is conduct and consumer protection. To assist its supervisory work we have responded in a timely manner to its various requests for information. It is noted that the FCA has announced that it is to undertake a review of the market's practice in relation to legacy business. 
 Solvency II
Good progress is being made towards the implementation date of 1 January 2016. Work on all three pillars broadly on track to hit the required interim and full timetable required by the regulator. Further information on our Solvency II project is provided below.
 Pension Changes
In his Budget announcement on 19 March, the Chancellor of the Exchequer announced significant changes which will affect pensions and the annuity market. CA plc and Protection Life do not have a significant exposure to annuities (having around 6,000 such arrangements) and has not sought to write such business for a number of years. Although we do have far more pensions policies (around 169,000) we are currently monitoring the regulatory changes in this area and do not expect any immediate and significant change to affect this book or its value.
 Treating Customers Fairly (TCF) 
We have continued to monitor performance against, and to continue the development of, our TCF measures. The results are discussed, where relevant, with our outsourcing partners and are reviewed by senior management and reported to the CA plc Board. No issues of significance have arisen.
 Complaints
There has been a general downward trend in the overall volume of complaints received although we continue to receive a steady number of complaints from Complaint Management Companies in respect of endowment policies surrendered or lapsed many years ago. The Financial Ombudsman Service continues to agree with our decision on the majority of complaints referred to it for adjudication.
 Policyholder investment funds
Through the auspices of the CA plc Investment Committee we have continued our oversight of policyholder funds through regular meetings with the investment managers. With them we continue to review the funds to ensure the underlying investment mix is the most appropriate for policyholders.
SWEDEN
 Solvency II
Activity during the first half of 2014 has included ensuring full alignment of the Swedish Solvency II project to the wider Group project in terms of approach, governance and timetable. At a local level the project is progressing in line with plan and the work is on track to hit the interim and full timetable requirements of both local and UK group regulations.
 Commission
Discussions regarding the payment of commission in the future continue between political parties, the regulators, companies and consumer organisations. Management's expectation is for limited change, possibly the cessation of initial commission, which would not have a significant impact on the Movestic business model. 
 Pensions portability
The debate on the proposal to increase portability of pensions continues in Sweden. As Movestic offers full right to transfer already, the risk for us can be described as the risk of no change. An increased right to transfer would be beneficial to Movestic as a part of the market that is now closed would become possible to approach.
financial review
The Group's key financial performance indicators as at 30 June 2014 and for the six months ended on that date demonstrate the financial performance and strength of the Group as a whole. A summary of these is shown and further analysis is provided in the following sections:
Summary of each KPI
IFRS pre-tax profit 27.4m
(Six months to 30 June 2013: 21.8m)
What is it?
The presentation of the results in accordance with International Financial Reporting Standards (IFRS) aims to recognise the profit arising from written business over the life of insurance and investment contracts.
Why is it important?
For businesses in run-off the reported profit is closely aligned with, and a strong indicator of, the emergence of surplus arising within the long-term insurance funds of those businesses. The emergence of surplus supports the payments of dividends from the regulated insurance businesses to Chesnara plc, which in turn enables the payment of dividends to our shareholders. IFRS pre-tax profit is a strong indicator of how we are performing against our stated strategic objectives to "maximise value from the in-force book" and "maintain a strong solvency position".
Highlights
 IFRS pre-tax profit of 27.4m shows a 25.7% improvement compared with the prior half year of 21.8m.
 The new HCL contract has had a neutral effect on the overall IFRS pre-tax result, due to these costs having already been reflected in the 31 December 2013 valuation.
 The UK businesses have continued to deliver resilient product deductions. In addition to this, investment market conditions in the period have provided a further positive impact both to shareholder net assets and by causing a reduction in the reserves held for products with guarantees.
 The CA result has benefited from a one off reserving gain of 3.4m following a review of the practice associated with awarding bonus units on certain policies.
 There was a 1.1m improvement in the Movestic result when compared with the same period in 2013.
Risks
The IFRS profit can be affected by a number of our principal risks and uncertainties as set out below. In particular, equity and property markets and movements in yields on fixed interest securities can contribute significantly to the result, both positively and adversely.
Net cash generation 15.6m
(Six months to 30 June 2013: 9.9m)
What is it?
Net cash generation is a measure of how much distributable cash the subsidiaries have generated in the period. The dominating aspect of cash generation is the change in amounts freely transferable from the operating businesses, taking into account target statutory solvency requirements which are determined by the boards of the respective businesses. It follows that cash generation is not only influenced by the level of surplus arising but also by the level of target solvency capital.
Why is it important?
Cash generation is a key measure, because it is the net cash flows to Chesnara from its Life and Pensions businesses which support Chesnara's dividend capacity. Cash generation can be a strong indicator of how we are performing against our stated objective of "maximising value from the in-force book", although this KPI can also be negatively affected by our stated objective of "maintaining a strong solvency position".
Highlights
 At 14.9m cash generation in CA has been very strong (six months to 30 June 2013: 4.2m).
 S&P has contributed 0.1m of operational cash generation in six months to 30 June 2014 compared with 20.3m for six months to 30 June 2013. The reduction arises from a more muted surplus in the period arising from subdued market conditions. The operational cash generation in the first half of 2013 was, however, not distributable, as this arose in an S&P fund containing transfer restrictions.
 PL has generated cash of 4.0m, driven by the surplus in the period, coupled with the reduction in the capital resources requirement since 31 December 2013. This offsets against the net cash utilised of 11.5m during 2013 following the acquisition of PL. A further cash benefit is expected to arise following the planned Part VII transfer into CA plc during 2014.
 Movestic has required no capital support during the period (2013: nil).
Risks
The ability of the underlying regulated subsidiaries within the Group to generate cash is affected by a number of our principal risks and uncertainties as set out below. Whilst cash generation is a function of the regulatory surplus, as opposed to the IFRS surplus, they are closely aligned, and therefore factors such as yields on fixed interest securities and equity and property performance contribute significantly to the level of cash generation within the Group. In addition to this, regulatory change, such as the introduction of Solvency II can also materially affect the ability of the regulated subsidiaries to generate cash.
EEV earnings, net of tax 47.3m
(Six months to 30 June 2013: 35.4m, excluding modelling adjustments of 0.8m in 2013).
What is it?
In recognition of the longer-term nature of the Group's insurance and investment contracts, supplementary information is presented in accordance with European Embedded Value 'EEV' principles.
The principal underlying components of the EEV result are:
The expected return from existing business (being the effect of the unwind of the rates used to discount the value in-force).
Value added by the writing of new business.
Variations in actual experience from that assumed in the opening valuation.
The impact of restating assumptions underlying the determination of expected cash flows.
Why is it important?
By recognising the net present value of expected future cash flows arising from the contracts (in-force value), a different perspective is provided in the performance of the Group and on the valuation of the business. EEV earnings are an important KPI as they provide a longer-term measure of the value generated during a period.
The EEV earnings of the Group can be a strong indicator of how we have delivered to our strategic objectives, in particular the new business profits generated from "enhancing our value through new business in selected markets", coupled with "maximising our value from the in-force book".
Highlights
 Significant economic profit of 21.2m (six months to 30 June 2013: 33.1m).
 Significant increase in operating profit to 37.2m (six months to 30 June 2013: 4.8m).
 The operating profit of 37.2m includes a one-off benefit of 17.3m arising due to reassessment of certain policyholder liabilities in the CWA book of business.
 Movestic has generated an EEV profit before tax of 17.5m, which compares favourably to the same period in 2013 of 7.3m.
 Movestic has generated a new business contribution of 5.8m in the period (six months to 30 June 2013: 2.3m).
Risks 
The EEV earnings of the Group can be affected by a number of factors, including those highlighted within our principal risks and uncertainties as set out below. In addition to the factors that affect the IFRS pre-tax profit and cash generation of the Group, the EEV earnings can be more sensitive to other factors such as the expense base and persistency assumptions. This is primarily due to the fact that assumption changes in EEV affect our long-term view of the future cash flows arising from our books of business.
EEV 400.3m
(31 December 2013: 376.4m)
What is it?
The European Embedded Value (EEV) of a life insurance company is the present value of future profits, plus adjusted net asset value. It is a construct from the field of actuarial science which allows insurance companies to be valued.
Why is it important?
As the EEV takes into account expected future earnings streams on a discounted basis, EEV is an important reference point by which to assess Chesnara's market capitalisation. A life and pensions group may typically be characterised as trading at a discount or premium to its embedded value. Analysis of EEV, distinguishing value in-force by segment and by product type, provides additional insight into the development of the business over time.
The EEV development of the Chesnara Group over time can be a strong indicator of how we have delivered to our strategic objectives, in particular the value created from acquiring life and pensions businesses and enhancing our value through new business in selected markets.
Highlights
 Group EEV exceeds 400m for the first time in the Group's history, with the movement since year end being 23.9m.
 The movement in EEV of 23.9m since 31 December 2013 reflects the following:
 Profit before tax of 47.3m, of which 37.2m has arisen from operating activities.
 The impact of the 2013 year end dividend of 13.4m that was paid in the period.
 The impact of a weakening of Swedish Krona against Sterling, which has contributed to a 10.0m decrease in embedded value in the period.
 There were no model enhancements reported for the period (year ended 31 December 2013: 4.1m).
Risks
The Embedded Value of the Group is affected by economic factors such as equity and property markets and yields on fixed interest securities. In addition to this, whilst the other KPIs (which are all "performance measures") remain relatively insensitive to exchange rate movements (largely due to the proportion of IFRS pre-tax profit generated by Movestic compared with the other UK businesses) the EEV of the Group can also be materially affected by exchange rate fluctuations between Swedish Krona and Sterling. For example a 10% weakening of exchange rates between Swedish Krona and Sterling would reduce the EEV of the Group by 3%, based on the composition of the Group's EEV at 30 June 2014.
Further analysis of each KPI
ifrs pre-tax profit 27.4m
(Six months to 30 June 2013: 21.8m )
Executive summary
The IFRS results by business segment reflect the natural dynamics of each line of business. In summary the current financial model has three major components which can be characterised as: the "stable core", the "variable element", and the "growth operation". The results and financial dynamics of each segment are analysed further as follows: 
Stable core
The stable core is comprised of the CA and PL segments, both of which are UK run-off businesses.
The requirements of the CA and PL books are to provide a predictable and stable platform for the financial model and dividend strategy. As closed books, the key is to sustain this income source as effectively as possible. The IFRS results for the six months to 30 June 2014 are underpinned by a core generation of surplus, albeit the results for the period also reflect the impact of a number of one-off positive items, most notably the modelling of the signed HCL contract coupled with the positive impact arising from refined modelling surrounding policies that attract bonus units. Assets under management within the CA segment have moved from 2,331m at 31 December 2013 to 2,305m at 30 June 2014, representing a 1% reduction since year end.
Further detail of the results of the CA and PL segments can be found below.
Variable element
The S&P component has traditionally brought an element of earnings volatility to the Group, with the results being particularly sensitive to investment market movements. The result for the first half of 2014 has not been significantly impacted by the effect of market movements, with the effect of reducing bond yields being broadly offset by corresponding asset growth. In light of this the S&P surplus is significantly lower than the equivalent period in 2013, which did benefit from positive investment market movements in that period.
The S&P result is also lower than the same period in 2013 as a result of the impact of modelling the new HCL contract, which was agreed during the first half of the year, with a corresponding benefit being reported in the CA result, as described above.
Core product based deductions continue to remain strong, and consistent, being 8.3m for the period (2013: 8.3m).
Growth operation
Movestic has posted an IFRS profit of 2.1m during the period (2013: 1.0m). The long-term financial model is based on growth, with levels of new business being targeted to more than offset the impact of policy attrition, leading to a general increase in assets under management and, hence management fee income. Funds under management have increased to over SEK 20bn for the first time, representing an increase of 14% (on constant exchange rates) since 31 December 2013.
IFRS results
The financial dynamics of the Group, as described above, are reflected in the following IFRS results:

 Unaudited
 Six months ended
 30 June
Year
ended 31 December 
Note
2014
2013
2013 

m
m
m

CA
20.2
6.8
25.0
1
S&P
6.8
17.2
36.4
2
PL
4.0
-
0.2
3
Movestic
2.1
1.0
2.6

Chesnara
(2.7)
(1.2)
(4.9)
4
Consolidation adjustments
(3.0)
(2.0)
(1.5)
5
Total profit before tax and exceptional items
27.4
21.8
57.8

Profit arising from PL acquisition
-
-
2.8
6
Total profit before tax
27.4
21.8
60.6

Tax
(4.5)
(4.6)
(11.2)

Total profit after tax
22.9
17.2
49.4

Note 1 - The CA result of 20.2m is 13.4m higher than the same period in 2013. Further detail behind the factors influencing the movement in surplus are included below.
Note 2 - The S&P pre tax profit of 6.8m for the first half of 2014 is 10.4m lower than the equivalent period in 2013. Further detail behind the drivers of this are included below.
Note 3 - The Group results include a full six months of the Protection Life business, which was acquired on 28 November 2013. Further detail behind this result is included below.
Note 4 - The Chesnara result primarily represents holding company expenses. The loss is higher than the equivalent period in 2013, driven by higher administrative expenses, primarily in relation to Solvency II and the Part VII transfer of PL into CA plc.
Note 5 - Consolidation adjustments relate to items such as the amortisation of intangible assets that were recognised on previous acquisitions. More detail is provided below.
Note 6 - The Group profit before tax for the year ended 31 December 2013 was stated after recognition of a 2.8m gain arising as a result of the purchase of Protection Life. During the first half of 2014 no areas have been identified that would require adjustment to this gain.
Consolidation adjustments
The adjustments arising on consolidation are analysed below:

 Unaudited
 Six months ended
 30 June
Year 
ended 31 December 
Note
2014
2013
2013

m
m
m

CA - Amortisation of AVIF
(1.1)
(1.1)
(2.2)

S&P - Amortisation of AVIF
(0.4)
(0.4)
(0.8)

PL - Amortisation of AVIF
(1.2)
-
(0.2)

Movestic:




Amortisation of AVIF
(2.0)
(2.2)
(4.4)

Write back of DAC
1.7
1.7
6.1
1
Total
(0.3)
(0.5)
1.7






Total
(3.0)
(2.0)
(1.5)

Note 1 - Included within consolidation adjustments for the year ended 31 December 2013 is an item in relation to Movestic that reverses the amortisation charge on DAC relating to policies that were written prior to Chesnara ownership. This adjustment included an additional charge that was booked as a result of some refinements made to the DAC amortisation model. No further refinements have been made during the first six months of 2014.
The IFRS results by business segment are analysed in more detail as follows:
CA
The segment has delivered a strong surplus when compared with the same period in 2013. This is primarily driven by items such as the impact of the renegotiation of the HCL contract being lower than the provision made at 31 December 2013 (and equal and opposite item can be seen in the S&P segment) and a one-off reserving benefit arising from a change in practice to capture the behaviour of certain groups of policies that contain bonus unit clauses, offset by a natural volatility in mortality and morbidity surplus period on period.
Profit before tax movement, six months ended 30 June 2013 to 30 June 2014

m
Note
June 2013
6.8

Impact of new HCL contract
4.2
3
Other effects due to market movements
6.2
5
Adjustment to Bonus Unit Reserves
3.4
4
Other 
3.2

Product based deductions
(3.6)
2
June 2014 
20.2

The key components of the 2014 IFRS result for the period are summarised as follows:
Pre-tax IFRS profit
 Unaudited
 Six months ended
 30 June
Year 
ended 31 December 
Note
2014
2013
2013 

m
m
m

Product-based deductions
10.8
14.4
28.7
2
Administration expenses
(3.9)
(4.8)
(7.0)
2
Gains and interest on retained surplus
2.4
1.8
3.5

Operating assumption changes
0.3
- 
(1.7)

Other effects due to investment market movements
2.0
(4.2)
3.3

Impact of new HCL contract
4.2
-
-
3
Complaint costs
(0.3)
(0.6)
(1.5)

Other
4.7
0.2
(0.3)
4
Total 
20.2
6.8
25.0

Note 2 - Product-based deductions and returns on retained surplus remain significantly in excess of recurring administration expenses. The total level of product-based deductions has decreased when compared with the same period in 2013, primarily due to reduced mortality and morbidity surplus in the period.
Note 3 - The CA surplus includes the effect of modelling the new HCL contract which, as explained in the Business Review, has not had a financial impact on the overall UK results in the period. This has, however, contributed a surplus of 4.2m to the CA result, with an equal and opposite impact being seen in the S&P segment results, which are analysed below.
Note 4 - The CA result in the period includes 4.7m of "other" items. This predominantly relates to a one off item arising from the reserving impact associated with a change in practice associated with policies that can accrue bonus units in certain circumstances.
Note 5 - The result in the period has benefited from the positive impact of investment market conditions, primarily driven by asset growth. This has resulted in a swing compared with the same period in 2013, which witnessed a reduction in asset values.
S&P
The S&P pre-tax profit has moved compared with the equivalent period in 2013 as follows:
Profit before tax movement, six months ended 30 June 2013 to 30 June 2014

m
Note
June 2013
17.2

Income on with profit shareholder funds
5.1

Other
1.3

Change in sterling and expense reserves
(2.9)

Impact of new HCL contract
(4.2)
4
Change in Cost of Guarantees
(9.7)
3
June 2014
6.8

S&P posted a pre-tax IFRS profit of 6.8m for first six months of 2014, the key components of the result being:
Pre-tax IFRS profit
 Unaudited
 Six months ended
 30 June 
Year 
ended 31 December 
Note
2014
2013
2013

m
m
m

Product based deductions
8.3
8.3
17.1
1
Administration expenses
(4.7)
(5.0)
(9.9)
1
Income on with-profits shareholder funds
2.9
(2.2)
(0.4)
2
Change in cost of guarantees in with-profit funds:



3
Asset valuation movements
13.5
4.0
8.6

Change in yield curve
(8.5)
10.2
19.9

Lapse experience
(1.7)
(1.7)
(3.7)

Other
-
0.5
(0.4)

Total
3.3
13.0
24.4

Change in sterling and expense reserves
0.5
3.4
5.4

Impact of new HCL contract
(4.2)
-
-
4
Other
0.7
(0.3)
(0.2)

Total 
6.8
17.2
36.4

Note 1 - Product-based deductions have held up well as the book runs-off. These are supported by assets under management, which have moved from 1,113m to 1,126m in the first six months of the year. Product deductions exceed administration expenses by 3.6m and 3.3m in the first six months of 2014 and 2013 respectively.
Note 2 - The income on with-profits shareholder funds is driven by investment market performance, and includes the impact of asset valuation movements in the period. During the first half of 2014 the S&P shareholder fund assets have increased in value.
Note 3 - The S&P segment's results are influenced by the impact of changes in the reserves that are held to cover the guarantees that exist within certain S&P products, with these reserves being sensitive to market conditions. During the first half of 2014 the overall impact of the reserve movements on the result is relatively modest, being a 3.3m net surplus, compared with a 13.0m surplus in the same period of 2013. The net movement in the period is net of an adverse impact of 8.5m arising from a reduction on bond yields since the end of 2013, off-set by the positive impact of asset valuation movements, including both bonds and equities.
Note 4 -The 4.2m strain that can be seen during the first half of 2014 is as a result of the effect of modelling the revised HCL contract. Whilst this has not impacted the overall Group results, as described in the Business Review, the effect can be seen in the individual segments, with the CA segment reflecting a benefit of the same magnitude in its surplus.
PL
The purchase of PL was completed on 28 November 2013, with the first half of 2014 being the first full six month period that includes its results. The PL segment has delivered a pre-tax IFRS result of 4.0m in the first six months of the year, slightly exceeding plan. The majority of the surplus has arisen from margin release as the book runs off.
Movestic
Pre-tax IFRS profit
 Unaudited
 Six months ended
 30 June
Year
ended 31 December 
Note
2014
2013
2013

m
m
m

Pensions and Savings, before impact of DAC model change
0.6
0.8
2.2
1
Risk and Health
0.5
0.8
2.2
2
Other
1.0
(0.6)
1.2
3
Total profit before impact of DAC model change
2.1
1.0
5.6

Impact of DAC model change
-
- 
(3.0)
4
Total profit before tax
2.1
1.0
2.6

Note 1 - The Pensions and Savings business model is directly dependent upon fees and rebates earned on funds under management (FUM). The average FUM has increased when compared with the same period in 2013, resulting in a 1.5m (14.2%) increase in fee and rebate income. This is offset by a 1.8m (19.8%) increase in expenses and brokerage fees, much of which is the consequence of increased levels of new business, leaving the result being broadly flat compared with the same period in 2013.
Note 2 - The Risk and Health business, although not the core target growth operation, is significant to the Movestic financial and operating model. Unlike the longer-term Pension and Savings business the Risk and Health business tends to be cash generative in the short-term, thereby providing a source of internal funding. The Risk & Health business is operationally significant due to the size of the book, there being 388,000 short-term policies in-force as at 30 June 2014 (31 December 2013: 395,000), which generated 18.7m of gross premiums in the period (six months to 30 June 2013: 20.1m).
Note 3 - The "Other" component includes the results of the associate, Modernac, Movestic investment income and the impact of fair value adjustments to the Financial Reinsurance liability. The key driver of the movement in this component is the financial reinsurance fair value adjustment, which has generated a small loss of 0.2m for the period compared with a 1.2m loss for six months to 30 June 2013. This movement is predominately a consequence of investment market conditions.
Note 4 - During 2013 a review of the amortisation model that was used for spreading the costs of acquiring new policies was performed. As a result of this review the model was updated to provide more granular information and has resulted in the requirement, for certain policies underwritten in certain years, to shorten the period over which these costs are spread. This resulted in a one-off accelerated DAC charge of 3.0m. A large proportion of this DAC amortisation charge related to polices that were in-force when Movestic was purchased by Chesnara, and therefore the Group IFRS result only reflected 0.3m of this charge, this being the element of the charge that relates to policies that were written post acquisition. This is because the DAC at acquisition was written off as part of the acquisition accounting process, having been replaced by an intangible AVIF asset. No such further refinements were required during the six months to 30 June 2014.
NET cash generation 15.6m
(Six months to 30 June 2013 9.9m)
The Group's cash flows are generated principally from the interest earned on capital, the release of excess capital as the life funds run down, policyholder charges and management fees earned on assets under management.
This information illustrates that gross and net cash generation within the Group continues to be robust. Key aspects underpinning the outcome are:
HIGHLIGHTS
 Gross cash generation of 19.0m in the UK run-off businesses (excluding Chesnara parent company cash utilisation) in the period is broadly comparable with the same period in 2013 of 24.5m.
 Net cash generation has not been impacted by restrictions in the S&P with profit funds to the same extent as the same period in 2013.
 No funding was required for Movestic in the first six months of 2014 (six months to 30 June 2013: nil).
The Group's closed life funds provide predictable fund maturity and liability profiles, creating stable long-term cash flows for distribution to shareholders and for repayment of outstanding debt. Cash flow generation will ultimately naturally decline over time as the UK businesses run-off. Despite this natural downward pressure cash generation in 2014 has remained broadly in line with the same period in 2013 at a total UK level, although the individual segments within the UK business have displayed variability in 2014 when compared with the same period in 2013.
In particular, CA has generated 14.9m of cash in the period compared with 4.2m in the same period in 2013. This is primarily a function of the variability of the regulatory surplus over the periods, which has broadly followed the IFRS surplus in the same period.
S&P has generated 0.1m of cash in 2014 compared with 20.3m, demonstrating the ongoing short term variability in this segment. As for the CA business, cash generation is largely a function of the level of regulatory surplus generated in a period, and this broadly tracks the IFRS surplus. The S&P surplus is significantly influenced by the impact of changes in reserves for products which contain guaranteed minimum return clauses. This reserve movement was relatively muted in the first six months of 2014, compared with a large release in the same period in 2013, driven by favourable investment markets.
The below table identifies the source of internal net cash generation within the Group, representing the net change in funds available to service debt and equity:
Cash generated from/(utilised by):
 Unaudited
 Six months ended
 30 June 
Year 
ended 31 December 
Note
2014
2013
2013

m
m
m

CA




Surplus and profits arising in the period
15.9
4.3
20.4

Change in target capital requirement
(1.0)
(0.1)
3.2






S&P




Surplus and profits arising in the period
0.2
20.7
25.1

Change in target capital requirement
0.1
0.3
4.3

Decrease in policyholder funds cover for target capital requirement
(0.2)
(0.7)
(0.5)






PL




Surplus and profits arising in the period
3.2
-
0.2

Change in target capital requirement
0.8
-
1.4






Movestic




Additional capital contributions
-
-
-






Chesnara




Cash utilised by operations
(3.0)
(2.6)
(4.4)

Total gross cash generation
16.0
21.9
49.7






Items affecting ability to distribute cash




PL capital injection
-
- 
(13.1)
1
Release of capital from S&P WP fund
-
-
15.5
2
Restricted surplus in S&P WP fund
(0.4)
(12.0) 
(15.4)
2
Net cash generation available for distribution
15.6
9.9
36.7
3
Items affecting the cash available for distribution:
Note 1 - PL was acquired at a solvency level lower than the Board's target requirement. An immediate capital injection was made during the year ended 31 December 2013 to resolve this. No such further injection was, or is expected to be required in 2014.
Note 2 - An element of the statutory surplus in the period emerges in the S&P WP fund. In the absence of management action the majority of the surplus is not available for distribution and the net cash generated recognises this restriction. Periodically Chesnara, with regulatory approval, can apply a waiver to release some of the previously restricted surplus within S&P. This process was undertaken during the year ended 31 December 2013 resulting in a 15.5m capital release.
Note 3 - The net cash generation KPI is a useful indicator of the dividend paying capacity of the Group's regulated subsidiaries. This is monitored closely by Management as cash generated by the Group's regulated subsidiaries is used by the Chesnara Parent Company for corporate transactions such as the servicing of debt, payments of dividends and the funding of future acquisitions. It should be noted that this KPI is quite distinct from the Group's Cash Flow Statement as included in the Group's IFRS Financial Statements, which is intended to reflect the movement in cash held by Chesnara and its subsidiaries but does not reflect that most of the subsidiary cash balances are held in regulated insurance funds and are therefore not available for use by the Parent Company.
EEV eARNINGS 47.3m
(Six months to 30 June 2013: 35.4m)
EEV result
Summary
There is a strong EEV profit of 47.3m for the first six months of 2014, which is 11.9m higher than the same period in 2013. The principal driver of this increase is from significant positive operating assumption changes that have been recognised in the period, coupled with positive new business results arising from the Movestic segment, both of which have contributed to an operating profit of 37.2m, compared with 4.8m in the same period in 2013. The positive operating assumption changes have principally been recognised in the CA segment. Experience variances also compare favourably with 2013, primarily because the Movestic segment is no longer reporting an experience loss, which amounted to 4.7m in 2013, in part due to continued adverse lapse experience at that time. It is positive news that this experience has not been witnessed during 2014.
A significant proportion of the operating profit is also directly related to investment market movements. The return on shareholder net worth profit of 4.0m represents a swing of 6.3m compared with the loss of 2.3m reported in the first six months of 2013, primarily due to increasing bond values during the period.
In addition to the strong operating profit, the results have also benefited from noteworthy economic experience and assumption profits in the period, principally driven by asset growth in the period.
The following tables analyse the Group EEV earnings after-tax by source and by business segment:
Profit after tax movement
Six months ended 30 June 2013 to six months ended 30 June 2014

m
June 2013
35.4
CA
21.2
Movestic
10.2
PL
3.1
Chesnara
(1.6)
Tax
(8.1)
S&P
(12.9)
June 2014
47.3
Analysis of the EEV result in the period by business segment

 Unaudited
 Six months ended
 30 June 
Year ended 31 December 
2014
2013
2013
m
m
m
CA
33.3
12.1
24.5
S&P
6.6
19.5
42.7
PL
3.1
-
0.1
Movestic
17.5
7.3
15.5
Chesnara
(2.8)
(1.2)
(5.1)
Profit before tax and gain on acquisition
57.7
37.7
77.7
Gain on acquisition of Protection Life
-
-
12.3
Profit before tax 
57.7
37.7
90.0
Tax
(10.4)
(2.3)
(7.3)
Profit after tax
47.3
35.4
82.7
Key items affecting the EEV results by segment:
CA - The key drivers of the increase in the EEV result to 33.3m (2013: 12.1m) are the operating assumption changes in the period, namely the 17.3m surplus arising from the modelling impact of the change in practice associated with policies that can accrue bonus units in certain circumstances and the 4.2m surplus arising on the modelling of the new HCL contract.
S&P - The S&P result of 6.6m is 12.9m lower than the same period in 2013. This is primarily due to the loss of 4.2m arising from the modelling of the new HCL contract (included within operating assumption changes) coupled with a lower reduction in the cost of guarantee reserves of circa 9m.
PL - The PL segment was purchased on 28 November 2013 and therefore was not included in the comparative 2013 results.
Movestic - This segment's reported profit of 17.5m is 10.2m higher than the equivalent period in 2013. Circa 3m of this is as a result of broadly comparable equity market conditions applying to a larger book of business than in the same period in 2013. A further 3.5m is as a result of the increase in new business profits, with the remainder relating to more favourable experience variances, largely due to the corresponding period in 2013 including the negative impact of adverse lapse experience.
Chesnara - The Chesnara result primarily represents holding company expenses. The loss is higher than the equivalent period in 2013, driven by higher administrative expenses, primarily in relation to Solvency II and the Part VII transfer of PL into CA plc.
Analysis of the EEV result in the period by earnings source

 Unaudited
 Six months ended
 30 June 
Year 
ended 31 December 
2014
2013
2013
m
m
m
New business contribution
6.2
2.8
7.9
Return from in-force business



Expected return
3.9
2.6
5.5
Experience variances
6.0
1.5
5.8
Operating assumption changes
17.1
0.2
(10.0)
Return on shareholder net worth
4.0
(2.3)
(0.3)
Operating profit of covered business
37.2
4.8
8.9
Variation from longer term investment return
25.8
20.8
54.7
Effect of economic assumption changes
(4.6)
12.3
16.4
Profit on covered business before tax and gain on acquisition
58.4
37.9
80.0
Tax
(10.3)
(2.5)
(7.6)
Profit on covered business after tax and before gain on acquisition
48.1
35.4
72.4
Gain on acquisition of Protection Life
-
-
12.3
Uncovered business and other group activities
(0.7)
(0.1)
(2.3)
Tax on uncovered business
(0.1)
0.1
0.3
Profit after tax
47.3
35.4
82.7
Analysis by earnings source can be found below.
Economic conditions
The EEV result is sensitive to economic conditions. Economic experience and assumption changes contributed a profit of 21.2m in the period compared with a profit of 33.1m for 2013. The results are sensitive to both equity markets and bond yields (further sensitivity analysis is provided in Note 7 of EEV Supplementary Information). Since the 2013 year end UK bond yields have fallen, UK equities have remained broadly flat with Swedish equity markets having performed strongly. Further detail by segment has been provided below:
Economic experience and assumption changes
 Unaudited
 Six months ended
 30 June 
Year 
ended 31 December 
2014
2013
2013
m
m
m
CA
6.2
6.5
18.7
S&P
4.6
18.1
33.9
PL
0.2
-
-
Movestic
10.2
8.5
18.5
Total
21.2
33.1
71.1
The S&P, CA and PL segments have all experienced asset growth in the period, primarily in respect of bonds. Off-setting this growth is the adverse economic assumption impact as a result of a fall in the bond yield curve in the period.
The Movestic segment has witnessed more material economic experience gains in the first six months of the year, primarily as a result of the performance of Swedish equities. The EEV results of Movestic are sensitive to such equity movements due to its core income stream being dependent upon management charges levied on funds under management, which are primarily equity-based.
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 therefore does not contribute to the new business result. The Movestic contribution is 5.8m (2013: 2.3m), of which 1.7m (2013: 0.9m) relates to the value of premium increments received on existing policies. Profits on "new contract" business of 4.1m, compared with the six months to 30 June 2013 equivalent of 1.4m, showing that the new business growth strategy continues to trend in the right direction.
Experience variances

 Unaudited
 Six months ended
 30 June
Year 
ended 31 December 
2014
2013
2013
m
m
m
CA
2.5
3.2
7.6
S&P
1.8
3.0
4.7
PL
1.1
-
-
Movestic
0.6
(4.7)
(6.5)
Total
6.0
1.5
5.8
For the CA, S&P and PL segments there is no one dominating factor driving the experience variances in the period, with the combined positive experience of 5.4m arising from various smaller items such as lapse, mortality and expenses experience.
For Movestic the experience impact in the period is small. This compares with a more prominent adverse experience in the corresponding period in 2013, driven by a combination of adverse lapse experience and expense and commission overruns.
Operating assumption changes

 Unaudited
 Six months ended
 30 June
Year 
ended 31 December 
2014
2013
2013
m
m
m
CA
22.7
1.2
(4.3)
S&P
(3.1)
0.8
4.5
PL
1.4
-
-
Movestic
(3.9)
(1.8)
(10.2)
Total
17.1
0.2
(10.0)
The CA segment reflects a large operating assumption change item of 22.7m in the period. This is primarily as a result of a one off positive item of 17.3m arising as a result of a change in the way that the embedded value model calculates the expected cash flows arising from policies that accrue bonus units. 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 an 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 a small economic assumption change in the period, driven by the impact of changes to the valuation interest rate.
Movestic has reported an operating assumption change loss of 3.9m in the period. Of this, the most prominent item amounts to c2.0m, driven by expected behavioural changes by customers with private pension policies as a result of proposed tax legislation changes in Sweden. The remaining operating assumption loss is made of a number of smaller assumption items such as maintenance expenses and fund rebates.
Uncovered business and other group activities

 Unaudited
 Six months ended
 30 June
Year ended 31 December 
2014
2013
2013
m
m
m
Chesnara 
(2.7)
(1.2)
(5.0)
Movestic
2.1
1.1
2.7
Total
(0.6)
(0.1)
(2.3)
The result includes Chesnara parent company costs relating to corporate governance and business development, not attributable to the covered business. The expenses in the first half of 2014 are higher than the steady state cost base largely as a result of expenditure on items such as the Part VII transfer of PL into CA plc coupled with ongoing Solvency II costs.
The Movestic result has increased slightly when compared with the same period in 2013, primarily as a result of an increase in the results of Modernac, Movestic's associated company.
european embedded value 400.3m
(31 December 2013: 376.4m)
EEV movement 31 December 2013 to 30 June 2014:

m
EEV 31 Dec 2013
376.4
Net of tax profit arising in the period
47.3
Foreign exchange reserve movement
(10.0)
Dividend paid
(13.4)
EEV 30 Jun 2014
400.3
EEV movement 30 June 2013 to 31 December 2013:

m
EEV 30 Jun 2013
337.4
Net of tax profit arising in the period
35.0
Exceptional surplus on acquisition
12.3
Effect of modelling adjustments
3.2
Foreign exchange reserve movement
(4.3)
Dividend paid
(7.2)
EEV 31 Dec 2013
376.4
EEV movement 31 December 2012 to 30 June 2013:

m
EEV 31 Dec 2012
311.1
Net of tax profit arising in the period
35.4
Effect of modelling adjustments
0.9
Foreign exchange reserve movement
2.9
Dividend paid
(12.9)
EEV 30 Jun 2013
337.4
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 surplus arising on the acquisition of Protection Life; and
 Modelling adjustments;
 Foreign exchange movements arising from retranslating the EEV of Movestic into Sterling; and
 Dividends that are paid in the period.
More detail behind each of these components has been provided below:
Net of tax profit
The EEV profit of 47.3m arising during the period is analysed in more detail within the preceding section.
Exceptional surplus on acquisition
The purchase of Protection Life resulted in a surplus arising on acquisition of 12.3m during the period from 1 July 2013 to 31 December 2013. The surplus arose because the EEV of Protection Life at the acquisition date amounted to 51.6m, which is 12.3m higher than the purchase price of 39.3m.
Effect of modelling adjustments
Six months ended 30 June 2014
There were no modelling adjustments in the period.
Six months ended 31 December 2013
Modelling adjustments during the period were as follows:
Positive modelling adjustments of 3.2m related entirely to the Movestic business. These arose due to refinements being made to the way in which modelling of commission was performed.
Six months ended 30 June 2013
The modelling adjustments that were reported during the first six months of 2013 were entirely in relation to Movestic following completion of a review by an external consultancy.
Foreign exchange reserve movements
The 10.0m foreign exchange reserve movement during the six months to 30 June 2014 has arisen as a result of a weakening of the Swedish Krona against Sterling by 7.4%.
Dividends paid
Dividends of 13.4m were paid during the first six months of 2014, being the final dividend from 2013.
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)

30 Jun 2014
31 Dec 2013
30 Jun 2013
VIF
279.3
262.2
226.3
SNW
121.0
114.2
111.1
Total EEV
400.3
376.4
337.4
Analysis of VIF at 30 June 2014 - 279.3m

m
Movestic
143.1
CA
74.7
S&P
36.7
PL
24.8
Total
279.3
Analysis of EEV at 30 June 2014 - 400.3m

m
Movestic
124.0
CA
132.7
S&P
82.1
PL
67.2
Other Group Activities
(5.7)
Total
400.3
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 (70.0%) of the total EEV, which includes Protection Life which was purchased during the prior year. The value in-force component is dominated by the Swedish business which represents 51.0% of the total Group VIF.
 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, 63.6% of the total product level value in-force relates to pension contracts, 24.0% to protection business and 9.7% 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 period 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.
30 June 2014 (unaudited)
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
31
4
-
11
46
22.2
3.4
-
8.2
33.8
Protection
38
4
141
-
183
44.9
3.5
34.7
-
83.1
Annuities
6
-
-
-
6
5.7
1.0
-
-
6.7
Pensions
43
120
-
85
248
41.5
46.1
-
143.3
230.9
Other
3
11
-
-
14
4.1
5.1
-
-
9.2
Total at product level
121
139
141
96
497
118.4
59.1
34.7
151.5
363.7
Valuation adjustments:










 Holding company expenses



(6.4)
(3.2)
-
(8.3)
(17.9)
Other





(15.7)
(16.8)
-
-
(32.5)
 Cost of capital/frictional costs




(0.9)
(2.4)
(3.6)
(0.1)
(7.0)
Value in-force pre-tax





95.4
36.7
31.1
143.1
306.3
Taxation





(20.7)
-
(6.3)
-
(27.0)
Value in-force post-tax





74.7
36.7
24.8
143.1
279.3
30 June 2013 (unaudited)
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
36 
5
-
11
52
26.0
2.8
-
7.9
36.7
Protection
41
5
-
-
46
49.3
3.8
-
-
53.1
Annuities
6
-
-
-
6
7.4
1.0
-
-
8.4
Pensions
45
125
-
80
250
33.8
44.0
-
135.7
213.5
Other
3
11
-
-
14
3.8
4.1
-
-
7.9
Total at product level
131
146
-
91
368
120.3
55.7
-
143.6
319.6
Valuation adjustments:










 Holding company expenses




(6.7)
(3.0)
-
(7.6)
(17.3)
Other





(21.1)
(32.0)
-
-
(53.1)
 Cost of capital/frictional costs




(1.0)
(2.7)
-
(0.1)
(3.8)
Value in-force pre-tax





91.5
18.0
-
135.9
245.4
Taxation





(19.1)
-
-
-
(19.1)
Value in-force post-tax





72.4
18.0
-
135.9
226.3
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
34
4
-
11
49
24.1
2.9
-
8.0
35.0
Protection
40
4
146
-
190
46.2
3.9
36.0
-
86.1
Annuities
6
-
-
-
6
4.0
1.1
-
-
5.1
Pensions
44
123
-
82
249
29.7
44.6
-
140.0
214.3
Other
3
11
-
-
14
3.9
4.9
-
-
8.8
Total at product level
127
142
146
93
508
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 value-in-force represents the discounted value of the future surpluses arising from the insurance and investment contracts in-force at each respective period 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 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. Project key financial variables
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 192% (31 December 2013: 194%)
2. SHAREHOLDER RETURNS - 2014 TSR; Increase interim dividend; Share price remains broadly neutral; Impressive medium term TSR driven by capital value growth and the established attractive dividend yield
3. CAPITAL STRUCTURE - Gearing ratio of 29.1% (31 December 2013: 29.6%) (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 continuously.
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 of these financial statements.
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 and Protection Life 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 four and a half year period the EEV per share has increased from 258.7p at 31 December 2009 to 348.5p at 30 June 2014, which compares with the share price increasing from 191.1p to 320.5p 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 92.1% at 30 June 2014. Full year dividends over this same period have increased from 16.4p per share in 2010 to 17.88p per share in 2013.
During the year to date, up to 22 August 2014 the share price has reduced slightly, closing at 318.5p, having moved from 321.8p at the start of the year.
3. Capital structure
The Group's UK operations are financed through a combination of retained earnings and bank debt, with the current emergence of surplus in the UK life businesses.
These flows are used: 
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 acquisition of S&P in December 2010 for 63.5m was accomplished by way of debt: equity financing broadly in a ratio of 2:1. This introduced a modest level of gearing to the structure of Group financing.
The acquisition of PL 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 30 June 2014 bank borrowings amount to 73.2m, which is being repaid over a five year term.
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.
With respect to acquisitions the Group seeks to finance these through a suitable mix of debt 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 their 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 'Solvency and Regulatory Capital" above indicates a strong solvency position as at 30 June 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.
Notwithstanding that the Group is well capitalised, the current financial and economic environment continues to present specific threats to its short-term cash flow position and it is appropriate to assess other relevant factors. In the first instance, 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: in the current economic environment there remains a continuing risk of bond default, particularly in respect of financial institutions. 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.
Our expectation is that, notwithstanding the risks set out above, the Group will continue to generate surplus in its UK long-term businesses 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 Directors therefore confirm that the IFRS Financial Statements have been prepared on the Going Concern basis.
risk management
Risk management processes
Overlaying all the day-to-day and development activity we undertake is a focused risk management culture and regime.
In both the UK and Swedish businesses we maintain processes for identifying, evaluating and managing the significant risks faced by the Group, which are regularly reviewed by the Group Audit & Risk Committee. Our risk processes have regard to the significance of risks, the likelihood of their occurrence and take account of existing controls and the cost of mitigating them. The processes are designed to manage rather than eliminate risk and, as such, provide reasonable, but not absolute, assurance against loss.
At the subsidiary level in the UK businesses we maintain, in accordance with the regulatory requirements of the PRA and FCA, a risk and responsibility regime. Accordingly, the identification, assessment and control of risk are firmly embedded within the organisation and the procedures for the monitoring and updating of risk are robust. As part of this we have a Risk Committee in CA plc, which comprises solely of Non-executive Directors. This Committee receives quarterly updates of the key risk registers, as maintained by the senior management, for review and challenge. The Committee reports directly to the CA plc Board which also reviews reports from the compliance and internal audit functions. The Risk Committee reports are also reviewed by the Chesnara Audit & Risk Committee on a quarterly basis. Since its acquisition similar arrangements have been established for Protection Life. The key risk registers have been designed to complement the production of Individual Capital Assessments, which we are required to submit to the PRA on request and maintain on an ongoing basis. We categorise all risks against the following relevant categories - insurance, market, credit, liquidity, operational and Group - and identify potential exposures and the necessary capital requirements accordingly.
In the Swedish business, at the Movestic subsidiary level, there is full compliance with the regulatory requirement in that its Board and Managing Director have responsibility for ensuring that the management of the organisation is characterised by sound internal control, which is responsive to internal and external risks and changes in them. The Board has responsibility for ensuring that there is an internal control risk function, which is charged with (i) ensuring that there is information which provides a comprehensive and objective representation of the risks within the organisation and (ii) proposing changes in processes and documentation regarding risk management. These obligations are evidenced by regular compliance, internal audit, general risk and financial risk reports to the Movestic Board. The latter is supplemented by quarterly returns to the Swedish regulator, Finansinspektionen, which set out estimated capital requirements in respect of insurance, market, credit, liquidity, currency and operational risks.
Risk management processes are enhanced by stress and scenario testing, which evaluates the impact on the Group of certain adverse events occurring separately or in combination. There is a strong correlation between these adverse events and the risks identified in 'principal risks and uncertainties' below. The outcome of this testing provides context against which the Group can assess whether any changes to its risk management processes are required.
Group and subsidiary auditors regularly report to management on identified control weaknesses together with suggested improvements.
In accordance with the need to comply with the requirements of Solvency II on an EU-wide basis, we are currently reviewing and upgrading our risk management processes, so that Group-wide they will be enhanced in a uniform and consistent manner, embracing:
 articulation of risk appetite statements, following from documented strategic objectives;
 formulation and monitoring of associated risk metrics; 
 risk identification and assessment;
 calculation of risk-based capital; and
 the embedding of risk management processes so that they are at the forefront of, and underpin, strategic and operating decisions.
These developments have continued during 2014.
Principal risks and uncertainties
Risks and uncertainties are assessed by reference to the extent to which they threaten, or potentially threaten, the ability of the Group to meet its core strategic objectives. These currently centre on the intention of the Group to maintain an attractive dividend policy. 
The specific principal risks and uncertainties subsisting within the Group are determined by the fact that:
i) the Group's core operations centre on the run-off of closed life and pensions businesses in the UK;
ii) notwithstanding this, the Group has a material segment, which comprises an open life and pensions business operating in a foreign jurisdiction; and
iii) these businesses are subject to local regulation, which significantly influences the amount of capital which they are required to retain and which may otherwise constrain the conduct of business.
The following identifies the principal risks and uncertainties, together with a description of their actual or potential impact and of the way in which the Group seeks to control the specific insurance and financial risks it faces.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk
Impact
Control
Adverse mortality / morbidity / longevity experience
To the extent that actual mortality or morbidity rates vary from the assumptions underlying product pricing, so more or less profit will accrue to the Group.
 Effective underwriting techniques and reinsurance programmes.
 Option on certain contracts to vary premium rates in the light of actual experience.
 Partial risk diversification in that the Group has a portfolio of annuity contracts where the benefits cease on death.
Adverse persistency experience
Persistency rates significantly lower than those assumed will lead to reduced Group profitability in the medium to long-term.
 In closed life and pensions books, persistency rates tend to improve over time due to policyholder/investor inertia.
 Active investment management to ensure competitive policyholder investment funds.
 Outsourcer service levels ensure strong customer service standards.
 Proactive customer retention processes.
Expense overruns and unsustainable unit cost growth
For the closed UK life and pensions businesses, the Group is exposed to the impact of fixed and semi-fixed expenses, in conjunction with a diminishing policy base, on profitability. For the Swedish open life and pensions business, the Group is exposed to the impact of expense levels varying adversely from those assumed in product pricing.
 For the UK businesses, the Group pursues a strategy of outsourcing functions with charging structures such that the cost is sensitive to book run off to the fullest extent possible.
 The Swedish operations assume growth through new business such that the general unit cost trend is positive.
 For both the UK and Swedish businesses, the Group maintains a strict regime of budgetary control.
Significant and prolonged equity and property market falls
A significant part of the Group's income and, therefore, overall profitability derives from fees received in respect of the management of policyholder and investor funds. Fee levels are generally related to the value of funds under management and, as the managed investment funds overall comprise a significant equity and property content, the Group is particularly exposed to the impact of significant and prolonged equity market falls, which may lead to policyholders switching to lower-margin, fixed-interest funds.
 Individual fund mandates may give rise to a degree of diversification of risk and within those funds, hedging techniques are used where appropriate.
 Investment management costs fall in line with market falls and hence cost savings partially hedge the impact on income.
 There is a wide range of investment funds and managers so that there is no significant concentration of risk.
Adverse Sterling: Swedish Krona exchange rate movements
Exposure to adverse Sterling:Swedish Krona exchange rate movements arises from actual planned cash flows between the Swedish subsidiary and its UK parent company and from the impact on reported IFRS and EEV results which are expressed in Sterling.
 The Group monitors exchange rate movements and the cost of hedging the currency risk on cash flows when appropriate.
Adverse movements in yields on fixed interest securities
The Group maintains portfolios of fixed interest securities (i) in order to match its insurance contract liabilities, in terms of yield and cash flow characteristics, and (ii) as an integral part of the investment funds it manages on behalf of policyholders and investors. It is exposed to mismatch losses arising from a failure to match its insurance contract liabilities or from the fact that sharp and discrete fixed interest yield movements may not be associated fully and immediately with corresponding changes in actuarial valuation interest rates.
 The Group maintains rigorous matching programmes to ensure that exposure to mismatching is minimised.
 Active investment management such that, where appropriate, asset mixes will be changed to mitigate the potential adverse impact on declines in bond yields.
Counterparty failure
The Group carries significant inherent risk of counterparty failure in respect of:
 its fixed interest security portfolio;
 cash deposits; and
 amounts due from reinsurers.
 Operation of guidelines which limit the level of exposure to any one counterparty and which impose limits on exposure to credit ratings.
 In respect of exposure to one major reinsurer, Guardian Assurance Limited ('Guardian'), the Group has a floating charge over the reinsurer's related investment assets, which ranks the Group equally with Guardian's policyholders.
Failure of outsourced service providers to fulfil contractual obligations
The Group's UK life and pensions businesses are heavily dependent on outsourced service providers to fulfil a significant number of their core functions. In the event of failure by either or both service providers to fulfil their contractual obligations, in whole or in part, to the requisite standards specified in the contracts, the Group may suffer loss as its functions degrade.
 Rigorous service level measures and management information flows under its contractual arrangements.
 Continuing and close oversight of the performance of both service providers.
 The supplier relationship management approach is conducive to ensuring the outsource arrangements deliver to their obligations.
 Under the terms of the contractual arrangements the Group may impose penalties and/or exercise step-in rights in the event of specified adverse circumstances.
Key man dependency
The nature of the Group is such that, for both its Group-level functions and for its UK life and pensions operations, it relies on a small, professional team. There is, therefore, inevitably a concentration of experience and know how within particular key individuals and the Group is, accordingly, exposed to the sudden loss of the services of these individuals.
 The Group promotes the sharing of know how and expertise to the fullest extent possible.
 It periodically reviews and assesses staffing levels, and, where the circumstances of the Group justify and permit, will enhance resource to ensure that know how and expertise is more widely embedded.
 The Group maintains succession plans and remuneration structures which comprise a retention element.
 The Group complements its internal expertise with established relationships with external specialist partners.
Adverse regulatory and legal changes
The Group operates in jurisdictions which are currently subject to significant change arising from regulatory and legal requirements. These may either be of a local nature, or of a wider nature, following from EU-based regulation and law. Significant issues which have arisen and where there is currently uncertainty as to their full impact on the Group include:
i) the implementation of Solvency II requirements; and
ii) potential change in the regulatory environment in Sweden.
iii) FCA review of legacy business.
 The current opinion is that the implementation of Solvency II will strengthen the long-term risk management environment of Chesnara (as is its intention).
 The Solvency II programme is covered in more detail below. The key risks are mitigated as follows:
 Proposed appointment of external specialist Quality Assurance partner;
 Dedicated internal resource; and
 Robust programme governance framework.
 Management continually reviews the potential impact of any prospective regulatory changes.
SOLVENCY II
Our Solvency II programme remains well on track to ensure we are ready for the planned implementation date.
Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current solvency requirements. Solvency II's primary objective is to strengthen policyholder protection by aligning capital requirements more closely with the risk profile of the company. The regime has a three pillar structure, with each pillar governing a different aspect of the Solvency II requirements and approach. As well as requiring firms to disclose their capital and risk frameworks, the Directive also asks firms to demonstrate how and where the requirements are embedded in their wider activities. The planned implementation date is 01 January 2016 and interim measures have been agreed by the PRA which require us to develop and implement various aspects of Solvency II in the lead up to the revised implementation date. 
Chesnara's approach
Pillar one
Pillar 1 considers the quantitative requirements of the system, including the calculation of technical provisions and the rules relating to the calculation of the Minimum Capital Requirement (MCR) and the Solvency Capital Requirement (SCR). Under Solvency II there are two prescribed methods for assessing an insurer's SCR; either a Standard Formula set by the regulator or an Internal Model specific to that insurer and which is subject to regulatory approval. Chesnara has opted for the Standard Formula approach for both CA and Movestic on the grounds that it is a good fit and appropriate for its businesses at the current time. However, we will continue to monitor our position on the choice of approach as our businesses evolve.
Progress update
Following a strategic decision to switch one of our suppliers of actuarial services, some re-work is required on the UK Pillar 1 elements but we remain within our overall target to complete the Pillar 1 development and carry out a further dry run on the year-end 2014 data during Q2 2015.
Pillar two
Pillar 2 deals with two main areas: firstly, that our businesses have in place effective strategies and controls to assess and manage the risks it is exposed to and to assess and maintain its solvency capital based on its own risk profile and, secondly, that its strategies, controls and assessment of its solvency capital are subject to supervisory review. This pillar requires us to produce either, an Own Risk and Solvency Assessment (ORSA) for each subsidiary and one for the Group or a single Group-wide ORSA. We will be producing an ORSA for each subsidiary and the Group ORSA. Each ORSA is subject to review and scrutiny by the relevant regulator who will have the power to impose a higher capital requirement should it find any inadequacies in the approach to calculating the SCR or in the risk and governance controls in operation.
Progress update
The format and structure of the Forward-Looking Assessment of Own Risk (FLAOR) has been agreed by the board and work remains on target for us to produce our initial FLAOR for board review and sign-off during December 2014. This will enable submission to the regulators in accordance with their timescales. Work to develop, enhance and further document the systems of governance is ongoing and in-line with plans.
Pillar three
Pillar 3 seeks to enhance market discipline on regulated firms by requiring them to disclose publicly key information that is relevant to market participants. As such, in choosing which information should be selected for disclosure under Pillar 3, supervisors will be guided by the actual needs of market participants rather than by their own information needs. The key reporting requirements are a Solvency & Financial Condition Report (SFCR), a Regular Supervisory Report (RSR) and a set of defined Quantitative Reporting Templates (QRT's). The SFCR is for public disclosure and will follow a prescribed format. The RSR is not public and is only communicated to the relevant supervisor and, again, will largely follow a prescriptive format.
Progress update
The analysis phase for the Quantitative Reporting Templates (QRT's) is complete save for the work on the Protection Life business which is scheduled for Q4 2014. This will align it with the migration project which will transfer administration of the Protection Life business from Direct Line Group to our outsourcers HCL. The work to develop core systems for QRT reporting with our outsourcers in the UK and within Movestic is underway and on track. Plan remains to carry out dry run work in Q2 and Q3 2015.
IFRS FINANCIAL STATEMENTS
Directors' responsibiliTIES statement
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
- the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
- the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board
Peter Mason Graham Kettleborough
Chairman Chief Executive Officer
28 August 2014 28 August 2014
Independent Auditor's REVIEW Report to the Members of Chesnara plc
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes 1 to 7. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review 
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Manchester
United Kingdom
28 August 2014
condensed consolidated statement of comprehensive income(unaudited)










 Unaudited
 Six months ended 30
 June

Year ended 31 December 




2014

2013

2013



Note
000

000

000


Insurance premium revenue

66,512

55,084

109,938


Insurance premium ceded to reinsurers

(26,507)

(17,115)

(35,469)


Net insurance premium revenue

40,005

37,969

74,469


Fee and commission income

34,873

34,867

69,990


Net investment return

199,312

239,013

567,463


Total revenue net of reinsurance payable

274,190

311,849

711,922


Other operating income

12,467

11,048

22,270


Total income net of investment return

286,657

322,897

734,192


Insurance contract claims and benefits incurred








Claims and benefits paid to insurance contract holders

(152,612)

(166,471)

(281,800)


Net decrease/(increase) in insurance contract provisions

67,148

(23,459)

(62,249)


Reinsurers' share of claims and benefits 

15,412

48,362

57,004


Net insurance contract claims and benefits 

(70,052)

(141,568)

(287,045)


Change in investment contract liabilities

(146,117)

(123,174)

(320,132)


Reinsurers' share of investment contract liabilities

647

2,508

5,568


Net change in investment contract liabilities

(145,470)

(120,666)

(314,564)


Fees, commission and other acquisition costs

(11,126)

(9,374)

(19,450)


Administrative expenses

(19,981)

(18,718)

(38,761)


Other operating expenses








Charge for amortisation of acquired value of in-force business

(4,721)

(3,724)

(7,530)


Charge for amortisation of acquired value of customer relationships

(136)

(153)

(301)


Other

(6,487)

(4,863)

(6,483)


Total expenses net of change in insurance contract provisions and investment contract liabilities

(257,973)

(299,066)

(674,134)


Total income less expenses

28,684

23,831

60,058


Share of profit of associate

608

417

1,252


Profit recognised on business combination

-

-

2,807


Financing costs

(1,914)

(2,438)

(3,527)


Profit before income taxes
4
27,378

21,810

60,590


Income tax expense

(4,558)

(4,567)

(11,227)











Profit for the period
3,4
22,820

17,243

49,363


Foreign exchange translation differences arising on the revaluation of foreign operations

(4,645)

1,632

(516)


Total comprehensive income for the period

18,175

18,875

48,847


Basic earnings per share (based on profit for the period)
2
19.87p

15.01p

42.98p


Diluted earnings per share (based on profit for the period)
2
19.87p

15.01p

42.98p










CONDENSED CONSOLIDATED BALANCE SHEET(unaudited)












 Unaudited
 30 June

31 December




2014

2013

2013



Note
000

000

000


Assets








Intangible assets








Deferred acquisition costs

29,539

26,565

28,162


Acquired value of in-force business

80,313

73,968

88,615


Acquired value of customer relationships

1,336

1,788

1,583


Software assets

4,348

5,555

5,004


Property and equipment

610

576

673


Investment in associates

4,367

3,392

4,088


Investment properties

5,173

71,303

20,387


Deferred tax assets

-

388

-


Reinsurers' share of insurance contract provisions

356,432

285,288

379,894


Amounts deposited with reinsurers

34,224

31,998

34,293


Financial assets








Equity securities at fair value through income

475,344

451,639

479,617


Holdings in collective investment schemes at fair value through income 

3,463,411

3,205,255

3,440,992


Debt securities at fair value through income

344,115

349,525

370,666


Policyholders' funds held by the Group 

158,461

95,499

130,237


Insurance and other receivables 

47,201

34,849

46,382


Prepayments

5,155

3,663

4,889


Derivative financial instruments

2,424

2,032

2,956


Total financial assets

4,496,111

4,142,462

4,475,739


Reinsurers' share of accrued policyholder claims

12,457

8,017

11,399


Income taxes

1,917

2,413

2,608


Cash and cash equivalents

219,290

200,891

184,263


Total assets
4
5,246,117

4,854,604

5,236,708


Liabilities








Insurance contract provisions

2,290,815

2,226,729

2,362,063


Other provisions

4,052

4,669

5,348


Financial liabilities








Investment contracts at fair value through income 

2,337,862

2,152,673

2,283,403


Liabilities relating to policyholders' funds held by the Group

158,461

95,499

130,237


Borrowings
5
95,220

50,100

94,377


Derivative financial instruments

525

601

387


Total financial liabilities

2,592,068

2,298,873

2,508,404


Deferred tax liabilities

9,392

7,754

11,007


Reinsurance payables

9,978

15,254

11,539


Payables related to direct insurance and investment contracts

47,425

38,692

47,137


Deferred income

7,377

8,372

7,865


Income taxes

10,756

2,482

8,012


Other payables

20,631

25,838

27,104


Bank overdrafts

1,703

1,635

1,127


Total liabilities
4
4,994,197

4,630,298

4,989,606


Net assets

251,920

224,306

247,102


Shareholders' equity








Share capital

42,024

42,024

42,024


Share premium

42,526

42,525

42,526


Treasury shares

(212)

(213)

(212)


Other reserves 

2,558

9,351

7,203


Retained earnings
3
165,024

130,619

155,561


Total shareholders' equity

251,920

224,306

247,102










condensed consolidated statement of cash flows(unaudited)








 Unaudited
 Six months ended 
 30 June
Year ended 31 December



2014
2013
2013



000
000
000


Profit for the period
22,820
17,243
49,363


Adjustments for:





Depreciation of property and equipment
109
84
177


Amortisation of deferred acquisition costs
5,063
4,119
9,386


Amortisation of acquired value of in-force business
4,720
3,725
7,530


Amortisation of acquired value of customer relationships
136
153
301


Amortisation of software assets
982
2,341
2,580


Tax paid
4,558
4,567
11,227


Interest receivable
(13,270)
(8,562)
(19,256)


Dividends receivable
(13,152)
(6,340)
(19,049)


Interest expense
1,914
2,438
3,527


Change in fair value of investment properties
(2,265)
6,916
6,197


Fair value gains on financial assets
(170,200)
(225,392)
(523,938)


Profits on sale of property and equipment
-
-
(10)


Profit arising on business combination
-
-
(2,807)


Share of profit of associate 
(608)
(417)
(1,252)


Interest received
13,333
8,529
18,701


Dividends received 
5,859
5,875
19,252


Increase in intangible assets related to insurance and investment contracts
(8,354)
(7,712)
(19,397)


Changes in operating assets and liabilities:





Decrease in financial assets
34,128
44,217
46,539


Decrease/(increase) in reinsurers share of insurance contract provisions
18,885
(8,852)
(14,596)


Decrease/(increase) in amounts deposited with reinsurers
69
(1,753)
(4,048)


Decrease/(increase) in insurance and other receivables
4,245
(10,282)
(5,267)


Increase in prepayments
(482)
(462)
(1,792)


(Decrease)/increase in insurance contract provisions
(65,929)
17,760
51,570


Increase in investment contract liabilities
216,853
128,717
351,630


Decrease in provisions 
(1,290)
(516)
(1,829)


Decrease in reinsurance payables
(847)
(1,819)
(5,182)


Increase/(decrease) in payables related to direct insurance and investment contracts
639
(368)
2,110


(Decrease)/increase in other payables
(4,928)
8,810
3,690


Cash generated from/(utilised by) operations
52,988
(16,981)
(34,643)


Income tax (paid)received
(2,471)
3,614
1,405


Net cash generated from/(utilised by) operating activities
50,517
(13,367)
(33,238)


Cash flows from investing activities





Business combinations
-
(2,017)
(31,924)


Development of software
(680)
-
(1,882)


Purchases of property and equipment
(81)
(293)
(485)


Net cash utilised by investing activities
(761)
(2,310)
(34,291)


Cash flows from financing activities





Proceeds from issue of share capital
-
2
3


Proceeds from borrowings
2,375
1,213
46,728


Sale of treasury shares
-
4
5


Dividends paid
(13,357)
(12,921)
(20,099)


Interest paid
(1,764)
(2,379)
(3,975)


Net cash (utilised by)/generated from financing activities
(12,746)
(14,081)
22,662


Net increase/(decrease) in cash and cash equivalents
37,010
(29,758)
(44,867)


Cash and cash equivalents at beginning of period
183,136
228,074
228,074


Effect of exchange rate changes on cash and cash equivalents
(2,559)
940
(71)


Cash and cash equivalents at end of the period
217,587
199,256
183,136






CONDENSED consolidated statement of changes in equity(unaudited)





Unaudited six months ended 30 June 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 period
-
-
-
-
22,820
22,820


Dividends paid
-
-
-
-
(13,357)
(13,357)


Foreign exchange translation differences
-
-
(4,645)
-
-
(4,645)


Equity shareholders' funds at 30 June 2014
42,024
42,526
2,558
(212)
165,024
251,920















Unaudited six months ended 30 June 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 period
-
-
-
-
17,243
17,243


Dividends paid
-
-
-
-
(12,921)
(12,921)


Foreign exchange translation differences
-
-
1,632
-
-
1,632


Sale of treasury shares
-
2
-
4
-
6


Equity shareholders' funds at 30 June 2013
42,024
42,525
9,351
(213)
130,619
224,306















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)


Sale of treasury shares
-
3
-
5
-
8


Equity shareholders' funds at 31 December 2013
42,024
42,526
7,203
(212)
155,561
247,102










notes to the CONDENSED consolidated financial statements (unaudited)
1  Basis of preparation
This condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of consolidated financial statements has been prepared applying the accounting policies and presentation which were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2013 except for the application of the following additional accounting policies, which were not applicable for reporting periods up to and including 31 December 2013:
IAS 1 'Presentation of Items of Other Comprehensive Income'; and
IAS 19 (revised 2011) 'Employee Benefits'.
The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The adoption of this accounting standard does not materially impact these financial statements.
IAS 19 (revised 2011) and the related consequential amendments have had no impact upon the Movestic defined benefit pension scheme, as due to the multi-employer pooling of the scheme's assets and liabilities, it is accounted for as a defined contribution scheme.
The adoption of IFRS 13 has had no material impact upon the measurement of fair value for financial assets and financial liabilities, as the application of the credit risk of the Group has no material impact upon the associated fair values of the financial liabilities it holds. However, this adoption has introduced additional new disclosures, as set out in note 6.
The Group's published consolidated financial statements for the year ended 31 December 2013 were prepared in accordance with IFRS as adopted by the EU. Any judgements and estimates applied in the condensed set of financial statements are consistent with those applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2013.
The financial information shown in this half-year review is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.
The comparative figures for the financial year ended 31 December 2013 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statements under section 498(2) or (3) of the Companies Act 2006. 
2  Earnings per share
Earnings per share are based on the following:








 Unaudited
 Six months ended
 30 June
Year ended 31 December



2014
2013
2013


Profit for the period attributable to shareholders (000)
22,820
17,243
49,363


Weighted average number of ordinary shares
114,851,282
114,849,115
114,851,282


Basic earnings per share
19.87p
15.01p
42.98p


Diluted earnings per share
19.87p
15.01p
42.98p







The weighted average number of ordinary shares in respect of the six months ended 30 June 2014 is based upon 115,047,662 shares in issue, less 196,380 own shares held in treasury at the beginning of the period, and 115,047,662 shares in issue less 196,380 own shares held in treasury at the end of the period. 
The six months ended 30 June 2013 is based upon 115,047,662 shares in issue at the beginning and end of the periods, less 199,011 own shares held in treasury at the beginning.
The weighted average number of ordinary shares in respect of the year ended 31 December 2013 is based upon 115,047,662 shares in issue, less 196,380 own shares held in treasury. 
There were no share options outstanding during these periods. Accordingly, there is no dilution of the average number of ordinary shares in issue in respect of these periods.
3  Retained earnings







 Unaudited
 Six months ended
 30 June
Year ended 31 December



2014
2013
2013



000
000
000


Retained earnings attributable to equity holders of the parent company comprise:





Balance at 1 January
155,561
126,297
126,297


Profit for the period
22,820
17,243
49,363


Dividends





 Final approved and paid for 2012
-
(12,921)
(12,921)


 Interim approved and paid for 2013
-
-
(7,178)


 Final approved and paid for 2013
(13,357)
-
-


Balance at 31 December
165,024
130,619
155,561







The interim dividend in respect of 2013, approved and paid in 2013 was paid at the rate of 6.25p per share. 
The final dividend in respect of 2013, approved and paid in 2014, was paid at the rate of 11.63p per share so that the total dividend paid to the equity shareholders of the Parent Company in respect of the year ended 31 December 2013 was made at the rate of 17.88p per share.
An interim dividend of 6.42p per share in respect of the year ended 31 December 2014 payable on 15 October 2014 to equity shareholders of the Parent Company registered at the close of business on 12 September 2014, the dividend record date, was approved by the Directors after the balance sheet date. The resulting total final dividend of 7.4m has not been provided for in these financial statements and there are no income tax consequences.
The following table summarises dividends per share in respect of the six month period ended 30 June 2014 and the year ended 31 December 2013:






Year ended 31 December
2014
2013



p
p


Interim - approved and paid
6.42
6.25


Final - proposed/paid
-
11.63


Total
6.42
17.88






4 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 30 June 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 business of Save & Prosper Insurance Limited and its 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, which was purchased on 28 November 2013. PL is included within the Group's UK business.
Movestic: This segment comprises the Group's Swedish life and pensions business, Movestic Livfrskring 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 six months ended 30 June 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 six months ended 30 June 2014.
(i) Segmental income statement for the six months ended 30 June 2014


















CA

S&P

PL

UK Total

Movestic

Other Group Activities

Total



000

000

000

000

000

000

000


Net insurance premium revenue
21,463

3,411

7,164

32,038

7,967

-

40,005


Fee and commission income
15,968

1,152

-

17,120

17,753

-

34,873


Net investment return
35,664

28,975

343

64,982

134,106

224

199,312


Total revenue (net of reinsurance payable)
73,095

33,538

7,507

114,140

159,826

224

274,190


Other operating income
1,542

5,779

-

7,321

5,146

-

12,467


Segmental income
74,637

39,317

7,507

121,461

164,972

224

286,657


Net insurance contract claims and benefits incurred
(38,893)

(26,498)

(1,048)

(66,439)

(3,613)

-

(70,052)


Net change in investment contract liabilities
(10,851)

(802)

-

(11,653)

(133,817)

-

(145,470)


Fees, commission and other acquisition costs
(331)

(16)

(603)

(950)

(10,176)

-

(11,126)


Administrative expenses















Amortisation charge on software assets
-

-

-

-

(2,188)

-

(2,188)


Depreciation charge on property and equipment
(22)

-

-

(22)

(187)

-

(209)


Other
(4,155)

(4,721)

(983)

(9,859)

(5,921)

(1,804)

(17,584)


Other operating expenses















Charge for amortisation of acquired value of in-force business
(1,181)

(350)

(1,216)

(2,747)

(1,974)

-

(4,721)


Charge for amortisation of acquired value of customer relationships
-

-

-

-

(136)

-

(136)


Other
(84)

(467)

(844)

(1,395)

(5,092)

-

(6,487)


Segmental expenses
(55,517)

(32,854)

(4,694)

(93,065)

(163,104)

(1,804)

(257,973)


Segmental income less expenses
19,120

6,463

2,813

28,396

1,868

(1,580)

28,684


Share of profit from associates
-

-

-

-

608

-

608


Profit arising on business combinations
-

-

-

-

-

-

-


Financing costs
-

-

-

(3)

(724)

(1,187)

(1,914)


Profit/(loss) before tax
19,120

6,463

2,813

28,393

1,752

(2,767)

27,378


Income tax credit/(expense) 






(6,021)

868

595

(4,558)


Profit/(loss) after tax






22,372

2,620

(2,172)

22,820

















(ii) Segmental balance sheet as at 30 June 2014
















CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Total assets
1,840,292

1,212,296

177,339

1,945,101

71,089

5,246,117


Total liabilities
(1,768,580)

(1,142,965)

(119,876)

(1,885,696)

(77,080)

(4,994,197)


Net assets/(liabilities)
71,712

69,331

57,463

59,405

(5,991)

251,920


Investment in associates
-

-

-

4,367

-

4,367


Additions to non-current assets
-

-

-

8,691

-

8,691















(iii) Segmental income statement for the six months ended 30 June 2013
















CA

S&P

UK Total

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Net insurance premium revenue
25,718

3,895

29,613

8,356

-

37,969


Fee and commission income
16,880

1,308

18,188

16,679

-

34,867


Net investment return
98,395

69,684

168,079

70,854

80

239,013


Total revenue (net of reinsurance payable)
140,993

74,887

215,880

95,889

80

311,849


Other operating income
1,802

5,805

7,607

3,375

66

11,048


Segmental income
142,795

80,692

223,487

99,264

146

322,897


Net insurance contract claims and benefits incurred
(82,565)

(55,742)

(138,307)

(3,261)

-

(141,568)


Net change in investment contract liabilities
(48,247)

(1,799)

(50,046)

(70,620)

-

(120,666)


Fees, commission and other acquisition costs
(388)

(17)

(405)

(8,969)

-

(9,374)


Administrative expenses













Amortisation charge on software assets
-

-

-

(2,188)

-

(2,188)


Depreciation charge on property and equipment
(22)

-

(22)

(187)

-

(209)


Other
(4,131)

(4,985)

(9,116)

(6,323)

(882)

(16,321)


Other operating expenses













Charge for amortisation of acquired value of in-force business
(1,189)

(387)

(1,576)

(2,148)

-

(3,724)


Charge for amortisation of acquired value of customer relationships
-

--

-

(153)

-

(153)


Other
(617)

(897)

(1,514)

(3,382)

33

(4,863)


Segmental expenses
(137,159)

(63,827)

(200,986)

(97,231)

(849)

(299,066)


Segmental income less expenses
5,636

16,865

22,501

2,033

(703)

23,831


Share of profit from associates
-

-

-

417

-

417


Financing costs
-

(4)

(4)

(1,946)

(488)

(2,438)


Profit/(loss) before tax
5,636

16,861

22,497

504

(1,191)

21,810


Income tax credit/(expense) 




(4,722)

(122)

277

(4,567)


Profit/(loss) after tax




17,775

382

(914)

17,243















(iv) Segmental balance sheet as at 30 June 2013














CA

S&P

Movestic

Other Group Activities

Total



000

000

000

000

000


Total assets
1,842,234

1,255,273

1,698,321

58,776

4,854,604


Total liabilities
(1,777,161)

(1,180,503)

(1,638,229)

(34,405)

(4,630,298)


Net assets/(liabilities)
65,073

74,770

60,092

24,371

224,306


Investment in associates
-

-

3,392

-

3,392


Additions to non-current assets
-

966

8,982

-

9,948













(v) 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)


Depreciation charge on property and equipment
(22)

-

-

(22)

(187)

-

(209)


Other
(7,663)

(9,878)

(114)

(17,655)

(14,870)

(3,839)

(36,364)


Other operating expenses















Charge for amortisation of acquired value of in-force business
(2,358)

(774)

(169)

(3,301)

(4,229)

-

(7,530)


Charge for amortisation of acquired value of customer relationships
-

-

-

-

(301)

-

(301)


Other
(924)

(1,143)

(391)

(2,458)

(4,085)

60

(6,483)


Segmental expenses
(263,762)

(138,323)

(1,015)

(403,100)

(267,255)

(3,779)

(674,134)


Segmental income less expenses
22,753

35,675

25

58,453

5,180

(3,575)

60,058


Share of profit from associates
-

-

-

-

1,252

-

1,252


Profit arising on business combinations
-

-

-

-

-

2,807

2,807


Financing costs
-

(4)

-

(4)

(2,140)

(1,383)

(3,527)


Profit/(loss) before tax
22,753

35,671

25

58,449

4,292

(2,151)

60,590


Income tax credit/(expense) 






(11,604)

(423)

800

(11,227)


Profit/(loss) after tax






46,845

3,869

(1,351)

49,363

















(vi) Segmental balance sheet as at 31 December 2013
















CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Total assets
1,898,687

1,263,269

181,059

1,853,374

40,319

5,236,708


Total liabilities
(1,823,693)

(1,169,406)

(125,783)

(1,791,943)

(78,781)

(4,989,606)


Net assets/(liabilities)
74,994

93,863

55,276

61,431

(38,462)

247,102


Investment in associates
-

-

-

4,088

-

4,088


Additions to non-current assets
-

-

20,211

17,787

-

37,998















5  Borrowings








 Unaudited
 30 June
31 December



2014
2013
2013



000
000
000


Bank loan
73,190
29,747
73,040


Amount due in relation to financial reinsurance
22,030
20,353
21,337


Total
95,220
50,100
94,377







The bank loan subsisting at 30 June 2014 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.
 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.
 on 27 November 2013 a short-term loan of 12.8m was drawn down. This is repayable in full on 27 May 2015. 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 2014 was 73,800,000 (31 December 2013: 73,800,000).
The fair value of amounts due in relation to financial reinsurance was 22,209,430 (31 December 2013: 21,657,269). The fair value of other borrowings is not materially different from their carrying value.
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 2014. 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 2014 using









Level 1

Level 2

Level 3

Total


000

000

000

000

Equities








 Listed
475,344

-

-

475,344

Holdings in collective investment schemes
3,462,938

473

-

3,463,411

Debt securities - fixed rate








 Government Bonds
283,542

-

-

283,542

 Listed
54,236

-

-

54,236

Debt securities - floating rate Listed
6,337

-

-

6,337

Total debt securities
344,115

-

-

344,115

Policyholders' funds held by the group
158,461

-

-

158,461

Derivative financial instruments
152

2,272

-

2,424

Total
4,441,010

2,745

-

4,443,755

Current






1,886,788

Non-current






2,556,967

Total






4,443,755










Financial liabilities








 Investment contracts at fair value through income
2,333,609

4,253

-

2,337,862

 Liabilities related to policyholders' funds held by the group
158,461

-

-

158,461

 Derivative financial instruments
4

521

-

525

Total
2,492,074

4,774

-

2,496,848










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.
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 




2014
2013
2013

2014
2013
2013




000
000
000

000
000
000













Financial liabilities:










Borrowings

95,220
50,100
94,377

96,009
50,788
95,457












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.
7 Approval of consolidated report for the six months ended 30 June 2014
This condensed consolidated report was approved by the Board of Directors on 28 August 2014. A copy of the report will be available to the public at the Company's registered office, Harbour House, Portway, Preston, PR2 2PR, UK and at www.chesnara.co.uk.
EEV BASIS SUPPLEMENTARY INFORMATION
directors' responsibilities statement in respect of the eev basis supplementary information
The Directors have chosen to prepare Supplementary Information in accordance with the EEV Principles issued in May 2004 by the CFO Forum of European Insurance Companies and expanded by the Additional Guidance on European Embedded Value Disclosures issued in October 2005.
When compliance with the EEV Principles is stated, those principles require the Directors to prepare supplementary information in accordance with the Embedded Value Methodology ('EVM') contained in the EEV Principles and to disclose and explain any non-compliance with the EEV guidance included in the EEV Principles.
In preparing the EEV basis supplementary information, the Directors have:
 Prepared the supplementary information in accordance with the EEV Principles;
 Identified and described the business covered by the EVM;
 Applied the EVM consistently to the covered business;
 Determined assumptions on a realistic basis, having regard to past, current and expected future experience and to any relevant external data, and then applied them consistently;
 Made estimates that are reasonable and consistent; and
 Described the basis on which business that is not covered business has been included in the supplementary information, including any material departures from the accounting framework applicable to the Group's financial statements.
By order of the Board 
Peter Mason Graham Kettleborough
Chairman Chief Executive Officer
28 August 2014 28 August 2014
Independent Auditor's Report to the directors of chesnara plc on the EEV basis supplementary information
We have been engaged by the Company to review the EEV Basis Supplementary Information in the half-year financial report for the six months ended 30 June 2014 which comprises the summarised EEV Consolidated Income Statement, the Summarised EEV Consolidated Balance Sheet and the related notes 1 to 11. We have read the other information contained in the half-year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the EEV Basis Supplementary Information. 
We have reported separately on the condensed financial statements of Chesnara plc for the six months ended 30 June 2014. The information contained in the EEV Basis Supplementary Information should be read in conjunction with the condensed set of financial statements prepared on an IFRS basis. This information is described within the Chesnara plc condensed set of financial statements in the half-year financial report as having been reviewed.
This report is made solely to the Company's Directors in accordance with our engagement letter and solely for the purpose of expressing an opinion as to whether anything has come to our attention that causes us to believe that the EEV Basis Supplementary Information for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with the European Embedded Value ('EEV') principles issued in May 2004 by the European CFO Forum and supplemented by Additional Guidance on EEV Disclosures issued by the same body in October 2005. Our work has been undertaken so that we might state to the Company's Directors those matters we are required to state to them in an independent review 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's Directors, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities 
The EEV Basis Supplementary Information is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the EEV Basis Supplementary Information in accordance with the European Embedded Value ('EEV') principles issued in May 2004 by the European CFO Forum and supplemented by Additional Guidance on EEV Disclosures issued by the same body in October 2005. 
Our responsibility 
Our responsibility in relation to the EEV Basis Supplementary Information is to express to the Company a conclusion on the EEV Basis Supplementary Information based on our review. 
Scope of review 
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 
Conclusion 
Based on our review, nothing has come to our attention that causes us to believe that the EEV Basis Supplementary Information for the six months ended 30 June 2014 has not been properly prepared in accordance with the EEV principles using the methodology and assumptions set out in Notes 3 and 4 to the EEV Basis Supplementary Information.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Manchester, 
United Kingdom
28 August 2014
Summarised EEv consolidated income statement(UNAUDITED)










 Unaudited 
 Six months ended 30
 June
Year 
ended 31 December 




2014
2013
2013 



Note
000
000
000


Operating profit of covered business
6(b)
37,168
4,754
8,901


Other operational result
6(b)
(673)
(140)
(2,276)


Operating profit

36,495
4,614
6,625


Variation from longer-term investment return
6(b)
25,845
20,813
54,646


Effect of economic assumption changes
6(b)
(4,612)
12,317
16,447


Profit before tax and before exceptional item

57,728
37,744
77,178


Exceptional items






 Profit recognised on business combination
9
-
-
12,283


 Effect of modelling adjustments
6(a)
-
848
4,073


Profit before tax

57,728
38,592
94,074


Tax
6(b)
(10,441)
(2,315)
(7,307)


Profit for the period attributable to the equity holders of the parent company

47,287
36,277
86,767


Earnings per share






Based on profit for the period

41.17p
31.59p
75.55p


Diluted profit per share






Based on profit for the period

41.17p
31.59p
75.55p








Summarised EEV Consolidated Balance Sheet (UNAUDITED)












 Unaudited 
 30 June

31 December




2014

2013

2013


Assets
Note
000

000

000


Value of in-force business
5, 8
279,305

226,269

262,161


Deferred acquisition costs arising on unmodelled business

447

800

487


Acquired value of customer relationships

323

506

419


Property and equipment

610

576

673


Investment in associate

4,367

3,392

4,088


Deferred tax asset

1,466

793

509


Reinsurers' share of insurance contract provisions

314,501

238,490

328,810


Amounts deposited with reinsurers

33,049

30,788

33,102


Investment properties

5,173

71,303

20,387


Financial assets








Equity securities at fair value through income

475,344

451,639

479,617


Holdings in collective investment schemes at fair value through income

3,463,411

3,205,255

3,440,992


Debt securities at fair value through income

344,115

349,525

370,666


Insurance and other receivables 

47,201

34,849

46,382


Prepayments

5,155

3,663

4,889


Policyholders' funds held by the Group

158,461

95,499

130,237


Derivative financial instruments

2,424

2,032

2,956


Total financial assets

4,496,111

4,142,462

4,475,739


Reinsurers' share of accrued policy claims 

12,457

8,017

11,399


Income taxes

1,917

2,413

2,608


Cash and cash equivalents

219,290

200,891

184,263


Total assets

5,369,016

4,926,700

5,324,645











Liabilities








Insurance contract provisions

2,267,960

2,183,782

2,323,643


Other provisions

4,052

4,669

5,348


Financial liabilities








Investment contracts at fair value through income

2,346,550

2,165,242

2,293,836


Borrowings

101,084

56,039

100,290


Derivative financial instruments

525

601

387


Liabilities relating to policyholders' funds held by the Group

158,461

95,499

130,237


Total financial liabilities

2,606,620

2,317,381

2,524,750


Reinsurance payables

9,613

14,850

11,154


Payables related to direct insurance and investment contracts

47,425

38,692

47,137


Income taxes

10,756

2,482

8,012


Other payables

20,631

25,838

27,104


Bank overdraft

1,703

1,635

1,127


Total liabilities

4,968,760

4,589,329

4,948,275


Net assets

400,256

337,371

376,370











Equity








Share capital

42,024

42,024

42,024


Share premium

42,526

42,525

42,526


Treasury shares

(212)

(213)

(212)


Foreign exchange reserve

3,884

18,242

13,927


Other reserves

50

50

50


Retained earnings

311,984

234,743

278,055


Total shareholders' equity
5, 8
400,256

337,371

376,370










Approved by the Board of Directors on 28 August 2014 and signed on its behalf by:
David Rimmington Graham Kettleborough
Finance Director Chief Executive Officer
Notes to the EEV Supplementary Information (unaudited)
1  Basis of preparation
This section sets out the detailed methodology followed for producing these Group financial statements which are supplementary to the Group's primary financial statements which have been prepared in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the EU. These financial statements have been prepared in accordance with the European Embedded Value ('EEV') principles issued in May 2004 by the European CFO Forum and supplemented by Additional Guidance on EEV Disclosures issued by the same body in October 2005. The principles provide a framework intended to improve comparability and transparency in embedded value reporting across Europe. 
In order to improve understanding of the Group's financial position and performance, certain of the information presented in these financial statements is presented on a segmental basis: the business segments are the same as those described in Note 4 to the condensed consolidated interim financial statements prepared on the IFRS basis.
2  Covered business
The Group uses EEV methodology to value the bulk of its long-term business (the 'covered business'), which is written primarily in the UK and Sweden, as follows:
(i) for the UK Business ,the covered business of CA and S&P comprises the business's long-term business being those individual life insurance, pensions and annuity contracts falling under the definition of long-term insurance business for UK regulatory purposes. The covered business for the PL segment comprises the business's long-term protection business and Payment Protection Insurance business. 
(ii) for the Swedish Business (comprising the Movestic segment), the covered business comprises the business's long-term pensions and savings unit-linked business. Group life and sickness business, including waiver of premium and non-linked individual life assurance policies are not included in the covered business: the result relating to this business is established in accordance with IFRS principles and is included within 'other operational result' within the consolidated summarised income statement.
(iii) The operating expenses of the holding company, Chesnara plc, are allocated across the segments.
Under EEV principles no distinction is made between insurance and investment contracts, as there is under IFRS, which accords these classes of contracts different accounting treatments.
3  Methodology
(a) Embedded Value
Overview
Shareholders' equity comprises the embedded value of the covered business, together with the net equity of other Group companies, including that of the holding company which is stated after writing down fully the carrying value of the covered business.
The embedded value of the covered business is the aggregate of the shareholder net worth ('SNW') and the present value of future shareholder cash flows from in-force covered business (value of in-force business) less any deduction for (i) the cost of guarantees within S&P, and (ii) the cost of required capital. It is stated after allowance has been made for aggregate risks in the business. SNW comprises those amounts in the long-term business, which are either regarded as required capital or which represent surplus assets within that business.
New business
CA, S&P and PL
Much of the covered business is in run-off and is, accordingly, substantially closed to new business. Up to 31 December 2012 the UK businesses did still sell a small amount of new business but, overall, the contribution from new business to the results established using EEV methodology is not material. Accordingly, not all of those items related to new business values, which are recommended by the EEV guidelines, are reported in this supplementary financial information.
Movestic
New business, in relation to the pensions and savings covered business is taken as all business where contracts are signed and new premiums paid during the reporting period, for both new policies and premium increases on existing business, but excluding standard renewals. New business premium volumes as disclosed in "Swedish Business Review" are not consistent with this definition, as they include non-covered business. 
New business premium volumes for the period are as follows:







Pensions and savings covered business
 Unaudited 
 Six months ended 
 30 June
Year ended
31 December



2014
m
2013
m
2013
m


New business premium income
31.2
19.9
46.0


Regular premium increments
10.0
8.1
16.0


Total new business premium income*
41.2
28.0
62.0







* Basis: annualised premium plus 1/10 single premium translated into sterling at the 2014 average rate of SEK 10.9034= 1 (2013: SEK 10.1901) = 1).
The new business contribution has been assessed as at the end of the period, using opening assumptions.
Value of in-force business 
The cash flows attributable to shareholders arising from in-force business are projected using best estimate assumptions for each component of cash flow. 
The present value of the projected cash flows is established by using a discount rate which reflects the time value of money and the risks associated with the cash flows which are not otherwise allowed for. There is a deduction for the cost of holding the required capital, as set out below. 
In respect of Movestic there are certain non-linear exposures of shareholder profit to asset returns arising from variable administrative fees and variable investment fund rebates which are modelled deterministically rather than stochastically.
Participating business
For participating business within the S&P business the Group maintains the assets and liabilities in separate with-profits funds. In accordance with the Principles and Practices of Financial Management, in the first instance all benefits, which in some cases include guaranteed minimum investment returns, are paid from policyholder assets within the fund. The participating business effectively operates as a smoothed unit-linked contract subject to minimum benefit guarantees. The with-profits funds contain assets which are attributable to shareholders as well as those attributable to policyholders. Assets attributable to shareholders can only be released from the fund subject to meeting prudent liabilities in respect of minimum benefits and the frictional cost of this restriction has been allowed for in determining the value of the in-force business.
Fundamentally, the value of the with-profits in-force business is driven by the fund management charges levied on the policyholder assets, subject to the effect of minimum benefit guarantees.
Taxation
The present value, of the projected cash flows arising from in-force business takes into account all tax which is expected to be paid under current legislation, including tax which would arise if surplus assets within the covered business were eventually to be distributed. For the UK business, allowance has been made for planned reductions in corporation tax, as announced by the Chancellor in his budget speech on 20 March 2013. 
The value of the in-force business has been calculated on an after-tax basis and is grossed up to the pre-tax level for presentation in the income statement. The amount used for the grossing up is the amount of shareholder tax, excluding those payments made on behalf of policyholders, being policyholder tax in the UK businesses and yield tax in Movestic.
Cost of capital
The valuation approach used requires consideration of 'frictional' costs of holding shareholder capital: in particular, the cost of tax on investment returns and the impact of investment management fees can reduce the face value of shareholder funds. For CA, the expenses relating to corporate governance functions eliminate any taxable investment return in shareholder funds, while investment management fees are not material. The cost of holding the required capital to support the covered business (see 3(b) below) is reflected as a deduction from the value of in-force business.
Financial options and guarantees 
CA 
The principal financial options and guarantees in CA are (i) guaranteed annuity rates offered on some unit-linked pension contracts and (ii) a guarantee offered under Timed Investment Funds that the unit price available at the selected maturity date (or at death, if earlier) will be the highest price attained over the policy's life. The cost of these options and guarantees has been assessed, in principle, on a market-consistent basis, but, in practice, this has been carried out on approximate bases, which are appropriate to the level of materiality of the results. 
S&P 
The principal financial options and guarantees in S&P are (i) minimum benefits payable on maturity or retirement for participating business; (ii) the option to extend the term under the Personal Retirement Account contract on terms potentially beneficial to the policyholder; (iii) the option to increase premiums under the Personal Retirement Account contract on terms potentially beneficial to the policyholder; and (iv) certain insurability options offered. 
The cost of guaranteeing a minimum investment return on participating contracts, being the only material guarantee, has been assessed on a market consistent basis. This has involved the use of a stochastic asset model, which is designed to establish a cost of guarantees which is consistent with prices in the market at the valuation date, for example the prices of derivative instruments. For the remaining options and guarantees the cost has been assessed on an approximate basis, appropriate to the level of materiality of the results.
PL
There are no material financial options and guarantees within PL.
Movestic
In respect of Movestic, some contracts provide policyholders with an investment guarantee, whereby a minimum rate of return is guaranteed for the first 5 years of the policy, at a rate of 3% per annum. The value of the guarantee is ignored as it is not material to the results.
Allowance for risk
Allowance for risk within the covered business is made by:
(i) setting required capital levels by reference to the assessment of capital needs made by the Directors of the regulated entities within the respective businesses;
(ii) setting the risk discount rate, which is applied to the projected cash flows arising on the in-force business, at a level which includes an appropriate risk margin (see 3(c) below); and
(iii) explicit allowance for the cost of financial options and guarantees and, where appropriate, for reinsurer default.
Internal group company
EEV Guidance requires that actual and expected profit or loss incurred by an internal group company on services provided to the covered business should be included in allowances for expenses. The covered business in Movestic is partially managed by an internal group fund management company. Not all relevant future income and expenses of that company have been included in the calculation of embedded value. However, the effect is not considered to be material.
Consolidation adjustments
Consolidation adjustments have been made to:
(i) eliminate the investment in subsidiaries;
(ii) allocate group debt finance against the segment to which it refers; and
(iii) allocate corporate expenses as explained in note 4(d) below.
(b) Level of required capital
The level of required capital of the covered business reflects the amount of capital that the Directors consider necessary and appropriate to manage the respective businesses. In forming their policy the Directors have regard to the minimum statutory requirements and an internal assessment of the market, insurance and operational risks inherent in the underlying products and business operations. The capital requirement resulting from this assessment represents:
(i) for CA plc (comprising the CA and S&P segments), 162.5% of the long-term insurance capital requirement ('LTICR') together with 100% of the resilience capital requirement ('RCR'), as determined by the regulations of the Prudential Regulatory Authority in the UK; 
(ii) for PL, 150% of the long-term insurance capital requirement ('LTICR'), as determined by the regulations of the Prudential Regulatory Authority; and
(iii) for Movestic, 150% of the regulatory solvency requirement as determined by Finansinspektionen in Sweden.
The required level of regulatory capital is provided as follows:
(i) for the UK Business, by the retained surplus within the long-term business fund and by share capital and retained earnings within the shareholder funds of the regulated entity; and
(ii) for Movestic, by share capital and additional equity contributions from the parent company, net of the accumulated deficit in the regulated entity, these components together comprising shareholder's equity. 
Movestic is reliant, in the short to medium term, on further equity contributions from the parent company, Chesnara plc.
(c) Discount rates
The discount rates are a combination of the reference rate and a risk margin. The reference rate reflects the time value of money and the risk margin reflects any residual risks inherent in the covered business and makes allowance for the risk that future experience will differ from that assumed. In order to reduce the subjectivity when setting the discount rates, the Group has decided to adopt a 'bottom up' market-consistent approach to allow explicitly for market risk.
Using the market-consistent approach, each cash flow is valued at a discount rate consistent with that used in the capital markets: in accordance with this, equity-based cash flows are discounted at an equity discount rate and bond-based cash flows at a bond discount rate. In practice a short-cut method known as the 'certainty equivalent' approach has been adopted. This method assumes that all cash flows earn the reference rate of return and are discounted at the reference rate.
In general, and consistent with the market's approach to valuing financial instruments for hedging purposes, the reference rate is based on swap yields. These have been taken as mid swap yields available in the market at the end of the reporting period.
Allowance also needs to be made for non-market risks. For some of these risks, such as mortality and expense risk, it is assumed that the shareholder can diversify away any uncertainty where the impact of variations in experience on future cash flows is symmetrical. For those risks that are assumed to be diversifiable, no adjustment has been made. For any remaining risks that are considered to be non-diversifiable risks, there is no risk premium observable in the market and, therefore, a constant margin has been added to the risk margin. The margin added reflects the assumed risks within the businesses and is 50 basis points for CA, S&P and PL (as at 30 June 2013 and 31 December 2013: 50 basis points), and 100 basis points for Movestic (30 June 2013: 70 basis points and 31 December 2013: 100 basis points). This margin is applied to the basic value of in-force business prior to the deductions for financial options and guarantees and the cost of required capital.
(d) Analysis of profit
The contribution to operating profit, which is identified at a level which reflects an assumed longer-term level of investment return, arises from three sources:
(i) new business;
(ii) return from in-force business; and
(iii) return from shareholder net worth.
Additional contributions to profit arise from:
(i) variances between the actual investment return in the period and the assumed long-term investment return; and
(ii) the effect of economic assumption changes.
The contribution from new business represents the value recognised at the end of each period in respect of new business written in that period, after allowing for the cost of acquiring the business, the cost of establishing the required technical provisions and after making allowance for the cost of capital, calculated on opening assumptions.
The return from in-force business is calculated using closing assumptions and comprises:
(i) the expected return, being the unwind of the discount rates over the period applied to establish the value of in-force business at the beginning of the period;
(ii) variances between the actual experience over the period and the assumptions made to establish the value of business in force at the beginning of the period; and
(iii) the net effect of changes in future assumptions, made prospectively at the end of the period, from those used in establishing the value of business in force at the beginning of the period, other than changes in economic assumptions.
The contribution from shareholder net worth comprises the actual investment return on residual assets in excess of the required capital. 
(e) Assumption setting
There is a requirement under EEV methodology to use best estimate demographic assumptions and to review these at least annually with the economic assumptions being reviewed at each reporting date. The current practice is detailed below.
Each year the demographic assumptions are reviewed as part of year-end processes and hence were last reviewed in December 2013.
The detailed projection assumptions, including mortality, morbidity, persistency and expenses reflect recent operating experience. Allowance is made for future improvement in annuitant mortality based on experience and externally published data. Favourable changes in operating experience, particularly in relation to expenses and persistency, are not anticipated until the improvement in experience has been observed. Holding company expenses (for the Chesnara Group such expenses relate largely to listed company functions) are allocated across the segments in proportion to the value before tax of the in-force business. Hence the expense assumptions used for the cash flow projections include the full cost of servicing this business. 
For the Movestic business, persistency assumptions have been updated reflecting latest experience and Management's view of future trends.
The economic assumptions are reviewed and updated at each reporting date based on underlying investment conditions at the reporting date. The assumed discount rates and inflation rates are consistent with the investment return assumptions. 
In addition, the demographic assumptions used at 31 December 2013 are considered to be best estimate and, consequently, no further adjustments are required. In respect of the CA Business, the assumptions required in the calculation of the value of the annuity rate guarantee on pension business have been set equal to best-estimate assumptions. 
(f) Pension schemes
In Movestic, where the Group participates in a combined defined benefit and defined contribution scheme, future contributions to the scheme are reflected in the value of in-force business.
(g) Financial reinsurance
In respect of Movestic the Group uses financial reinsurance to manage the impact of its new business strain. Whilst this liability is valued at fair value within the IFRS statements, allowing for an option which provides the Group with the right to settle the liability early on beneficial terms, when valuing the shareholder net worth within the EEV it is considered more appropriate to assess this liability at a higher cost, reflecting the likelihood of the option not being utilised. 
4  Assumptions
(a) Investment Returns
Investment returns are assumed to be equal to the reference rate, as covered in Note 3(c). For linked business, the aggregate return has been determined by the reference rate less an appropriate allowance for tax. 
The rates presented below are indicative spot rates:






































CA

S&P

PL*

Movestic



 Unaudited
 30 June
31 Dec

 Unaudited 
 30 June
31 Dec

 Unaudited 
 30 June
31 Dec

 Unaudited
 30 June
31 Dec



2014
2013
2013

2014
2013
2013

2014
2013
2013

2014
2013
2013


Investment Return








2.60%

2.80%






5 year
2.21%
1.57%
2.18%

2.21%
1.57%
2.18%

-
-
-

1.35%
2.19%
2.18%


10 year
2.86%
2.66%
3.11%

2.86%
2.66%
3.11%

-
-
-

2.07%
2.73%
2.87%


15 year
3.19%
3.17%
3.48%

3.19%
3.17%
3.48%

-
-
-

2.40%
2.93%
3.12%


20 year
3.34%
3.41%
3.58%

3.34%
3.41%
3.58%

-
-
-

2.55%
3.02%
3.20%


25 year
3.38%
3.52%
3.59%

3.38%
3.52%
3.59%

-
-
-

2.55%
3.02%
3.20%


30 year
3.38%
3.56%
3.56%

3.38%
3.56%
3.56%

-
-
-

2.55%
3.02%
3.20%


Inflation - RPI
2.90%
2.60%
3.00%

2.90%
2.60%
3.00%

2.90%
-
3.00%

1.65%
1.67%
1.82%

*For PL a single rate is applied for all durations.
(b) Actuarial Assumptions
The demographic assumptions used to determine the value of the in-force business have been set at levels commensurate with the underlying operating experience identified in the periodic actuarial investigations.
Certain products contain provisions that provide for the charges in respect of mortality risk to be reviewable. In these cases assumptions for future experience and charges are assumed to be linked and assumptions are only updated when decisions have been made regarding product charges, so as not to capitalise any benefits that may not accrue to shareholders.
(c) Taxation
Projected tax has been determined assuming current tax legislation and rates continue unaltered, except where future tax rates or practices have been announced. The tax rates for the UK business allow for changes in Corporation Tax as announced by the Chancellor in his budget speech of 20 March 2013, so reflect a reduction from the current rate of 23% to 20% from April 2015.
(d) Expenses
The expense levels are based on internal expense analysis investigations and are appropriately allocated to the new business and policy maintenance functions. 
For CA, S&P and PL, these have been determined by reference to:
(i) the outsourcing agreements in place with our third-party business process administrators;
(ii) anticipated revisions to the terms of such agreements as they fall due for renewal; and 
(iii) corporate governance costs relating to the covered business.
For Movestic, these have been determined by reference to:
(i) an expense analysis in which all expenses were allocated to covered and uncovered business, with expenses for the covered business being allocated to acquisition and maintenance activities; and
(ii) expense drivers, being, in relation to acquisition costs, the number of policies sold during the period and, in relation to maintenance expenses, the average number of policies in force during the period.
Holding company expenses (for the Chesnara Group such expenses relate largely to listed company functions) are allocated across the segments on a basis that reflects each segment's economic consumption of such costs.
EEV Guidance requires that no allowance is made for future productivity improvements in expense assumptions. For the UK business, for expenses relating to policy administration this requirement is met. As the UK company is essentially closed to new business, those governance expenses which are not immediately variable can reasonably be expected to reduce through management control in the future, though the timing and scale of such reductions is not fixed. A prudent estimate of the reductions has been allowed for within the expense assumptions.
(e) Discount Rate
An explicit constant margin is added to the reference rate shown in (a) above to cover any remaining risks that are considered to be non-market, non-diversifiable risks, as there is no risk premium observable in the market. This margin, which is 50 basis points for CA, S&P and PL (as at 30 June 2013 and 31 December 2013: 50 basis points) and 100 basis points for Movestic (as at 30 June 2013: 70 basis points and 31 December 2013: 100 basis points), gives due recognition to the relative sensitivity of the value of in-force business to the discount rate for the different businesses, and to the fact that:
a) For CA:
(i) the covered business is closed to new business;
(ii) there is no significant exposure in the with-profit business, which is wholly reinsured; 
(iii) expense risk is limited as a result of the outsourcing of substantially all policy administration and related functions to third-party business process administrators; and 
(iv) for much of the life business the Group has the ability to vary risk charges made to policyholders.
b) For S&P and PL: 
(i) the covered business is closed to new business; and
(ii) expense risk is limited as a result of the outsourcing of substantially all policy administration and related functions to third-party business process administrators.
c) For Movestic:
(i) the covered business remains open; 
(ii) the in-force business is relatively small; 
(iii) reinsurance is used to significantly reduce insurance risks; and
(iv) a number of the risks provide diversification benefits within the Chesnara Group, in relation to reinsurance counterparties, market exposures and policyholder populations.
5 Analysis of shareholders' equity















30 June 2014 (unaudited)
CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Regulated entities













Capital required
24,730

43,328

37,050

14,514

-

119,622


Free surplus
30,310

13,899

5,352

19,320

-

68,881


Regulatory capital resource of regulated entities
55,040

57,227

42,402

33,834

-

188,503


Adjustments to shareholder net worth:













Deferred acquisition costs
-

-

-

(52,254)

-

(52,254)


Financial reinsurance liability
-

-

-

(4,322)

-

(4,322)


Software asset adjustment
-

-

-

(4,348)

-

(4,348)


Adjustment to provisions on insurance contracts
-

3,120

-

-

-

3,120


Deferred tax
2,240

-

-

-

-

2,240


Policyholder funds
-

(14,628)

-

-

-

(14,628)


Other asset / liability adjustments
681

(325)

-

5,989

-

6,345


Adjusted shareholder net worth
57,961

45,394

42,402

(21,101)

-

124,656


In-force value of covered business
74,707

36,731

24,753

143,114

-

279,305


Embedded value of regulated entities
132,668

82,125

67,155

122,013

-

403,961


Less: amount financed by borrowings
-

(29,747)

(43,443)

-

-

(73,190)


Embedded value of regulated entities attributable to shareholders
132,668

52,378

23,712

122,013

-

330,771


Net equity of other Group companies
-

-

-

2,032

67,453

69,485


Total shareholders' equity
132,668

52,378

23,712

124,045

67,453

400,256






























30 June 2013 (unaudited)
CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Regulated entities













Capital required
27,099

47,385

-

17,222

-

91,706


Free surplus
19,055

30,036

-

18,240

-

67,331


Regulatory capital resource of regulated entities
46,154

77,421

-

35,462

-

159,037


 Adjustments to shareholder net worth:













 Deferred acquisition costs
-

-

-

(57,690)

-

(57,690)

 
 Financial reinsurance liability
-

-

-

(4,377)

-

(4,377)


 Software asset adjustment
-

-

-

(5,555)

-

(5,555)


 Adjustment to provisions on insurance contracts
-

2,436

-

-

-

2,436


 Policyholder funds
-

(14,608)

-

-

-

(14,608)


Other asset / liability adjustments
338

-

-

5,201

-

5,539


Adjusted shareholder net worth
46,492

65,249

-

(26,959)

-

84,782


In-force value of covered business
72,441

17,986

-

135,842

-

226,269


Embedded value of regulated entities
118,933

83,235

-

108,883

-

311,051


Less: amount financed by borrowings
-

(29,747)

-

-

-

(29,747)


Embedded value of regulated entities attributable to shareholders
118,933

53,488

-

108,883

-

281,304


Net equity of other Group companies
-

-

-

1,694

54,373

56,067


Total shareholders' equity
118,933

53,488

-

110,577

54,373

337,371






























31 December 2013
CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Regulated entities













Capital required
23,776

43,447

37,845

16,863

-

121,931


Free surplus
32,386

44,750

1,397

17,969

-

96,502


Regulatory capital resource of regulated entities
56,162

88,197

39,242

34,832

-

218,433


Adjustments to shareholder net worth:













Deferred acquisition costs
-

-

-

(54,498)

-

(54,498)


Financial reinsurance liability
-

-

-

(4,358)

-

(4,358)


Software asset adjustment
-

-

-

(5,004)

-

(5,004)


Adjustment to provisions on insurance contracts
-

2,602

-

-

-

2,602


Deferred tax
2,372

-

-

-

-

2,372


Policyholder funds
-

(14,807)

-

-

-

(14,807)


Other asset / liability adjustments
322

2

-

5,455

-

5,779


Adjusted shareholder net worth
58,856

75,994

39,242

(23,573)

-

150,519


In-force value of covered business
67,171

30,482

25,507

139,001

-

262,161


Embedded value of regulated entities
126,027

106,476

64,749

115,428

-

412,680


Less: amount financed by borrowings
-

(29,699)

(43,341)

-

-

(73,040)


Embedded value of regulated entities attributable to shareholders
126,027

76,777

21,408

115,428

-

339,640


Net equity of other Group companies
-

-

-

1,894

34,836

36,730


Total shareholders' equity
126,027

76,777

21,408

117,322

34,836

376,370















EEV free surplus, as shown above, represents the balance of the shareholder net worth above the capital required. The movement in free surplus is analysed as follows:













Six months ended 30 June 2014 (unaudited)
CA

S&P

PL

Movestic

Total



000

000

000

000

000


Free surplus at beginning of the period
32,386

44,750

1,397

17,969

96,502


Dividend paid to parent
(17,000)

(31,000)

-

-

(48,000)


Surplus arising in the period
15,878

209

3,160

(998)

18,249


Adjustments to required capital
(276)

1,366

795

2,349

4,234


Increase in policyholder funds cover for capital requirement
-

(179)

-

-

(179)


Free surplus at end of the period
30,988

15,146

5,352

19,320

70,806
























Six months ended 30 June 2013 (unaudited)
CA

S&P
PL
Movestic

Total



000

000
000
000

000


Free surplus at beginning of the period
37,142

27,513
-
15,127

79,782


Dividend paid to parent
(22,250)

(17,750)
-
-

(40,000)


Surplus arising in the period
4,295

20,670
-
2,979

27,944


Adjustments to required capital
(132)

346
-
134

348


Decrease in policyholder funds cover for capital requirement
-

(743)
-
-

(743)


Free surplus at end of the period
19,055

30,036
-
18,240

67,331























Year ended 31 December 2013
CA

S&P

PL

Movestic

Total



000

000

000

000

000


Free surplus at beginning of the year
37,142

27,513

-

15,127

79,782


Dividend paid to parent
(22,250)

(17,750)

-

-

(40,000)


Surplus arising in the year
14,303

31,246

191

2,350

48,090


Adjustments to required capital
3,191

4,284

1,206

492

9,173


Decrease in policyholder funds cover for capital requirement
-

(543)

-

-

(543)


Free surplus at end of the year
32,386

44,750

1,397

17,969

96,502













The movement in the in-force value of covered business comprises:













Six months ended 30 June 2014 (unaudited)












CA

S&P

PL

Movestic

Total



000

000

000

000

000


Value at beginning of period
67,171

30,482

25,507

139,001

262,161


Amount charged to foreign exchange reserve
-

-

-

(11,591)

(11,591)


Amount credited/(charged) to operating profit
7,536

6,249

(754)

15,704

28,735


Value at end of period
74,707

36,731

24,753

143,114

279,305


























Six months ended 30 June 2013 (unaudited)












CA

S&P

PL

Movestic

Total



000

000

000

000

000


Value at beginning of period
67,040

18,537

-

124,503

210,080


Amount charged to foreign exchange reserve
-

-

-

3,570

3,570


Amount credited/(charged) to operating profit
5,401

(551)

-

7,769

12,619


Value at end of period
72,441

17,986

-

135,842

226,269


























Year ended 31 December 2013












CA

S&P

PL

Movestic

Total



000

000

000

000

000


Value at beginning of year
67,040

18,537

-

124,503

210,080


Amount arising on acquisition
-

-

25,646

-

25,646


Amount charged to foreign exchange reserve
-

-

-

(1,491)

(1,491)


Amount credited/(charged) to operating profit
131

11,945

(139)

15,989

27,926


Value at end of year
67,171

30,482

25,507

139,001

262,161













S&P and PL
EEV shareholders equity for the S&P and PL segments is presented net of the borrowings that were used to fund their respective acquisitions.
Movestic
The adjusted shareholder net worth of Movestic is that of the regulated entity, which includes also the net worth attributable to the non-covered business within the regulated entity. Accordingly, for Movestic, the embedded value of regulated entities comprises the embedded value of covered business and the value of the non-covered business of the regulated entity, the latter component being valued on an IFRS basis.
6  Summarised statement of changes in equity and analysis of profit/(loss) 
(a) Changes in equity may be summarised as:











Statement of changes in equity
Six months ended
30 June (unaudited)

Year ended
31 December



2014

2013

2013



000

000

000


Shareholders' equity at beginning of the period


376,370



311,145



311,145


Profit for the period attributable to shareholders before modelling adjustments
47,287



35,429



82,694




Effect of modelling adjustments 
-



848



4,073




Profit for the period


47,287



36,277



86,767


Issue of new shares













Share premium


-



2



3


Sale of treasury shares


-



4



5


Foreign exchange reserve movement 


(10,044)



2,864



(1,451)


Dividends paid 


(13,357)



(12,921)



(20,099)


Shareholders' equity at end of the period


400,256



337,371



376,370















Effect of modelling adjustments
Year ended 31 December 2013
Positive modelling adjustments this period of 4.1m relate entirely to the Movestic business. These have arisen due to refinements being made to the way in which modelling of commission is performed, which is now performed at a more granular level.
UK
The CA and CWA EEV models previously assumed a single average rate of investment return for all durations as opposed to the use of a full yield curve. This approximation was reported in the EEV assumptions section 4(a) of the Supplementary Information within the Interim Financial Statements for the six months ended 30 June 2013. 
The effect of modelling adjustments is classified as an exceptional item in the consolidated income statement and is presented after operating profit.
(b) The profit/(loss) for the period before modelling adjustments is analysed as:

















Six months ended 30 June 2014 (unaudited)
CA

S&P

PL

UK
Total

Movestic

Other Group
Activities

 
Total



000

000

000

000

000

000

000


Covered business















New business contribution
378

6

-

384

5,787

-

6,171


Return from in-force business















Expected return
745

129

470

1,344

2,582

-

3,926


Experience variances
2,422

1,842

1,065

5,329

601

-

5,930


Operating assumption changes
22,719

(3,095)

1,383

21,007

(3,885)

-

17,122


Return on shareholder net worth
804

3,215

-

4,019

-

-

4,019


Operating profit of covered business
27,068

2,097

2,918

32,083

5,085

-

37,168


Variation from longer-term investment return
7,467

7,600

206

15,273

10,572

-

25,845


Effect of economic assumption changes
(1,311)

(3,048)

-

(4,359)

(253)

-

(4,612)


Profit of covered business before tax
33,224

6,649

3,124

42,997

15,404

-

58,401


Tax thereon






(10,306)

-

-

(10,306)


Profit of covered business after tax






32,691

15,404

-

48,095


Results of non-covered business and of other group companies 















Profit/(loss) before tax






-

2,092

(2,765)

(673)


Tax






-

(730)

595

(135)


Profit after tax






32,691

16,766

(2,170)

47,287


































Six months ended 30 June 2013 (unaudited)
CA

S&P

PL

UK
Total

Movestic

Other Group
Activities

 
Total



000

000

000

000

000

000

000


Covered business















New business contribution
386

7

-

393

2,336

-

2,729


Return from in-force business















Expected return
592

79

-

671

1,919

-

2,590


Experience variances
3,224

2,999

-

6,223

(4,693)

-

1,530


Operating assumption changes
1,217

768

-

1,985

(1,796)

-

189


Return on shareholder net worth
199

(2,483)

-

(2,284)

-

-

(2,284)


Operating profit of covered business
5,618

1,370

-

6,988

(2,234)

-

4,754


Variation from longer-term investment return
6,867

6,939

-

13,806

7,007

-

20,813


Effect of economic assumption changes
(392)

11,196

-

10,804

1,513

-

12,317


Profit of covered business before tax
12,093

19,505

-

31,598

6,286

-

37,884


Tax thereon






(2,450)

-

-

(2,450)


Profit of covered business after tax






29,148

6,286

-

35,434


Results of non-covered business and of other group companies 















Profit/(loss) before tax






-

1,046

(1,186)

(140)


 Exceptional profit arising on purchase of Protection Life





-

-

-

-


Tax






-

(142)

277

135


Profit after tax






29,148

7,190

(909)

35,429


































Six months ended 31 December 2013 
CA

S&P

PL

UK
Total

Movestic

Other Group
Activities

 
Total



000

000

000

000

000

000

000


Covered business















New business contribution
704

13

-

717

7,196

-

7,913


Return from in-force business















Expected return
1,389

151

61

1,601

3,929

-

5,530


Experience variances
7,590

4,695

-

12,285

(6,490)

-

5,795


Operating assumption changes
(4,295)

4,458

-

163

(10,233)

-

(10,070)


Return on shareholder net worth
185

(452)

-

(267)

-

-

(267)


Operating profit of covered business
5,573

8,865

61

14,499

(5,598)

-

8,901


Variation from longer-term investment return
22,394

11,414

-

33,808

20,838

-

54,646


Effect of economic assumption changes
(3,596)

22,463

-

18,867

(2,420)

-

16,447


Profit of covered business before tax
24,371

42,742

61

67,174

12,820

-

79,994


Tax thereon






(7,639)

-

-

(7,639)


Profit of covered business after tax






59,535

12,820

-

72,355


Results of non-covered business and of other group companies 















Profit/(loss) before tax






-

2,677

(4,953)

(2,276)


 Exceptional profit arising on purchase of Protection Life





-

-

12,283

12,283


Tax






-

(468)

800

332


Profit after tax






59,535

15,029

8,130

82,694

















The results of the non-covered business and of other group companies before tax and before exceptional item are presented as 'other operational result' in the consolidated income statement. 
7  Sensitivities to alternative assumptions
The following tables show the sensitivity of the embedded value as reported at 30 June 2014 and of the new business contribution of Movestic, to variations in the assumptions adopted in the calculation of the embedded value. Sensitivity analysis is not provided in respect of the new business contribution of CA for the six months ended 30 June 2014 as the reported level of new business contribution is not considered to be material (see Note 3(a)).










Embedded Value

New business contribution



UK business
Swedish business

Swedish business



CA 
Pre-tax

S&P
Pre-tax

PL
Pre-tax

Tax

UK
Post-tax

Post-tax





m

m

m

m

m

m
 
m


Published value as at 30 June 2014
158.7

82.1

67.2

26.0

282.0

122.0

2.3


















Changes in embedded value/new business contribution arising from:















Economic sensitivities















100 basis point increase in yield curve
(4.0)

11.7

(3.1)

(0.4)

4.1

0.1

(0.1)


100 basis point reduction in yield curve
4.3

(13.4)

3.4

0.3

(5.4)

(0.4)

0.1


10% decrease in equity and property values
(13.5)

(11.6)

-

2.6

(22.4)

(12.5)

(0.1)


Operating sensitivities















10% decrease in maintenance expenses
2.5

4.7

1.2

(0.7)

7.7

6.6

0.4


10% decrease in lapse rates
2.2

(0.7)

0.4

(0.3)

1.6

8.8

0.9


5% decrease in mortality/morbidity rates:















 Assurances
0.8

0.6

1.5

(0.4)

2.6

0.1

-


 Annuities
(1.4)

(0.3)

n/a

(0.3)

(1.9)

n/a

n/a


Reduction in the required capital to statutory minimum
0.4

0.8

1.2

(0.2)

2.1

-

-

















The key assumption changes represented by each of these sensitivities are as follows:
Economic sensitivities
(i) 100 basis point increase in the yield curve: The reference rate is increased by 1% and the rate of future inflation has also been increased by 1% so that real yields remain constant; 
(ii) 100 basis point reduction in the yield curve: The reference rate is reduced by 1% (with a minimum of zero to avoid negative yields where relevant) and the rate of future inflation has also been reduced by 1% so that real yields remain constant; and
(iii) 10% decrease in the equity and property values. This gives rise to a situation where, for example, a Managed Fund unit liability with a 60% equity holding would reduce by 6% in value. 
Operating sensitivities
(i) 10% decrease in maintenance expenses, giving rise to, for example, a base assumption of 20 per policy pa reducing to 18 per policy pa;
(ii) 10% decrease in persistency rates giving rise to, for example, a base assumption of 10% of policy base lapsing pa reducing to 9% pa;
(iii) 5% decrease in mortality/morbidity rates giving rise to, for example, a base assumption of 95% of the parameters in a selected mortality/morbidity table reducing to 90.25% of the parameters in the same table, assuming no changes are made to policyholder charges or any other management actions; and
(iv) the sensitivity to the reduction in the required capital to the statutory minimum shows the effect of reducing the required capital from that defined in Note 3(b) to the minimum requirement prescribed by regulation. 
In each sensitivity calculation all other assumptions remain unchanged except where they are directly affected by the revised economic conditions: for example, as stated, changes in interest rates will directly affect the reference rate. 
8  Reconciliation of shareholders' equity on the IFRS basis to shareholders' equity on the EEV basis















30 June 2014 (unaudited)
CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Shareholders' equity on the IFRS basis
71,712

69,331

57,463

59,405

(5,991)

251,920


Reclassifications













Debt finance
-

(29,747)

(43,443)

-

73,190

-


Other
(254)

-

-

-

254

-


Adjustments













Deferred acquisition costs
(3,763)

-

-

(24,964)

-

(28,727)


Deferred income
6,804

-

-

-

-

6,804


Adjustment to provisions on investment contracts, net of amounts deposited with reinsurers
(9,290)

-

-

-

-

(9,290)


Adjustments to provisions on insurance contracts, net of reinsurers' share
31

(19,107)

-

-

-

(19,076)


Acquired in-force value
(8,812)

(4,830)

(15,061)

(44,317)

-

(73,020)


Acquired value of customer relationships
-

-

-

(1,013)

-

(1,013)


Software assets
-

-

-

(4,348)

-

(4,348)


Adjustment to borrowings
-

-

-

(5,864)

-

(5,864)


Deferred tax
1,533

-

-

2,032

-

3,565


Shareholder net worth
57,961

15,647

(1,041)

(19,069)

67,453

120,951


Value of in-force business
74,707

36,731

24,753

143,114

-

279,305


Shareholders' equity on the EEV basis
132,668

52,378

23,712

124,045

67,453

400,256


Shareholder net worth comprises:













Shareholder net worth in regulated entities
57,961

45,394

42,402

(21,101)

-

124,656


Shareholders' net equity in other Group companies
-

-

-

2,032

67,453

69,485


Debt finance
-

(29,747)

(43,443)

-

-

(73,190)


Total
57,961

15,647

(1,041)

(19,069)

67,453

120,951






























30 June 2013 (unaudited)
CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Shareholders' equity on the IFRS basis
65,073

74,770

-

60,092

24,371

224,306


Reclassifications



? 
 








Debt finance
-

(29,747)

-

-

29,747

-


Other
(255)

-

-

-

255

-


Adjustments




-








Deferred acquisition costs
(4,332)

-

-

(21,029)

-

(25,361)


Deferred income
7,738

-

-

-

-

7,738


Adjustment to provisions on investment contracts, net of amounts deposited with reinsurers
(13,145)

-

-

-

-

(13,145)


Adjustments to provisions on insurance contracts, net of reinsurers' share
394

(4,245)

-

-

-

(3,851)


Acquired in-force value
(10,472)

(5,276)

-

(53,712)

-

(69,460)


Acquired value of customer relationships
-

-

-

(1,282)

-

(1,282)


Software assets
-

-

-

(5,555)

-

(5,555)


Adjustment to borrowings
-

-

-

(5,939)

-

(5,939)


Deferred tax
1,491

-

-

2,160

-

3,651


Shareholder net worth
46,492

35,502

-

(25,265)

54,373

111,102


Value of in-force business
72,441

17,986

-

135,842

-

226,269


Shareholders' equity on the EEV basis
118,933

53,488

-

110,577

54,373

337,371


Shareholder net worth comprises:




-








Shareholder net worth in regulated entities
46,492

65,249

-

(26,959)

-

84,782


Shareholders' net equity in other Group companies
-

-

-

1,694

54,373

56,067


Debt finance
-

(29,747)

-

-

-

(29,747)


Total
46,492

35,502

-

(25,265)

54,373

111,102






























31 December 2013 
CA

S&P

PL

Movestic

Other Group Activities

Total



000

000

000

000

000

000


Shareholders' equity on the IFRS basis
74,994

93,863

55,276

61,431

(38,462)

247,102


Reclassifications













Debt finance
-

(29,699)

(43,341)

-

73,040

-


Other
(258)

-

-

-

258

-


Adjustments













Deferred acquisition costs
(4,026)

-

-

(23,264)

-

(27,290)


Deferred income
7,261

-

-

-

-

7,261


Adjustment to provisions on investment contracts, net of amounts deposited with reinsurers
(11,020)

-

-

-

-

(11,020)


Adjustments to provisions on insurance contracts, net of reinsurers' share
33

(12,697)

-

-

-

(12,664)


Acquired in-force value
(9,751)

(5,172)

(16,034)

(49,873)

-

(80,830)


Acquired value of customer relationships
-

-

-

(1,164)

-

(1,164)


Software assets
-

-

-

(5,004)

-

(5,004)


Adjustment to borrowings
-

-

-

(5,913)

-

(5,913)


Deferred tax
1,623

-

-

2,108

-

3,731


Shareholder net worth
58,856

46,295

(4,099)

(21,679)

34,836

114,209


Value of in-force business
67,171

30,482

25,507

139,001

-

262,161


Shareholders' equity on the EEV basis
126,027

76,777

21,408

117,322

34,836

376,370


Shareholder net worth comprises:













Shareholder net worth in regulated entities
58,856

75,994

39,242

(23,573)

-

150,519


Shareholders' net equity in other Group companies
-

-

-

1,894

34,836

36,730


Debt finance
-

(29,699)

(43,341)

-

-

(73,040)


Total
58,856

46,295

(4,099)

(21,679)

34,836

114,209















9  Profit recognised on business combination
During the year ended 31 December 2013 an EEV profit arose as a result of the purchase of 100% of the share capital of Protection Life Company Limited on 28 November 2013. The profit was measured as the difference between the purchase consideration of 39,300,000 and the European Embedded Value of Protection Life at the purchase date, being 51,583,000, which was established in accordance with the methodology set out in Notes 2 to 4 of the EEV supplementary financial information.
10  Earnings per share










Unaudited
Six months ended
30 June

Year
ended 
31 December



2014

2013

2013



p

p

p










Basic earnings per share







Based on profit for the period
41.17

31.59

75.55


Based on profit for the period before exceptional item
41.17

30.85

72.00


Diluted earnings per share







Based on profit for the period
41.17

31.59

75.55


Based on profit for the period before exceptional item
41.17

30.85

72.00









11  Foreign exchange translation reserve
A foreign exchange translation reserve arises on the translation of the financial statements of Movestic, the functional currency of which is the Swedish Krona, into pounds sterling, which is the presentational currency of the Group financial statements. Items in the consolidated income statement are translated at the average exchange rate of SEK 10.9034 = 1 ruling in the six months ended 30 June 2014 (year ended 31 December 2013: SEK 10.1901 = 1), while all items in the balance sheet are stated at the closing rates ruling at the reported balance sheet date, being SEK 11.4339 = 1 at 30 June 2014 (SEK 10.5919 = 1 at 31 December 2013). The differences arising on translation using this methodology are recognised directly in shareholders' equity within the foreign exchange translation reserve.
The reported embedded value is sensitive to movements in the SEK:  exchange rate. Had the exchange rate as at 30 June 2014 been 10% higher at SEK 12.5773 = 1, then the reported embedded value of 400.3m as at 30 June 2014 would have been reported as 388.2m.
additional information
BOARD OF DIRECTORS
Peter Masonwas appointed as Chairman of Chesnara plc and Chairman of the Nomination Committee on 1 January 2009 and was appointed as Chairman of Movestic Livfrskring AB with effect from 23 July 2009. He is also a member of the Remuneration Committee. He was the Investment Director and Actuary of Neville James Group, an investment management company and was admitted as a Fellow of the Institute of Actuaries in 1979. He has over 40 years' experience in financial services and held several non-executive posts within the industry.
Graham Kettleboroughis the Chief Executive of Chesnara plc. He joined Countrywide Assured plc in July 2000 with responsibility for marketing and business development and was appointed as Managing Director and to the Board in July 2002. He was appointed as a Non-executive Director of Movestic Livfrskring AB and as Chairman of Movestic Kapitalfrvaltning AB with effect from 23 July 2009. He has lifetime experience in the financial services industry, primarily in customer service, marketing and product and business development, gained with Scottish Provident, Prolific Life, City of Westminster Assurance and Target Life.
Frank Hughesis the Business Services Director of Chesnara plc. He joined Countrywide Assured plc in November 1992 as an IT Project Manager and was appointed to the Board as IT Director in May 2002. He has 26 years' experience in the life assurance industry gained with Royal Life, Norwich Union and CMG.
Peter Wrightis an Independent Non-executive Director who was appointed to the Chesnara plc Board on 1 January 2009. At the same date he was appointed as Chairman of the Audit & Risk Committee. He was appointed as a member of the Nomination Committee with effect from 9 July 2009. He retired as a Principal of Towers Perrin on 1 January 2008 and is a former Vice President of the Institute of Actuaries, having been admitted as a Fellow in 1979. He is Chairman of the Risk Committee and of the With-profits Committee of Countrywide Assured plc.
Veronica Franceis an Independent Non-executive Director who was appointed to the Chesnara plc Board on 16 January 2013. She serves on the Nomination and Audit & Risk Committees and took over the role of Chairman of the Remuneration Committee when Mike Gordon stepped down on 17 May 2013. She is currently a Non-executive Director of Family Assurance where she is a member of their Risk & Audit and Nominations Committees and chairs their Remuneration Committee. Having held a number of positions within life companies, including Marketing Director, in 1992, Veronica set up her own financial services consultancy business advising on strategy, business development, product development and related activities. Veronica was Chairman of the trade body, the Investment and Life Assurance Group in 2002/3 and served on its Management Committee for over ten years before stepping down in 2010.
David Brandis an Independent Non-executive Director who was appointed to the Chesnara plc Board and the Board of Movestic Livfrskring AB on 16 January 2013. He serves on the Nomination, and Audit & Risk Committees. He was appointed as a Non-executive Director at Exeter Friendly Society in January 2014, where he sits on the Audit, Risk and Compliance Committee and the Investment Committee. He is a qualified actuary who, prior to his retirement in June 2012, had worked for the Hannover Re Group in the UK, acting as the Managing Director of the UK life reinsurance subsidiary since 2003. David had been with the company since 1988, and a Director since 1990. During his career David has also held various roles with the Institute of Actuaries, including being a member of Council and he also served on the ABI Health Committee from 2006 to 2012.
Mike Evansis currently non-executive Chairman of Hargreaves Lansdown plc, a FTSE 100 listed company, a position he has held since 2009. He chairs their Nomination Committee and sits on their Remuneration Committee. He originally joined the Hargreaves Lansdown Board as a Non Executive Director in 2006. Mike is also non-executive Chairman of Zoopla Property Group plc and a Non Executive Director of esure Group plc. In addition he is a member of the advisory board of Spectrum Corporate Finance and he is a Trustees of Wessex Heartbeat, a charity associated with cardiac care in Southampton. Mike is a qualified Actuary and served in a number of Director level positions within Skandia UK between 1991 and 2006.
David Rimmingtonwas appointed as Group Finance Director with effect from 17 May 2013. He trained as a chartered accountant with KPMG, has more than 17 years' experience in financial management within the life assurance and banking sectors and has had a significant role in a number of major acquisitions and business integrations. Prior to joining Chesnara plc in 2011 as Associate Finance Director David held a number of financial management positions within the Royal London Group including 6 years as Head of Group Management Reporting.
financial calendar
29 August 2014
Interim results for the six months ending 30 June 2014 announced.
10 September 2014
Ex dividend date.
12 September 2014
Dividend record date.
15 October 2014
Interim dividend payment date.
19 November 2014
Interim Management Statement for the quarter ending 30 September 2014 announced.
31 March 2015
Results for the year ending 31 December 2014 announced.
key contacts
Registered and Head Office
Harbour House
Portway
Preston
Lancashire
PR2 2PR
Tel: 01772 840000
Fax: 01772 840010
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
PO Box 500
2 Hardman Street
Manchester
M60 2AT
United Kingdom 
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Stockbrokers
Panmure Gordon
One New Change
London
EC4M 9AF
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Bankers
National Westminster Bank plc
135 Bishopsgate
London
EC2M 3UR
The Royal Bank of Scotland
8th Floor, 135 Bishopsgate
London
EC2M 3UR
Lloyds TSB Bank plc
3rd Floor, Black Horse House
Medway Wharf Road
Tonbridge
Kent
TN9 1QS
Public Relations Consultants
Newgate Threadneedle
5th Floor
33 King William Street
London
EC4R 9AS
Corporate Advisors
Canaccord Genuity Limited 
88 Wood Street
London
EC2V 7QR
GLOSSARY
ABI
Association of British Insurers - Represents the collective interests of the UK's insurance industry

London Stock Exchange
London Stock Exchange plc
.
AGM
Annual General Meeting.

LTICR
Long-Term Insurance Capital Requirement - Capital required to be held for regulatory purposes in respect of investment, expense and insurance risks.
ALM
Asset Liability Management - management of risks that arise due to mismatches between assets and liabilities.

LTI
Long-Term Incentive Scheme - A reward system designed to incentivise employees' long-term performance.
APE
Annual Premium Equivalent - an industry wide measure that is used for measuring the annual equivalent of regular and single premium policies.

MCEV
Market Consistent Embedded Value.
ASB
Accounting Standards Board

MECR
Mortgage Endownment Complaints Reserve
CA
Original business of Countrywide Assured plc



CWA
Original business of City of Westminster Assurance Company Limited



CAplc
Countrywide Assured plc;

Movestic
Movestic Livfrskring AB.
CALH
Countrywide Assured Life Holdings Limited and its subsidiary companies.

Modernac
Modernac SA , an associated company which is 49% owned by Movestic.
Directors or Board
the directors of the Company as at the date of this document whose names are set out in the Board of Directors section of this document.

Official List
the Official List of the Financial Conduct Authority.
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.

Ordinary Shares
ordinary shares of five pence each in the capital of the Company.



ORSA
Own Risk and Solvency Assessment
EEV
European Embedded Value.

PRA
the Prudential Regulation Authority.
FCA
the Financial Conduct Authority



FI
Finansinspektionen, being the Swedish Financial Supervisory Authority.

PL
Protection Life Company Limited
Form of Proxy
the form of proxy relating to the General Meeting being sent to Shareholders with this document.

RCR
Risk Capital Requirement - additional amounts of capital required to be held for regulatory purposes as a result of two stress tests.
FRS
Financial Reporting Standards



FSA
the Financial Services Authority



FSMA
the Financial Services and Markets Act 2000 of England and Wales, as amended.

Resolution
the resolution set out in the notice of General Meeting set out in this document.
GCR
Group Capital Resources - in accordance with the UK's regulatory regime for insurers it is the sum of the individual capital resources for each of the regulated related undertakings less the book-value of investments by the Group in those capital resources.

Shareholder(s)
holder(s) of Ordinary Shares.
GCRR
Group Capital Resource Requirement - in accordance with the UK's regulatory regime for insurers it is the sum of individual capital resource requirements for the insurer and each of its regulated undertakings.

Solvency II
A fundamental review of the capital adequacy regime for the European insurance industry. Solvency II aims to establish a set of EU-wide capital requirements and risk management standards that will replace the current Solvency I requirements.
Group
the Company and its existing subsidiary undertakings.

STI
Short-Term Incentive Scheme - A reward system designed to incentivise employees' short-term performance.
Guardian
Guardian Assurance plc.

Swedish Business
Movestic and its subsidiaries and associated companies.
HCL
HCL Insurance BPO Services Limited.

S&P
Save & Prosper Insurance Limited and Save & Prosper Pensions Limited.
IAS
International Accounting Standards

SPI
Original business of Save & Prosper Insurance Limited
IFRIC
International Financial Reporting Interpretations Committee

SPP
Original business of Save & Prosper Pensions Limited
IFRS
International Financial Reporting Standards.

TCF
Treating Customers Fairly - a central PRA principle that aims to ensure an efficient and effective market and thereby help policyholders achieve a fair deal.
IFA
Independent Financial Adviser

TSR
Total Shareholder Return , measured with reference to both dividends and capital growth.
IGD
Insurance Groups Directive - The European directive setting out the current capital adequacy regime for insurance groups.

UK or United Kingdom
the United Kingdom of Great Britain and Northern Ireland.
KPI
Key performance indicator

UK Business
CA, S&P, CALH and PL.
IFA
Independent Financial Advisor

VIF
Value of In-force business 

This information is provided by RNS
The company news service from the London Stock Exchange
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