Final Results

RNS Number : 6231T

Chesnara PLC

31 March 2016

Chesnara plc

31 March 2016

"Another year of solid delivery on our core strategic objectives and a smooth transition to Solvency II."

Chesnara today reported results for the year ended 31 December 2015. The Group remains committed to delivering competitive returns to both its shareholders and policyholders, and continues to focus on:

· Maximising value from the existing books of business.

· Making further life and pensions acquisitions where they meet stringent assessment criteria.

· Value enhancement through writing profitable new business in Sweden.

Financial Highlights

· Gross cash generation of £44.2m (2014: £42.6m). This represents the cash generated from the day to day operations of our businesses. Strong cash generation from the UK business has continued and Movestic has made its first positive contribution (£5.1m).

· Acquisition of the Waard Group has added a further £39.9m of cash.

· 2.9% increase in total dividend. Recommended final dividend of 12.33p per share results in total dividend for the year of 18.94p per share (2014: 18.40p per share). 2.9% increase represents the eleventh successive rise in annual dividends.

· IFRS profit before tax of £42.8m (2014: £28.8m). Strong underlying IFRS profit supplemented by a profit of £16.6m in relation to the acquisition of the Waard Group.

· EEV earnings net of tax of £57.5m (2014: £44.2m). Strong EEV earnings supported by £21.3m gain on acquisition of Waard Group and continuation of new business profit from Movestic.

· EEV of £455.2m (31 December 2014: £417.2m). Growth of 9% includes earnings of £57.5m, offset by dividend payments of £23.5m.

· Movestic EEV new business contribution of £5.7m (2014: £8.9m). Decrease driven by a combination of lower volumes of new policies and margin pressure from competitive market.

· Group Solvency I ratio increased to 305% (31 December 2014: 284%). Capital resources of the Group have grown over the year as surplus has emerged from the life insurance companies within each division.

· Group Solvency II ratio of 146%. The Group remains well capitalised under Solvency II (see note 1). We have applied the "standard formula" and have not used transitional arrangements or any elements of the long-term guarantee package.

Operational Highlights

· Completed acquisition of the Waard group during the year. The Waard Group acquisition received regulatory approval in the period and was completed on 19 May 2015.

· Value enhancing opportunities in the UK and Netherlands continue to be sought and examined. The purchase of the Waard Group has opened up a new territory for the Group to focus on in delivering its acquisition strategy.

· Enhancements to governance model. This included completion of the Governance maps across the Group and its divisions, development of divisional and Group-wide ORSA processes and improvements to our risk management framework.

· Completion of Solvency II readiness programme. Significant effort has been put in across the Group to ensure that we were ready for Solvency II going live on 1 January 2016. The development programme was completed in the year.

Note 1: As is this case for most of the Life Assurance sector this is the first time that Chesnara has reported its Solvency II position. The impact of Solvency II at a Group level is to increase both the capital resources and the capital requirement of the Group as a whole. Consistent with the sector as a whole, this has resulted in a reduced solvency ratio when expressed in percentage terms. The quoted Solvency II numbers have not been audited and are due to be delivered to our Group Supervisor, the Prudential Regulation Authority, by 1 July 2016.

John Deane, Chief Executive said:

'Chesnara has a very clear strategic focus: delivering value from the existing books of business, making strategic acquisitions in the life and pensions sector and writing profitable new business in Sweden. 2015 has seen delivery in all three areas: The acquisition of the Waard Group has generated significant cash and, of equal importance, our entry to the Dutch market has enhanced the outlook for our ongoing acquisition strategy. Movestic has continued to grow and has made a material contribution to the Group's cash generation. We have completed our implementation work on Solvency II and remain well-capitalised under the new regime.

Regarding the UK operations, I note our announcement made on 3 March 2016 regarding the FCA's investigation into whether disclosure of paid up and early transfer charges to the customers of Countrywide Assured and other providers was adequate to enable those customers to make informed decisions. We will of course co-operate fully with the FCA in its investigation. We also note that no conclusion has yet been reached as to whether there have been any breaches of regulatory requirements within CA.

In light of the good financial results in the year the Board is pleased to recommend a final dividend of 12.33p per share, resulting in a full year dividend increase of 2.9% over 2014.'

The Board approved this statement on 30 March 2016.

Enquiries

John Deane, Chief Executive, Chesnara plc: 01772 972079

Roddy Watt, FWD: 0207 280 0651 / 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'), Movestic Livförsäkringar AB ('Movestic') and Chesnara Holdings BV ('The Waard Group').

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. On 31 December 2014 the PL business transferred into CA plc. 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 Försäkringar Liv AB which has a risk and health product bias.

The Waard Group, a Dutch life assurance company, was acquired on 19 May 2015 for £50.1 million. The Waard Group, comprising Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V. and Tadas Verzekeringen B.V. was previously owned by DSB Beheer B.V., a Dutch financial services Group. The policy base of the Waard Group is predominantly term life policies, with some unit linked policies and some non-life policies.

Further details are available on the Company's website (www.chesnara.co.uk).

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, Dutch 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; City of Westminster Assurance Company Limited, which was acquired by the Group in 2005, the long-term business of which was transferred to Countrywide Assured plc during 2006; and Protection Life Company Limited which was acquired by the Group in 2013, the long-term business of which was transferred into Countrywide Assured plc in 2014;

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;

Movestic, which was purchased on 23 July 2009 and comprises the Group's Swedish business, Movestic Livförsäkring AB and its subsidiary and associated companies;

The Waard Group, which was acquired on 19 May 2015 and comprises three insurance companies; Waard Leven N.V., Hollands Welvaren Leven N.V. and Waard Schade N.V.; and a service company, Tadas Verzekering; and

Other Group Activities; which represents the functions performed by the parent company, Chesnara plc. Also included in this segment are consolidation adjustments.

Following the Part VII transfer on 31 December 2014 of the long-term business of Protection Life Company Limited into Countrywide Assured plc, the business of Protection Life (PL) is now reported within the CA segment, effective from 1 January 2015. Previously PL was reported as a separate segment. Comparative information has been restated to reflect this change.

In this preliminary announcement:

(i) The CA & S&P 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) The Waard Group segment may also be referred to as the 'Dutch Business';

(iv) 'CA plc' refers to the legal entity Countrywide Assured plc, which includes the long term business of CA, CWA, S&P and PL;

(v) 'CWA' refers to the long-term of City of Westminster Assurance Company Limited, which subsides within Countrywide Assured plc;

(vi) 'S&P' refers collectively to the original business of Save & Prosper Insurance Limited and Save & Prosper Pensions Limited, which subsides within Countrywide Assurance plc;

(vii) 'PL' refers to the long term business that was, prior to Part VII transfer into CA plc on 31 December 2014, reported in Protection Life Company Limited and was reported as a separate segment for IFRS reporting purposes;

(viii) 'PL Ltd' refers to the legal entity Protection Life Company Limited;

(ix) 'Movestic' may also refer to Movestic Livförsäkring AB, as the context implies; and

(x) 'Acquisition of Waard Group' refers to the purchase of the Waard Group, based in the Netherlands, on 19 May 2015.

2015 HIGHLIGHTS

FINANCIAL

£42.8M IFRS PRE-TAX PROFIT

IFRS pre-tax profit for the year ended 31 December 2015 of £42.8m (year ended 31 December 2014: £28.8m).

£44.2M GROSS CASH GENERATION (NOTE 2)

Gross cash generated in the year of £44.2m (year ended 31 December 2014: £42.6m).

£82.4M NET CASH GENERATION (NOTE 2)

Net cash generation of £82.4m (2014: £71.1m) includes £44.2m of gross cash generation and £39.9m of cash generation arising on the acquisition of the Waard Group.

£455.2M EEV

Increase in EEV of £38.0m from £417.2m at 31 December 2014 to £455.2m at 31 December 2015, stated after dividend distributions of £23.5m in the year.

£57.5M EEV EARNINGS AFTER TAX

EEV earnings net of tax of £57.5m (year ended 31 December 2014: £44.2m), before modelling adjustments.

£5.7M MOVESTIC EEV NEW BUSINESS CONTRIBUTION

Movestic has generated a new business contribution of £5.7m in the year (year ended 31 December 2014: £8.9m).

305% SOLVENCY I

Strong Insurance Group Directive solvency cover of 305% (31 December 2014: 284%).

146% SOLVENCY II

Group Solvency II ratio of 146% does not use any elements of the Long Term Guarantee Package, including transitional arrangements.

2.9% FULL YEAR DIVIDEND INCREASE

Total dividends for the year increased by 2.9% to 18.94p per share (6.61p interim and 12.33p proposed final). This compares with 18.40p per share in 2014 (6.42p interim and 11.98p final).

OPERATIONAL AND STRATEGIC

COMPLETED ACQUISITION OF THE WAARD GROUP DURING THE YEAR

The Waard Group acquisition, announced in December 2014, received regulatory approval in the period and was completed on 19 May 2015.

ENHANCEMENTS TO GOVERNANCE MODEL

Enhancements to our governance model have been made during the year. This has included the completion of Governance Maps across the Group and its divisions, the development of divisional and Group-wide ORSA processes and improvements to our risk management framework following the recruitment of a Group CRO.

COMPLETION OF SOLVENCY II READINESS PROGRAMME

During the year significant effort has been put in across the Group to ensure that we were ready for Solvency II going live on 1 January 2016. The development programme was completed in the year.

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.

2. Gross and net cash generation are defined as follows:

i. Gross cash generation:

This represents the operational cash that has been generated in the period. The cash generating capacity of the Group is largely a function of the movement in the solvency position of the insurance subsidiaries within the Group, and takes account of the buffers that management has set to hold over and above the solvency requirements imposed by our regulators.

ii. Net cash generation:

This represents the cash that has become available for distribution to shareholders during the period. It builds on "gross cash generation" and makes adjustments for items (either positive or negative) that affect the availability of cash for distribution. For example, capital releases arising from capital restructuring and one-off cash generation from acquisitions.

iii. Both the gross and net cash generation measures above have been determined with reference to the Solvency I regulatory framework.

3. The Solvency II numbers referred to in the highlights above and throughout the rest of this document have not been subject to external audit. Our first solo Solvency II reporting to our local regulators is due on 19 May 2016.

CHAIRMAN'S STATEMENT

"2015 has been a busy and successful year for Chesnara. The UK business has generated cash in line with expectations and at a level sufficient to support Chesnara's dividend by itself. The acquisition of the Waard Group has created significant cash resource and, of equal importance, our entry to the Dutch market has enhanced the outlook for our ongoing acquisition strategy. Movestic has continued to grow and has begun to make a material contribution to the Group's cash generation. Lastly, we have delivered our Solvency II readiness programme and remain well-capitalised under the new regime, with a ratio of 146%. We have not used transitional arrangements and the ratio is stated after the proposed final dividend."

I start my Chairman's statement by reviewing how Chesnara has delivered against its three core strategic objectives and how it has done so remaining true to its well established culture and values of treating customers fairly and adopting a robust approach to regulatory compliance.

MAXIMISE VALUE FROM EXISTING BUSINESS

£44.2m of gross cash generation which includes a positive contribution from Movestic of £5.1m.

ACQUIRE LIFE AND PENSIONS BUSINESSES

Completion of the Waard Group acquisition, resulting in recognition of one-off cash generation item of £39.9m.

ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS

New business profits of £5.7m in Movestic continue to contribute Embedded Value growth although profits are down compared to prior year (2014: £8.9m). New business also contributes to growth in funds under management.

Maximise value from existing business

Our existing books have performed well in the year. The UK business has reported marginally positive economic profits despite there being a continued level of short term volatility. Although the UK business remains the primary source of dividend funding, the continued growth in Movestic fund values and income flows has resulted in Movestic beginning to make a material positive contribution to the Group's cash generation model.

We expect the transition to SII to create a further short-term increase in surplus capital within our divisions and hence additional cash distribution potential. Our 2015 cash generation results do not recognise this potential additional divisional cash. We intend to defer recognition until we have a fully audited Solvency II balance sheet and a full understanding of any potential barriers to the additional surplus becoming available for distribution.

The embedded values of the in-force books have also increased during the year. In particular the value of Movestic has benefitted from increases in income derived from an 11% growth in funds under management.

Acquire life and pensions businesses

The completion of the acquisition of the Waard Group has had a material positive impact on the Group's financial position and acquisition outlook.

The Waard Group is well capitalised and the surplus of £44.2m over and above our target capital requirements represents a future source of cash. This will either support the Chesnara dividend or fund further acquisitions. The acquisition also increased the Group's embedded value by £21.3m.

Net cash generation of £82.4m which includes gross cash of £44.2m from the existing business and £39.9m from the Waard Group acquisition.

Enhance value through new business

The downturn in new business profits from Movestic is slightly disappointing; however the level of profit in the year remains very much in line with Chesnara's strategic positioning. Profit from new business is only one aspect of the Movestic overall profit growth and other aspects such as continued funds under management growth and an increase in average fees more than compensate for the small downturn in the value of new business. Our future expectations from new business remain to deliver modest profits from a realistic market share of 10-15% of our target market (average 2015 market share of 11.7%) and the new business will support the overall growth of the Movestic funds.

Solvency II

Over recent years Solvency II has created a great deal of work and also a degree of uncertainty across the industry. I am pleased to report that there is now clear light at the end of the Solvency II tunnel. Despite the significant effort associated with Solvency II we have not lost focus on our core business objectives. The fact that Solvency II has been delivered during a period which included two successful acquisitions, continued Movestic growth and UK cash emergence at levels higher than expected, is testament to the strength of the Chesnara business model and also the dedication and abilities of the entire Chesnara team and our outsource partners. Importantly, we also assess the outcome from the transition to Solvency II to be positive, in that:

- The Group Solvency II ratio is significantly in excess of both statutory and internal Board requirements, which are set at a higher hurdle rate for the purposes of managing the day to day business.

- The absolute level of surplus over and above the internal Board requirement is broadly consistent between Solvency I and Solvency II at a divisional level, with the total Group surplus under Solvency II remaining healthy.

- The Risk and Governance requirements under Solvency II have always aligned well with the established Chesnara approach. Solvency II does require an increased level of formality, transparency and rigour which, if operated efficiently, will enhance the Chesnara governance framework.

- The capital requirements model under Solvency II creates a clear and transparent link between the business model and the resultant capital required. This will help the Board better understand how the risks within the business and any decisions we make impact capital and solvency. This will in turn improve risk-based decision making and enhance capital management.

- We have delivered Solvency II in a very cost effective manner.

Regulation

Compliance with regulation remains a priority for the Group, not least Solvency II. We have continued to maintain a positive and constructive relationship with regulatory bodies across the Group.

Within the UK the FCA has recently issued its report regarding the "Fair treatment of long-standing customers in the life insurance sector". At the time of this report the findings are subject to a three month consultation period. As a result of this review the FCA announced the launch of an investigation into whether disclosure of paid up and early transfer charges to the customers of Countrywide Assured and other providers was adequate to enable those customers to make informed decisions.

We will of course co-operate fully with the FCA in its investigation. We also note that no conclusion has yet been reached as to whether there have been any breaches of regulatory requirements within CA.

With regards to the broader review, we would envisage it will result in the need for changes to processes and customer communications to meet these new best practice standards. We will fully commit to any such industry enhancement programme when the scope and expectations are better known post consultation and whilst we expect there will be a cost for this work we do not expect it will have a material impact on our financial model.

During July 2015 the Government launched a consultation linked to the new pension freedoms introduced in the UK, entitled "Pension transfers and early exit charges". In the consultation response the Government has indicated that it has passed legislation to enable the FCA to consider whether caps on certain exit charges should be introduced, and at what level. To date we have supported the ABI acting on behalf of the industry as a whole in relation to this subject, and will support the FCA in delivering the work it has been charged with performing following the Government's consultation. Analysis indicates that should exit fees on pension policies be capped at 5% then the impact on the embedded value of Chesnara is not material.

Investment proposition

The performance in the year has resulted in strong returns to shareholders in the form of the continuation of our attractive dividend strategy whilst also ensuring we retain sufficient resources to support future growth.

5.7% dividend yield

based on share price at 31 December 2015

People

Chesnara's success has always been built upon a culture whereby the Board, management and staff all recognise their responsibility of safe-guarding the interests of our stakeholders. We have always placed a high importance on transparency and integrity and managing the business in a compliant and responsible manner. Continuity of culture is a challenge particularly when we make acquisitions or when there is a change in Senior Management. In light of this I am particularly pleased to report that John Deane, appointed as our new CEO at the beginning of the year, has done an excellent job in his first year, building upon all the positive qualities that have served Chesnara well over the years. As we have integrated the Waard Group it has become clear that local management fit very well into the Chesnara culture. They operate in a professional and transparent manner giving full regard to regulatory compliance.

Governance and Risk Management

During the year we have developed and embedded Governance Maps across the Group. We have also invested significant time in the production of revised principles and policies. These developments will ensure robust and consistent governance and capital management across the enlarged Chesnara Group.

Chesnara has always given appropriate consideration to the risks to which the business is exposed. To further enhance our management of risk we have recruited a Group Chief Risk Officer during the year. The new Group Chief Risk Officer has taken a lead role in the development of risk appetite statements, our Own Risk and Solvency Assessments (ORSAs) and is well on the way to enhancing our risk management framework across the group.

The improved risk management processes together with the continued Board focus on risk assessment means high quality risk management will continue to be a key strength at the heart of Chesnara's ongoing success.

Outlook

Much has been said regarding the potential impact on British industry should the referendum in July regarding British membership of the EU result in a "leave" vote. The longer term economic impacts of staying in the EU or leaving remain uncertain and as a result we continue to monitor the situation closely. We do, however, believe that the impact of a "leave" vote will not materially affect Chesnara's business.

Our financial and governance foundations are strong and our existing books continue to generate reassuring levels of cash. In addition, with more certainty about the impact of Solvency II across the industry and with our entry to the Dutch market, the acquisition outlook is increasingly positive. I am therefore confident that Chesnara can continue to deliver against its strategic objectives and provide value to policyholders and shareholders.

Peter Mason

Chairman

30 March 2016

MANAGEMENT REPORT

BUSINESS REVIEW

OVERVIEW OF STRATEGY

Our strategy focuses on delivering value to shareholders and policyholders. The strategy is delivered through a proven business model underpinned by a robust risk management and governance framework (now based on SII requirements) and by adapting our established culture and values.

Strategic objectives:		Maximise value from existing business		Acquire Life and Pension businesses		Enhance value through profitable new business
Business Model
Culture & values:	Maintain adequate financial resources		Fair treatment of customers		Provide a competitive return to shareholders		Robust regulatory compliance
Responsible risk-based management

MAXIMISE VALUE FROM EXISTING BUSINESS | UK

"Value has continued to emerge from the UK business across all key financial metrics."

Highlights

- Completion of Governance Map during the year.

- No significant impact following pension freedoms introduction to date.

- Good gross (operational) cash generation of £42.5m underpinning net cash generation of £40.8m.

- Solvency II ready.

Review of the year

The UK business has seen some significant internal changes during 2015, mainly arising through preparing for a number of regulatory changes impacting the business. This has included Solvency II, which applied from 1 January 2016, the application of the Senior Insurance Managers Regime (SIMR), coupled with ensuring that our operations and processes were appropriately adapted to support the enactment of increased freedoms given to policyholders with pension products. During the year Management has continued to support any open regulatory matters, including a review into exit and transfer charges on pension products and the FCA's review on the fair treatment of long-standing customers.

The operational changes that have been made in relation to Solvency II and the SIMR are very positive to the business and continue to support our objective of value maximisation. For example Solvency II introduces, through the ORSA process, improved linkage between assessing / managing risk and decision making. The development of a UK Governance Map to support a Group-wide Governance Map implementation programme helped prepare the division for the implementation of the SIMR on 7 March 2016. Good Governance is central to ensuring that our business is well controlled and in particular will bring enhancements to our risk management framework and reporting of risk, something that will continue to be developed and implemented during 2016, led by our new Chief Risk Officer.

Solvency II has also introduced a new lens through which Management looks at the regulatory capital of the UK business, where the "standard formula" is applied. Further insight on the quantitative impact of moving from Solvency I to Solvency II can be found below.

As a predominantly outsourced operation a key part of managing value is through having well controlled oversight over our outsource providers, who cover policyholder administration, accounting, actuarial and investment management services. Our contracts are managed through regular relationship meetings and are underpinned by robust contractual Service Level Agreements (SLAs) which encompass a variety of quality, risk management, regulatory compliance and policyholder treatment measures. The investment management outsourcing is overseen by CA plc's Investment Committee. Our outsourcers have continued to deliver strongly across all service targets.

Following the Part VII transfer of the Protection Life business into CA plc on 31 December 2014 the de-regulation process of Protection Life Company Limited has now been completed, thereby making £2.9m of additional capital available to the Group.

Financial performance

The UK business has continued to deliver strongly across its key financial metrics of Solvency, IFRS profit, EEV profit, and Cash Generation. Further analysis behind these metrics can be found below.

Value driver metrics

Unit-linked funds under management

The levels of unit-linked funds under management continue to support the on-going level of profitability of the UK business, 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.

The reduction in funds under management during the year is primarily driven by the reduction in policy numbers. Investment markets during 2015 have displayed volatility, but closed broadly in line with the start of the year.

Fund performance

Despite volatile global equity markets the performance of our investment management partners has contributed to positive returns in our main managed funds during the year ended 31 December 2015 though below the benchmark for the CA Pension Managed fund and CWA Balanced Managed fund. The last times these funds were below benchmark were 2011 and 2013 respectively.

Policy attrition

As a closed book policy numbers are expected to reduce over time. The reduction in policy numbers in 2015 is marginally up compared with the prior year. The impact of the new pension freedoms on policyholder attrition levels has been closely monitored by Management and, whilst a small "spike" was witnessed, the overall policy count reduction year on year is only slightly up, increasing from 6.9% to 7.5%.

Risks associated with the strategic objective

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 falls or when, particularly for those guarantees expressed as an amount of pension, bond yields fall. To mitigate this risk assets held by shareholders to provide security for these guarantees are invested in cash and long bonds. Consequently our results will be negatively affected by falls in equity values, which impact assets backing policyholder liabilities, and/or falls in bond yields, which impact 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.

Increased lapses on cash generative products are also a risk to the delivery of this strategic objective. This risk is managed through:

- Close monitoring of persistency levels.

- Active investment management with the aim of delivering competitive policyholder investment returns.

- Outsourcer service levels that ensure strong customer service standards.

- Customer retention processes.

Unit-linked funds under management (£m)

2015

£m

2014

£m

Total UK

2,083

2,300

Fund performance (annual return)

	2015	2014
CA Pension Managed	1.9%	7.0%
CWA Balanced Managed Pension	1.7%	8.2%
S&P Managed Pension	4.7%	6.9%
Benchmark - ABI Mixed Inv 40%-85% shares	2.4%	5.0%

Annual policy attrition rate, based on policy count

	2015	2014
CA	8.1%	7.7%
S&P	6.5%	5.5%
Total UK	7.5%	6.9%

MAXIMISE VALUE FROM EXISTING BUSINESS | SWEDEN

"Strong value emergence has driven growth in assets under management and improvements in performance fee rebates."

Highlights

- Division has generated positive cash results in the year.

- Improved performance fee rebate levels.

- Continued good growth in assets under management.

- Solvency II ready.

Review of the year

The Swedish Division has delivered strong growth during the year supporting the Group's strategic objective of maximising value from its existing businesses. Two key factors have driven this value generation:

(i) improved fund performance fee rebates as a result of various investment management changes that were made during late 2014 and have continued into 2015; and

(ii) good growth in funds under management.

Being able to provide a wide range of funds to its policyholders is a key differentiator of Movestic compared with its more traditional competitors. Movestic's funds are continually reviewed and where appropriate new funds are added to satisfy its policyholder requirements. During 2015 additional 'white label' funds have been launched, building on three new funds that were made available during 2014. These have been delivered through revised funding structures which have resulted in higher fee generation than previously. Successful renegotiations with certain fund managers have delivered additional performance fee rebate income during the year.

To support its continued growth strategy and to deliver enhancements to the way existing business is managed, the Division has started to invest further in its business processes and systems. This will facilitate more effective policyholder/distributor communications and policy management. The business management layer of the new system will also support more streamlined business reporting, in particular the regular reporting that is required to Regulators under Solvency II.

With Solvency II becoming effective from 1 January 2016, during 2015 the business has delivered its Solvency II development programme such that it is now ready across all aspects of the new regime. In particular, governance and risk management enhancements have been made, all of which will deliver value generation through enhanced risk-based decision making and business control. The prudential management aspects of Solvency II have also resulted in a new way in which management assess the capital within the business and how it meets the capital requirements. Further information on this has been included below.

Financial performance

The Swedish business has performed well during the year across all key financial metrics, specifically regarding its cash generation. Further analysis behind these metrics can be found below.

Value driver metrics

New business

A review of the new business operation of Movestic is covered below.

Assets under management

Assets under management are a key value driver of the business through providing a source of revenue in the forms of performance fee rebates from asset managers and charges to policyholders. Assets under management have grown by 11% during the year, closing at SEK 24.3bn. Underpinning the growth in assets under management are three key drivers:

- performance of the new business operation (see below);

- overall performance of investments within the funds (see below); and

- behaviour of policyholders (see below).

Investment performance:

Overall funds under management have returned growth of 4.9% for policyholders during 2015. Good investment return not only supports income generation for the business but is also important in retaining existing policyholders and attracting new ones. The fund performance analysis below shows that 38 out of 59 funds out-performed their benchmark index during the year.

Policyholder behaviour:

The number of policies that have either become paid up, or have surrendered, has decreased when compared with 2014. There has been a slight increase in policyholders transferring out their policies to another provider during the year, which has also resulted in the transfers-in to transfers-out ratio becoming less favourable compared with 2014. Transfers within the Swedish Division can depend on a number of factors, including competitor offerings agitating the transfer market and changes in relationships with brokers. The net impact of these factors has resulted in transfers being slightly up on the prior year.

Risks associated with the strategic objective

- High levels of lapses and transfers remains a risk. Given that the Movestic product proposition already offers significantly more portability for transferring pensions than the general market, our view is that an increased right to transfer would be beneficial to customers and to Movestic in terms of its market position with other more traditional competitors.

- Profit emerging from the in-force book is dependent upon the size of the funds under management. Adverse investment market conditions would therefore adversely impact this strategic objective.

- Loss of key brokers can result in increases in the level of transfers-out.

- Regulatory change can potentially impact the cash flows arising from the in-force book. For example, there remains ongoing debate in Sweden regarding possible changes to up-front fees and rebate commissions.

- From a Group perspective we are exposed to foreign currency fluctuations which impacts the Sterling value emerging from the Swedish operations.

Policy attrition

	2015	2014
Transfers (pensions)	5.4%	4.9%
Lapses/paid-ups (pensions and endowments)	15.7%	16.6%

Transfers

	2013	2014	2015
Transferred in	40%	52%	43%
Transferred out	60%	48%	57%

Assets under management

		2013	2014	2015
Total funds SEK (bn)		17.8	21.9	24.3

Fund performance (for those with benchmarks)

	2015	2014
Outperformed against relevant index	38	35
Under-performed against relevant index	21	35

MAXIMISE VALUE FROM EXISTING BUSINESS | NETHERLANDS

"Positive emergence of value in line with expectatio ns from the newly acquired Waard Group."

Highlights

- Full year IFRS pre-tax profit of £2.6m is broadly in line with expectations and provides a useful estimate of future in force book profit expectations Note 1.

- EEV of £74.1m at 31 December 2015, which includes £9.3m in relation to future profit cash flows.

- Positive gross (operational) cash generation, and one-off cash generation on acquisition of £39.9m.

- Business now fully integrated into Chesnara governance processes.

- Solvency II ready.

^{Note 1} - Only the proportion of this total profit relating to the post acquisition period (19 May 2015 to 31 December 2015) is consolidated into the Chesnara Group IFRS income statement, amounting to £0.9m.

Review of the year

The Dutch Division has delivered a full year IFRS result that is broadly in line with expectations, and the solvency position of the business is strong. The one-off positive impact on cash generation of the Group of £39.9m arising upon acquisition has been further enhanced by additional positive cash generation in the period of £4.0m.

Summary of the in-force book

The Waard Group book consists of c80,000 policies, the majority of which are term assurance contracts, with the balance relating to unemployment and disability cover and unit-linked savings contracts.

In addition to the insured contracts, the Waard Group is, through its service-company subsidiary, responsible for the administration of c79,000 policies for third party insurers.

There are three key areas of focus for the in-force book, namely: management of the assets, regulatory compliance and ensuring that a high quality service to policyholders is continued in terms of administration service levels.

Policy attrition levels for 2014 and 2015 remain at a steady level of circa 8% across the total in-force book and are in line with the anticipated book run-off.

Key value drivers

The business is administered and governed by an established and high quality team, combining operational excellence with strong customer contact. The internet is increasingly used to combine these two items. The business operates to high governance standards and there is a positive relationship with the Dutch regulator.

Since the acquisition completed on 19 May 2015, the Waard Group business has been integrated into Chesnara's governance processes including the financial reporting routines.

Profits emerge primarily as a result of positive mortality experience on the term assurance contracts. The third party administration contributes only modest additional profit, while covering an adequate element of the fixed cost base. Further acquisitions should provide additional economies of scale.

Risks associated with the strategic objective

- The primary risk to the profit and cash emergence is that mortality experience increases significantly and exceeds the assumed rates.

- Increased lapses on cash generative products are also a risk to the delivery of this strategic objective. This risk is managed through close monitoring of persistency levels, service levels that ensure strong customer service standards and our pro-active approach to the renewal process to keep retention rates high.

- There is also a risk that expenditure levels exceed those assumed in reserves and provisions. Expense assumptions are deemed to be realistic and the cost base is well controlled, predictable and within direct management influence.

- Although regulatory developments are not in themselves a risk to the value emergence, management recognises the long term benefits of robust governance. Regulatory change can impact the cash potential of the business if it directly impacts the cash flows from the products (such as through emerging regulatory best practice) or increases the likelihood of increased book attrition. There is full indemnification from the previous owner of the Waard Group regarding the compensation arrangements currently in place for certain unit-linked products historically sold.

- As with our Swedish Division, the Group is exposed to foreign currency fluctuations which impacts the Sterling value emerging from the Dutch operations.

In-force policies

	2015	2014
Term assurance	52,500	56,900
Unemployment and disability	23,900	25,000
Unit-Linked	3,300	5,500
Total	79,700	87,400

Policy attrition

	2015	2014
Term assurance	7.7%	6.6%
Unemployment and disability	4.4%	7.1%
Unit-Linked	40.0%	31.3%
Total	8.8%	8.8%

acquire life and pensions businesses

"We completed the acquisition of the Waard Group during May 2015. The group embedded value increased by £21.3m and the net cash generation has increased by £39.9m as a direct consequence of the acquisition. Over and above the direct and immediate financial benefits the acquisition creates opportunity to progress further value-adding deals in the Dutch market."

Highlights

- Completion of the acquisition of the Waard Group in the Netherlands for £50.1m resulting in £21.3m increase in Group Embedded Value.

- £39.9m of additional cash distribution potential created.

- Entry to a third territory of the Group assessed as having significant further market consolidation potential.

Review of the year

Acquisition of the Waard Group

On 19 May 2015 we completed the acquisition of the Waard Group in the Netherlands for £50.1m (€69.9m). The deal was financed through raising £34.5m of equity during late 2014, with the remainder being funded through existing cash resources. The acquisition has created an excellent opportunity to operate in a new market within which life insurance consolidation is in its early stages. The deal was originally assessed positively on all four elements of our assessment scorecard. The table below illustrates how these actual benefits arose on acquisition:

CASH GENERATION

The solvency position on acquisition confirms that significant surplus (£39.9m) is available for distribution in an orderly fashion over a three year period.

EMBEDDED VALUE

The actual discount to embedded value of 29.8% has resulted in an embedded value increment of £21.3m.

STRATEGIC OPPORTUNITY

Initial evidence of potential deal opportunities reaffirms our view that Chesnara can benefit from closed book market consolidation in the Netherlands.

RISK CONSIDERATIONS

Business, market and regulatory developments during the period support our initial positive assessment of the risk profile of the business.

UK market

There has recently been a general lull in closed book market activity in the UK, driven in part by uncertainty resulting from Solvency II and regulatory developments. That said, there has been some activity recently, and we believe the factors which will drive further consolidation persist, namely 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. In the short term we have increased our focus on Western Europe, in particular investigating opportunities in the Dutch market following the acquisition of the Waard Group.

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 track record and good reputation with our regulators, ensures we are aware of most viable opportunities in the UK and Western Europe. To support our proven market presence, we have recently implemented a revised acquisition process framework in order to ensure we continue to identify and assess all potential value adding deals across our widening geographical markets. Importantly we have rolled the acquisition process out into the Dutch management team, who have begun to implement the process in the Dutch market. This ensures we get the benefits of local market knowledge complemented by closed book consolidation experience and expertise provided by the Chesnara management team.

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, in the context of other non-financial measures including the level of risk and the degree of strategic fit and opportunity.

Acquisition outlook

We remain confident that all the commercial and economic drivers for consolidation remain positive in the UK. The acquisition of the Waard Group provides significant potential in the Dutch market and we are well positioned to take advantage of any value adding opportunities that may arise. Our financial foundations are strong and we continue to have strong support from shareholders and lending institutions to progress our acquisition strategy. In addition our operating model which consists of well established outsource arrangements plus efficient, modern in house solutions, means we have the flexibility to accommodate a wide range of potential target books. With all the above in mind, we are confident that we are well positioned to continue the successful acquisition track record in the future.

Risks associated with this strategic objective

- There is the risk that if we do not deliver against this objective then the investment case for Chesnara diminishes over time.

- There is the risk that we make an inappropriate acquisition that adversely impacts the financial strength of the Group.

- The acquisition of the Waard Group opens a new territory and hence increases our options thereby reducing the risk that no further value adding deals are done.

- The broader target market also reduces the risk of inappropriate opportunities being progressed on the grounds that better optionality will enable us to identify better fit deals at a more competitive price.

- As our acquisition strategy currently places greater focus more on non-UK markets we become increasingly exposed to currency risk. Flexibility over the timing of subsequent capital extractions and dividend flows provide an element of management control over the Sterling value of cash inflows. We accept the short-term fluctuations in the reporting of embedded value that can arise.

- During recent years we have enhanced our financial deal assessment 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.

enhance value through PROFITABLE new business | Sweden

"New business profits continue to enhance Movestic's embedded value and support the overall fund growth, although a difficult market for transfers and staff vacancies in the sales team have resulted in a slight downturn compared to 2014."

Highlights

- New business profit of £5.7m (2014: £8.9m).

- 4.9% reduction in new business volumes.

- Average market share of 11.7% is within target 10-15% range.

Review of the year

After two years of new business growth we have seen a downturn in new business volumes in 2015. The transfer market was particularly competitive during the first half of the year and unit linked products came under pressure from the traditional market products which offered attractive guaranteed returns. As expected the level of guarantees being offered has not been sustainable and the unit-linked market has become more competitive during the second half of the year. The transfer market is profitable and hence is a natural target for Movestic given its focus on sustainable profit margins. Revised pricing for transfers has reinvigorated transfer volumes in the second half of the year. This, together with the aforementioned reduction in traditional guarantees has contributed to a strong second half of 2015, during which new business volumes exceeded those in the second half of 2014.

During the year Movestic has seen changes in key sales positions. This resulted in some short term vacancies in the sales team. This will have contributed somewhat to the reduction in sales during the year. Importantly, the team is now fully staffed and ready to build on the positive improvements seen towards the end of 2015.

Market share

The market share of our specific target market, namely the company paid unit linked market was within our target range of between 10% to 15%. We did lose a little market share compared to 2014 due in part to the impact of a reorganisation of the sales team. Management plans which completed during the second half of the year have had a positive impact on market shares in the final quarter and we aim to consolidate towards the middle of our target market share range during 2016.

Development of innovative product concepts and margin enhancement

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 highest priority. During the year the work with "white-labelled" Movestic funds has continued and intensified. The benefits of the new "white-labelled" funds, enabled through the set-up of a new Movestic SICAV (fund structure) in 2014, mean that in addition to being well matched to policyholder requirements, Movestic receives a higher proportion of the product value chain thereby improving new business margins. Three new Movestic funds have been launched during the year, building on the first three being launched during 2014. A further five new Movestic funds are planned to be launched during 2016.

Risks associated with this strategic objective

- The attractiveness of unit linked products can be influenced by economic conditions especially as some traditional products offer guaranteed returns in uncertain times. In light of this the recent good general equity performance is encouraging. Also, Swedish investors tend not to adopt an "all or nothing approach" to equity exposure and hence there will always be a certain level of unit linked demand. The recent reductions in traditional product guarantees have reduced this product bias risk.

- New business volumes are sensitive to the quality of service to the IFA and the end customer. Movestic continues to score highly in internal and external service level assessments.

- New business remains relatively concentrated towards several large IFAs. This is inevitable to some extent but the fact that Movestic has extended the breadth of IFA support in the year has reduced this concentration risk. Whilst Movestic has further broadened its coverage of the broker market, the fact remains that a large proportion of new business comes from two large brokers thereby creating a level of concentration risk. In light of this risk, Movestic takes comfort from the fact they are assessed very favourably on an internal product provider assessment scorecard maintained by one of the major brokers. The second large broker has a proven strong level of support for the Movestic proposition as demonstrated by its continued support of Movestic during and subsequent to the servicing difficulties experienced historically.

- The competitive market puts pressure on new sales margins. Movestic's margins have generally held up well although the improved terms offered for the higher margin transfer business is evidence of the pressure on margins. Movestic has redressed the margin balance by successfully focussing on achieving better terms in the fund operation.

Trend analysis of new business premium income (£m)

2014

2015

Total

16.6

17.0

11.2

12.3

14.6

15.4

10.6

13.7

Movestic's share of new unit-linked company paid pension business

							2015	2014
Market share							11.7%	12.5%

CAPITAL MANAGEMENT - Solvency I and Solvency II

"Managing the Group and subsidiaries' capital positions appropriately is a critical part of ensuring we remain true to the Group's Culture and Values, which includes a clear focus on maintaining adequate financial resources. We are well-capitalised at a Group and subsidiary level under both Solvency I and Solvency II. In applying Solvency II we have not used any elements of the Long Term Guarantee Package, including transitional arrangements."

The Group and its subsidiaries manage capital in accordance with their respective capital management policies, which are based on the requirements of our Regulators. These policies introduce the concept of a "management buffer", which is incremental to the Regulatory capital requirements.

The tables below show a summary of the solvency position of the Group and its principal subsidiaries under Solvency I, along with a comparison to the year end unaudited Solvency II position.

Chesnara Group

	31 Dec 2014 (SI) £m	31 Dec 2015 (SI) £m	31 Dec 2015 (SII) £m
Total capital resources/own funds (pre-dividend)	240.4	251.9	396.7
Proposed dividend	(15.1)	(15.6)	(15.6)
Total capital resources/own funds (post-dividend)	225.3	236.3	381.1

Capital requirement/Solvency capital requirement	79.3	77.5	260.6
Surplus capital resources above capital requirement	146.0	158.8	120.5
Solvency Ratio (post dividend)	284%	305%	146%

Capital requirement including "Management buffer"	79.3	77.5	286.7
Surplus capital resources above "Management requirement"	146.0	158.8	94.4

Movement in Solvency I (2014 to 2015)

- Capital resources of the Group have grown over the year as surplus has emerged from the life insurance companies within each division.

Impact of applying Solvency II

- Capital resources have increased, with this being driven by the policyholder reserves reducing as a result of them including an estimate of future surpluses expected to emerge from the in-force book, something that was not included in Solvency I.

- For the Group capital requirement calculation, under Solvency I no capital requirements were included for non-regulated non-insurance companies. Under Solvency II all companies in the Group are required to be treated as if they were insurance companies. This, as well as the generally higher levels of capital requirements under Solvency II, have led to the increase.

- The Group remains well capitalised under Solvency II.

CA plc (UK)

	31 Dec 2014 (SI) £m	31 Dec 2015 (SI) £m	31 Dec 2015 (SII) £m
Total capital resources/own funds (pre-dividend)	181.2	148.3	198.2
Proposed dividend	(65.0)	(30.5)	(30.5)
Total capital resources/own funds (post-dividend)	116.2	117.8	167.7

Capital requirement/Solvency capital requirement	65.8	58.0	123.8
Surplus capital resources above capital requirement	50.4	59.8	43.9
Solvency Ratio (post dividend)	177%	203%	135%

Capital requirement including "Management buffer"	102.1	91.5	148.5
Surplus capital resources above "Management requirement"	14.1	26.3	19.1

Movement in Solvency I (2014 to 2015)

- Capital resources increased from £116m (post dividend) to £148m (pre-dividend), representing an increase of £32m, broadly in line with IFRS result. This includes £3.5m of assets transferred from Protection Life following its deauthorisation.

- The proposed dividend is subject to a "no objection" process with the PRA.

Impact of applying Solvency II

- The increase in capital resources is largely due to reduction in technical provisions, which now includes an estimate of expected future profits. This has the biggest impact on unit-linked products.

- Capital requirements are more risk-based and reflect the increased capital resources position of the company.

- CA plc remains well-capitalised under SII. Although the solvency ratio reduces under Solvency II, the absolute surplus levels above the "management buffer" remain broadly in line with Solvency I.

Movestic Liv (Sweden)

	31 Dec 2014 (SI) £m	31 Dec 2015 (SI) £m	31 Dec 2015 (SII) £m
Total capital resources/own funds (pre-dividend)	34.9	39.5	149.8
Proposed dividend	-	-	-
Total capital resources/own funds (post-dividend)	34.9	39.5	149.8

Capital requirement/Solvency capital requirement	9.3	9.0	91.9
Surplus capital resources above capital requirement	25.6	30.5	57.9
Solvency Ratio (post dividend)	376%	439%	163%

Capital requirement including "Management buffer"	13.9	13.5	110.3
Surplus capital resources above "Management requirement"	21.0	26.0	39.5

Movement in Solvency I (2014 to 2015)

- Capital resources have increased over the year as a result of surplus generation, off-set by the slight weakening of SEK over the year.

Impact of applying Solvency II

- The large increase in capital resources (own funds) is largely due to a reduction in technical provisions, which now includes an estimate of expected future profits.

- Capital requirements are now more risk-based and reflect the increased capital resources position of the company.

- Movestic is better-capitalised in absolute terms under SII compared with SI, although the solvency ratio reduces due to the increase of both "own funds" and SCR.

Waard Leven (Netherlands)

	31 Dec 2014 (SI) £m	31 Dec 2015 (SI) £m	31 Dec 2015 (SII) £m
Total capital resources/own funds (pre-dividend)	41.1	40.9	52.6
Proposed dividend	-	-	-
Total capital resources/own funds (post-dividend)	41.1	40.9	52.6

Capital requirement/Solvency capital requirement	5.4	4.7	10.9
Surplus capital resources above capital requirement	35.7	36.3	41.6
Solvency Ratio (post dividend)	761%	879%	480%

Capital requirement including "Management buffer"	10.8	9.3	19.2
Surplus capital resources above "Management requirement"	30.3	31.6	33.4

Movement in Solvency I (2014 to 2015)

- Modest surplus has emerged from Waard Leven in the year, as expected.

- For GBP reporting purposes, this is not seen in the above tables due to the Euro weakening against GBP during 2015.

Impact of applying Solvency II

- The transition to Solvency II is less marked for Waard Leven than for the other life companies within the Group. This is primarily because the policy base is largely made up of term assurance products, which are less impacted by SII.

- Waard Leven remains well-capitalised under SII.

FINANCIAL REVIEW

The key performance indicators below are a reflection of how we have performed in delivering our three strategic objectives and our core culture and values. 2015 has seen strong net cash generation of £82.4m, together with the robust Embedded Value earnings in the year, resulting in a closing EEV of £455.2m.

Summary of each KPI

IFRS PRE-TAX PROFIT £42.8M (2014: £28.8M)

What is it?

The presentation of the results in accordance with International Financial Reporting Standards (IFRS) aims to recognise the profit arising from the longer term insurance and investment contracts over the life of the policy.

Why is it important?

IFRS pre-tax profit is an indicator of the value that has been generated within the long-term insurance funds of the divisions within the Group, and is a key measure used both internally and by our external stakeholders in assessing the performance of the business. IFRS pre-tax profit is an indicator of how we are performing against our stated strategic objective of "maximising value from the in-force book" and can also be impacted by one-off gains arising from delivering against our stated objective of "acquiring life and pensions businesses".

Highlights

Year ended 31 December	2015 £m	2014 £m
CA	23.9	46.7
S&P	10.6	(9.2)
Movestic	6.7	4.9
Waard Group	0.9	-
Group & Consolidation adjustments	(15.9)	(13.6)
Profit on acquisition	16.6	-
Total profit before tax and exceptional items	42.8	28.8

- A day one gain of £16.6m has been recognised on the acquisition of the Waard Group in the Netherlands, representing the excess of the IFRS net assets acquired over the purchase price.

- Linked to the Waard Group acquisition, the Group segment includes a £3.5m foreign exchange translation loss arising from holding Euros to fund the acquisition.

- Waard Group post acquisition profit is small, but in line with expectations at the time of the acquisition. The Waard Group is not expected to generate significant IFRS profits.

- The CA result is less than the same period in 2014 largely due to 2014 including some one off items not repeated in 2015.

- The S&P segment has reported a profit in 2015 compared with a loss in 2014. The 2014 loss was largely driven by reducing government gilt yields in that year, something that has not been witnessed in 2015.

- Movestic has continued to deliver growth in its IFRS results.

Risks

The IFRS pre-tax profit can be affected by a number of our principal risks and uncertainties as set out below. In particular, volatility in equity markets and bond yields can result in volatility in the IFRS pre-tax profit.

NET CASH GENERATION £82.4M (2014: £71.1M)

What is it?

Net cash generation is a measure of how much distributable cash has been generated in the period. The dominating aspect of cash generation is the change in amounts freely transferable from the operating businesses, taking into account Board-approved solvency buffers that are based on those imposed by our Regulators. It follows that cash generation is not only influenced by the level of surplus arising but also by the level of required 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-paying capacity and acquisition strategy. Cash generation can be a strong indicator of how we are performing against our stated objective of "maximising value from the in-force book". However, our cash generation is always managed in the context of our stated value of maintaining strong solvency positions within the regulated entities of the Group.

Highlights

Year ended 31 December	2015 £m	2014 £m
Total Gross cash generated	44.2	42.6
Synergistic effects of Part VII transfer	2.9	27.4
Exceptional cash on Waard acquisition	39.9	-
Movement in restriction of S&P WP capital	(4.6)	1.1
Net cash generation	82.4	71.1

- Gross cash generation across the Group continues to support our current attractive dividend strategy.

- Net cash generation in 2015 is dominated by the cash surpluses arising from the acquisition of the Waard Group, which can be used to both support our future dividends and potential acquisitions.

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 under Solvency I, as opposed to the IFRS surplus, they are generally 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 future periods our cash generation metric will be calculated with reference to Solvency II. This cash metric is expected to display sensitivities to the same economic factors referred to above.

EEV EARNINGS, NET OF TAX £57.5M* (2014: £44.2M)

*EXCLUDING THE POSITIVE IMPACT OF MODELLING ADJUSTMENTS OF £5.9M

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.

- The impact of acquisitions.

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 against all three of our core strategic objectives. This includes new business profits generated from writing profitable new business, EEV profit emergence from our existing businesses, and the EEV impact of acquisitions.

Highlights

	2015 £m	2014 £m
New business contribution	6.1	9.7
Operating profit - existing business	25.4	27.8
Economic effects	11.5	24.6
Uncovered business & other group	(10.4)	(7.4)
Exceptional gain on acquisition	21.3	-
Tax	3.6	(10.5)
Profit after tax	57.5	44.2

- Strong EEV earnings in the year supported by:

o £21.3m gain on acquisition of the Waard Group, offset by the Euro holding foreign exchange loss of £3.5m.

o Continued emergence of economic profits, although these are lower than in 2014.

o Operating profits that are in line with 2014.

- New business profits from Movestic continue to be delivered, albeit at lower levels than 2014 due to a challenging market which has witnessed aggressive pricing strategies from competitors.

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 £455.2M (31 DECEMBER 2014: £417.2M)

What is it?

The European Embedded Value (EEV) of a life insurance company represents the present value of future profits of the existing insurance business, plus adjusted net asset value of the non-insurance business within the Group. It is often used to compare values of different life insurance companies.

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 intrinsic value. 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 writing profitable new business. It ignores the potential of new business to be written in the future (the franchise value of our Swedish business) and the value of the Company's ability to acquire further businesses.

Highlights

	£m
EEV actual 2014	417.2
Net of tax profit arising in the year	36.2
Profit on acquisition	21.3
Effect of modelling adjustment	5.9
Foreign exchange and other reserve movements	(1.9)
Dividend paid	(23.5)
EEV actual 2015	455.2

- Closing EEV is £38m higher than at the start of the year.

- Post-tax EEV earnings have contributed £36.2m, excluding the acquisition profit of the Waard Group.

- Profit of £21.3m arising on acquisition of the Waard Group, representing the excess of the EEV acquired over the purchase price, enhances EEV in the year.

- Small foreign exchange losses arising on retranslation of the Swedish and Dutch businesses.

- Dividends paid of £23.5m in the year, being the payment of the year end 2014 final dividend and the 2015 interim dividend.

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, the EEV position of the Group can be materially affected by exchange rate fluctuations. For example a 10.0% weakening of the Swedish Krona and Euro against Sterling would reduce the EEV of the Group by 3.2% and 1.5% respectively, based on the composition of the Group's EEV at 31 December 2015.

Further detail for each KPI

IFRS PRE-TAX PROFIT £42.8M (2014: £28.8M)

Executive summary

The Group IFRS results reflect the natural dynamics of the segments of the Group, which can be characterised in three major components:

Stable core

At the heart of surplus, and hence cash generation, are the CA and Waard Group segments. The requirements of these books are to provide a predictable and stable platform for the financial model and dividend strategy. As a closed book, the key is to sustain this income source as effectively as possible. The IFRS results below show that the stable core continues to deliver against these requirements.

Variable element

The S&P component can bring an element of short-term earnings volatility to the Group, with the results being particularly sensitive to investment market movements.

Growth operation

The long-term financial model of Movestic is based on growth, with levels of new business and premiums from existing 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.

IFRS results

The financial dynamics of Chesnara, as described above, are reflected in the following IFRS results:

Year ended 31 December	2015 £m	2014 £m	Note
CA	23.9	46.7	1
S&P	10.6	(9.2)	2
Movestic	6.7	4.9	3
Waard Group	0.9		4
Chesnara	(9.5)	(7.6)	5
Consolidation adjustments	(6.4)	(6.0)	6
Profit before tax and profit on acquisition	26.2	28.8
Profit on acquisition of the Waard Group	16.6	-	4
Profit before tax	42.8	28.8
Tax	(3.0)	(3.2)
Profit after tax	39.8	25.6

Note 1 - The CA segment has reported good results for the year, albeit reduced compared with 2014. The reduction is primarily due to 2014 including some one off items, coupled with more suppressed market conditions in 2015. Further insight is provided in the CA segmental analysis below.

Note 2 - The S&P segment has reported a profit for the year compared with a loss in 2014. The principal driver of this swing is that the 2014 results included a large loss arising from an increase in the reserves held for products with guarantees driven by a significant reduction in government gilt yields during that year. Further detail can be found below.

Note 3 - The Movestic result has improved when compared with 2014, principally arising from the Pensions & Savings division which continues to grow, resulting in growing fee income. Further analysis can be found below.

Note 4 - The Waard Group acquisition completed on 19 May 2015 and therefore the IFRS results only include just over seven months of profit. The acquisition resulted in the recognition of a one-off gain of £16.6m, representing the excess of the net assets acquired over the purchase price.

Note 5 - The Chesnara result represents holding company expenses. 2015 costs are higher than 2014 primarily due to a one off foreign currency re-translation loss of £3.5m arising from holding Euros prior to the completion of the Waard Group purchase.

Note 6 - Consolidation adjustments relate to items such as the amortisation of intangible assets and remain broadly in line year on year.

The IFRS results by business segment are analysed in more detail as follows:

The key components of the IFRS result for CA for the year are as follows.

	2015 £m	2014 £m	Note
Product-based deductions	28.8	29.4	7
Administration expenses	(10.6)	(10.5)	7
Returns on retained surplus	0.3	5.7	8
Reserve changes, including those due to market movements	4.3	14.1	9
Impact of new HCL contract	-	4.2	10
Other	1.1	3.8
Total	23.9	46.7

Note 7 - Product-based deductions and administrative expenses have remained broadly in line year on year, as would be expected. Charges have remained resilient to policy attrition and continue to significantly exceed administration expenses.

Note 8 - Retained surpluses are held in low-risk Government gilts. During 2015 the gilt index has remained broadly flat, resulting in small returns, whereas higher returns were seen in 2014 due to gilt value appreciation during that year.

Note 9 - Policyholder reserves have reduced by £4.8m during the year. The movement in these reserves is the result of an actuarial basis assessment, where all key judgments affecting the reserves are set. There is no dominating feature of the 2015 basis assessment, with the net impact in reserves being positive during 2015. 2014 witnessed a higher reserve reduction in the year, primarily due to economic impacts.

Note 10 - During 2014 a key outsourcing contract was re-negotiated, resulting in a positive benefit to the CA segment. No such dynamics existed this year.

S&P

The key components of the IFRS result for S&P for the year are as follows:

	2015 £m	2014 £m	Note
Product based deductions	16.5	17.1	1
Administration expenses	(9.6)	(9.7)	1
Income on S&P shareholder funds	0.1	6.4	2
Change in cost of guarantees in with-profit funds:	(2.2)	(17.8)	3
Change in sterling and expense reserves	5.8	(0.6)	4
Impact of new HCL contract	-	(4.2)	5
Other	-	(0.4)
Total	10.6	(9.2)

Note 1 - Product-based deductions and administrative expenses have remained broadly in line year on year, as would be expected. Product deductions have remained resilient to policy attrition.

Note 2 - Shareholder funds are invested in low-risk Government gilts. During 2015 the gilt index has remained broadly flat, resulting in small returns, whereas higher returns were seen in 2014 due to gilt value appreciation during that year.

Note 3 - One of the main drivers of the S&P surplus in any one year is the movement in the reserves held for products with guarantees, which are sensitive to both equity and gilt markets. During 2014 reductions in gilt yields gave rise to a large increase in such reserves, resulting in a large loss. For 2015 the gilt yields and equity markets closed broadly in line with the start of the year.

Note 4 - During 2015 modelling refinements have been made to align the way in which expenses are modelled across the UK business. This has contributed to the positive reserve movements during the year.

Note 5 - During 2014 a key outsourcing contract was re-negotiated, resulting in a strain arising in the S&P segment. No such dynamics existed this year.

Movestic

The key components of the IFRS result for Movestic for the year are as follows:

	2015 £m	2014 £m	Note
Pensions and Savings	5.9	2.4	6
Risk and Health	1.0	0.4	7
Other	(0.2)	2.1	8
Total profit	6.7	4.9

Note 6 - The Pensions & Savings business continues to be the core source of IFRS profit in Movestic. The segment has reported strong results growth, with 2015 IFRS profits amounting to £5.9m. Good performance in the year is driven by two key factors. Firstly, policyholder fee income has increased year on year, arising from growth in funds under management. Secondly, improvements in the fund operation have resulted in increased performance fee rebates in the year, largely due to "white-labelling" initiatives and renegotiations with certain fund managers.

Note 7 - The Risk and Health business has generated a profit in the year amounting to £1.0m. The loss ratios in the year have remained stable, and premium income has remained broadly the same year on year. Policy numbers for this book have remained at just over 380,000 for both 2015 and 2014.

Note 8 - The "Other" component includes: the results of Movestic's associated company, Modernac; investment income; the results of Movestic's investment management business and fair value adjustments on the financial reinsurance that Movestic uses to fund the writing of new Pensions & Savings business. The key reason for the small loss of £0.2m in 2015 compared with a profit of £2.1m in 2014 is as a result of a number of small factors. In particular, the fund business, Movestic Kapital delivered profits of £0.1m during 2015 compared with £0.8m in 2014, largely because 2014 included some one off income. In addition there has been a swing of some £0.4m due to lower investment returns on shareholder assets, largely due to the negative interest rate environment in Sweden.

Waard Group

The Waard Group has reported a small profit of £0.9m since acquisition reflecting the natural emergence of surplus in the business. Surpluses principally arise from mortality surpluses arising from the Waard Group's term assurance policies.

CASH GENERATION £82.4M (2014: £71.1M)

"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.

Cash generation is a function of the Group's and each Division's capital management policies, in that we only report cash as being available for distribution if it exceeds the Board-approved capital requirement included within these policies. Capital management policies are set with reference to the regulatory capital requirements with the inclusion of a "management buffer". For 2015 the cash generation that we have reported is calculated with reference to our Solvency I capital management policies. For future periods cash generation will be reported with reference to our capital management policies based on Solvency II."

Highlights

- A significant amount of net cash, amounting to £39.9m, has emerged from the acquisition of the Waard Group, driven by the strong levels of regulatory surplus in this group.

- Gross cash generation in the UK run-off business of £42.5m is broadly in line with the same period in 2014.

- We are reporting modest levels of cash generation of £5.1m for Movestic for the first time since its acquisition in 2009.

Year ended 31 December Cash generated from/(utilised by):	2015 £m	2014 £m	Note
CA
Cash generation in the year	21.4	46.5

S&P
Cash generation in the year	21.1	4.4
UK gross cash generation	42.5	50.9	1

Movestic
Underlying cash generation in year	5.6	-	2
Foreign exchange movements	(0.5)	-	2

Waard Group
Underlying cash generation in year	4.0	-	3
Foreign exchange movements	1.0	-	3

Chesnara
Cash utilised by operations	(8.4)	(8.3)
Total gross cash generation	44.2	42.6

Items affecting ability to distribute cash
Synergistic effects of Part VII transfer	2.9	27.4	4
Cash generated on acquisition of the Waard Group	39.9	-	3
Movement in restricted surplus in S&P WP fund	(4.6)	1.1
Net cash generation available for distribution	82.4	71.1	5

Items affecting the cash available for distribution:

Note 1 - Cash generation for the UK business has continued to be strong following a good year in 2014. Statutory surplus has continued to emerge well from both UK segments (£32.0m) and this, coupled with the decrease in our capital management requirements as the books run off (£10.5m) have driven our cash generation in the year.

Note 2 - We are reporting cash generation for Movestic for the first time since it was acquired during 2009. Cash generation of £5.6m represents surplus generation of £5.7m, off-set by an increase in our capital requirements of £0.1m. A small foreign exchange loss in the year has reduced the value of the surplus cash available for distribution.

Note 3 - The acquisition of the Waard Group has delivered a significant one off cash generation item, amounting to £39.9m, driven by the strong levels of regulatory surplus in this group. Post acquisition the Waard Group has reported a small amount of cash generation, as expected. A small foreign exchange gain has also been reported, due to a slight strengthening of the Euro against Sterling post acquisition.

Note 4 - During 2015 Protection Life Company Limited has been deauthorised as a regulated entity as it no longer carries on insurance activities, following the Part VII transfer of the business into CA plc on 31 December 2014. As a result this has released a further £2.9m of available capital across the Group.

Note 5 - 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 £57.5M* (2014: £44.2M)

*EXCLUDING THE POSITIVE IMPACT OF MODELLING ADJUSTMENTS OF £5.9M

"EEV profits have emerged across all three insurance divisions of the Group, with Movestic having delivered a significant proportion of this. The EEV results include a one-off profit of £21.3m arising from the acquisition of the Waard Group."

The following tables analyse the Group EEV earnings after-tax by source and by business segment:

Analysis of the EEV result in the year by earnings source

	2015 £m	2014 £m
New business contribution	6.1	9.7
Return from in-force business
Expected return	6.3	7.1
Experience variances	10.8	0.6
Operating assumption changes	8.3	11.0
Return on shareholder net worth	-	9.1
Operating profit of covered business	31.5	37.5
Variation from longer term investment return	12.2	32.0
Effect of economic assumption changes	(0.7)	(7.5)
Profit on covered business before tax and gain on acquisition	43.0	62.0
Tax	2.7	(12.2)
Profit on covered business after tax and before gain on acquisition	45.7	49.8
Gain on acquisition of the Waard Group	21.3	-
Uncovered business and other group activities	(10.4)	(7.3)
Tax on uncovered business	0.9	1.7
Profit after tax	57.5	44.2

Analysis of the EEV result in the year by business segment

	2015 £m	2014 £m	Note
CA	10.8	49.1	1
S&P	7.7	(14.2)	2
Movestic	22.7	27.5	3
Waard Group	0.9	-	4
Chesnara	(9.5)	(7.7)	5
Profit before tax and gain on acquisition	32.6	54.7
Gain on acquisition of the Waard Group	21.3	-	4
Profit before tax	53.9	54.7
Tax	3.6	(10.5)	6
Profit after tax	57.5	44.2

Economic conditions

The EEV result is sensitive to investment market conditions. The 2015 EEV results include a positive contribution as a result of investment markets, especially with regards to Movestic, although this is much less marked across the Group than the positive experience in 2014. Key investment market conditions are as follows:

- The FTSE All share index has decreased by 2.5% during 2015, compared with falling by 2.1% in 2014.

- The Swedish OMX all share index has increased by 6.6% during the year compared with a 11.9% increase in the prior year.

- 10 year UK gilt yields have increased by 21 points in 2015 compared with a reduction of 120 points in 2014.

Note 1 - CA: The CA segment result of £10.8m is driven by positive experience variances of £6.9m offset by adverse operating assumption changes of £2.5m. Economic-related results have contributed an additional £2.4m to the result. The £6.9m of positive experience variances is primarily made up of £4.8m of positive lapse experience coupled with £2.1m of reserve releases. Adverse operating assumption changes includes the impact of adverse expense assumption changes off-set by positive mortality assumption changes.

Note 2 - S&P: The S&P segment result of £7.7m is driven by £2.5m of positive experience variances and £5.1m of positive operating assumption changes. The positive experience variances are largely as a result of positive lapse experiences in the year. Operating assumption changes are the net of a number of items, but primarily relate to the net impact of updating our expense modelling for new assumptions and aligning the expense modelling with the rest of the UK business.

Note 3 - Movestic: Movestic has contributed significantly to the Group EEV earnings in the year with a £22.7m segmental result (2014: £27.5m). The following factors are the key drivers of the result:

- New business profits of £5.7m: New business profits have reduced compared with last year's result of £8.9m. The key reason for the reduction compared with 2014 is due to very strong competition in the first half of the year from more traditional life insurance companies who were offering very attractive policyholder returns. Such market offerings have now become much less commonplace. This resulted in volume and margin pressure to the business, although market share has improved during the latter half of 2015.

- Economic profits of £9.4m: Equity markets have continued to perform well in Sweden during 2015, building on strong returns in 2014, and this has resulted in the strong economic profits in the year.

- Positive operating assumption changes of £5.7m: Two key factors have contributed to net positive operating assumption changes:

o Expenses - assumptions have been strengthened during 2015 to recognise the cost of the current business process improvements project, coupled with a strengthening of maintenance cost assumptions. The net impact of this a cost strain of £8.4m.

o Performance fee rebate income - as a result of improvements in fee rebates during the year the assumptions have been aligned to recent performance, resulting in a positive impact of £18.4m.

Note 4 - Waard Group: The Waard Group has reported a small profit in the post acquisition period. Overall the Waard Group is not expected to be a significant generator of future EEV surplus. As a result of the acquisition of the Waard Group a gain of £21.3m has been recognised, representing the excess of the Embedded Value acquired over the consideration paid.

Note 5 - Chesnara: The Chesnara result represents holding company expenses. 2015 costs are higher than 2014 primarily due to a one off foreign currency re-translation loss of £3.5m arising from holding Euros prior to the completion of the Waard Group purchase.

Note 6 - Tax: The combined EEV tax credit of £3.6m can be broken down into a current tax charge of £4.7m off-set by a deferred tax credit of £8.3m. The deferred tax component represents the movement in deferred tax on the value of in-force policies during the year, with a credit arising as a result of the VIF reduction in the year coupled with the impact of some modelling refinements.

EUROPEAN EMBEDDED VALUE £455.2M (2014: £417.2M)

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;

- One-off items, such as:

o the impact of raising new equity;

o the surpluses arising on acquisitions; and

o modelling adjustments;

- Foreign exchange movements arising from retranslating the EEV of Movestic and the Waard Group into Sterling; and

- Dividends that are paid during the year.

More detail behind each of these components has been provided below:

EEV movement 31 December 2014 to 31 December 2015

	£m
EEV 2014	417.2
Net of tax profit arising in the year*	36.2
Profit on acquisition	21.3
Effect of modelling adjustments	5.9
Foreign exchange and other reserve movements	(1.9)
Dividend paid	(23.5)
EEV 2015	455.2

* stated before exceptional items

EEV movement 31 December 2013 to 31 December 2014

	£m
EEV 2013	376.4
Net of tax profit arising in the year	44.2
Equity raised for Waard Group acquisition	34.6
Foreign exchange reserve movement	(17.3)
Dividend paid	(20.7)
EEV 2014	417.2

Net of tax profit

The EEV profit arising during the year is analysed in more detail within the preceding section.

Profit on acquisition

The purchase of the Waard Group has resulted in the recognition of a "day 1" profit of £21.3m. The profit arose because the EEV of the Waard Group at the acquisition date amounted to £71.4m, which is £21.3m higher than the purchase price of £50.1m.

Effect of modelling adjustments

During the year an adjustment of £5.9m has been reported relating to a tax error in the EEV model which resulted in the tax charge in the EEV model being overstated at 31 December 2014. This has been corrected in the year.

Foreign exchange reserve movements

The £1.9m loss reported as a foreign exchange reserve movement during 2015 has arisen as a result of a small depreciation of the Swedish Krona against Sterling during 2015. This compares with a 14% depreciation during 2014. Included within the exchange reserve movement loss is a small profit arising from the slight appreciation of the Euro against GBP since the acquisition of the Waard Group.

Dividends paid

Dividends of £23.5m were paid during 2015, being the final dividend from 2014 of £15.1m and the interim dividend from 2015 of £8.4m.

Equity raised for acquisition

During 2014 we announced the acquisition of the Waard Group in the Netherlands. To finance the deal we raised £34.5m of equity through a well supported share placing exercise.

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.

Analysis of EEV between VIF and shareholder net worth (SNW) (£m)

	2015 £m	2014 £m
VIF	264.8	243.7
SNW	190.4	173.5
Total EEV	455.2	417.2

The VIF component of £264.8m consists of 61% in relation to the Swedish business, 35% UK and 4% the Netherlands.

Analysis of EEV by segment

	2015 £m	2014 £m
Movestic	147.1	128.4
CA	171.8	210.5
S&P	62.1	61.3
Waard	74.1	-
Other Group Activities	0.1	17.0
Total	455.2	417.2

There is a good balance in EEV across the Group with the UK business representing the majority (51%) of the total EEV (2014: 65%). In the above segmental analysis any outstanding debt in relation to the S&P and PL acquisitions is included in "Other Group Activities".

Analysis of VIF by policy type

	2015 £m	2014 £m
Endowment	30.3	31.4
Protection	78.5	71.4
Annuities	3.4	5.2
Pensions	234.2	223.9
Other	5.5	6.4
Valuation Adj.	(86.7)	(94.6)
Total	265.2	243.7

89% of the Group VIF is attributable to pensions products. These are typically products that are in their savings phase, with the VIF representing the best estimate of the future cash flows expected to be earned by the Group from these products.

'Valuation adjustments' in the above table comprise items that are not attributed at product level, such as certain expenses and the cost of guarantees to with-profits policyholders in the S&P business.

Analysis of policy numbers by policy type

	2015 '000s	2014 '000s
Endowment	42	42
Protection	214	176
Annuities	6	6
Pensions	236	240
Other	11	12
Total	509	476

The increase in protection products is as a result of the Waard Group acquisition during the year.

Policy numbers above only reflect those that are included in our EEV calculations ("covered business"). As a result, these tables do not include 379,000 (2014: 382,000) Life & Health policies in the Swedish division and 24,000 unemployment and disability policies in the Dutch division.

FINANCIAL MANAGEMENT

"The Group's financial management framework is designed to provide security for all stakeholders, while meeting the expectations of policyholders, shareholders, and regulators."

Objectives:

1. Maintain solvency targets - Group Solvency Ratio: Solvency I: 305% & Solvency II: 146%

2. Meet the dividend expectations of shareholders - 2015 TSR 4.1% 2015 dividend yield 5.7%. Based on share price as at 31 December 2015 of 335.00p and full year 2015 dividend of 18.94p.

3. Optimise the gearing ratio to ensure an efficient capital base - The Group is funded by a combination of share capital, retained earnings and debt finance, with the debt gearing (excluding financial reinsurance in Sweden) being 17.8% at 31 December 2015 (23.1% at 31 December 2014). The level of debt that the Board is prepared to take on is driven by the Group's "Debt and leverage policy" which incorporates the Board's risk appetite in this area. Over time, the level of gearing within the Group will change, and is a function of:

- funding requirements for future acquisitions (i.e. debt, equity and internal financial resources); and

- repayment of existing debt that was used to fund previous acquisitions.

As referred to above, acquisitions are funded through a combination of debt, equity and internal cash resources. The ratios of these three funding methods vary on a deal-by-deal basis and are driven by a number of factors including, but not limited to:

- size of the acquisition;

- current cash resources of the Group;

- current gearing ratio and the Board's risk tolerance limits for additional debt;

- expected cash generation profile and funding requirements of the existing subsidiaries and potential acquisition;

- future financial commitments; and

- regulatory rules.

In addition to the above, Movestic uses a financial reinsurance arrangement to fund its new business operation.

4. Ensure there is sufficient liquidity to meet obligations to policyholders, debt financiers and creditors - Policyholders' reasonable expectations maintained. Asset liability matching framework operated effectively in the year. Sufficient liquidity in the Chesnara holding company.

5. Maintain the Group as a going concern - The Directors have considered the ability of the Group to continue on a going concern basis. As such the Board has performed an assessment as to whether the Group can meet its liabilities as they fall due for a period of at least 12 months.

In performing this work, the Board has considered the current cash position of the Group and Company, coupled with the Group's and Company's expected cash generation as highlighted in its recent business plan, which covers a three year period. The business plan considers the financial projections of the Group and its subsidiaries on both a base case and a range of stressed scenarios, covering projected IFRS, EEV and solvency positions. These projections also focus on the cash generation of the life insurance divisions and how these flow up into the Chesnara parent company balance sheet, with these cash flows being used to fund debt repayments, shareholder dividends and the head office function of the parent company.

The information set out above indicates a strong Solvency II position as at 31 December 2015 as measured at both the individual regulated life company levels and at the Group level. As well as being well-capitalised the Group also has a healthy level of cash reserves to be able to meet its debt obligations as they fall due, and does not rely on the renewal or extension of bank facilities to continue trading. The Group's subsidiaries do, however, rely on cash flows from the maturity or sale of fixed interest securities which match certain obligations to policyholders, which brings with it the risk of bond default. In order to manage this risk we ensure that our bond portfolio is actively monitored and well diversified. Other significant counterparty default risk relates to our principal reinsurers. We monitor their financial position and are satisfied that any associated credit default risk is low.

In light of this information, the Board has concluded that the Group and Company has a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future, and the 2015 Group Financial Statements have continued to be prepared on a going concern basis.

Longer term viability statement

In accordance with provision C.2.2 of the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the prospect of the Company over a longer period than the twelve months required by the going concern provision. The Board conducted this review for a period of three years because the Group's business plan covers a three year period and includes an assessment of Group cash generation and Group solvency margins over that time period.

The Group business plan considers the Group's cash flows, the Group's ability to remain above target solvency levels and other key financial measures over the period, assuming continuation of the Group's established dividend payment strategy. These metrics are subject to scenario analysis representing the principal risks to which the Group is most sensitive, both individually and in unison. Where appropriate this analysis is carried out to evaluate the potential impact of adverse economic and other experience effects, including, but not limited to:

i) Equity market declines

ii) Reduction in yield curves

iii) Adverse mortality and lapse experience

iv) Adverse expense experiences

v) Reduced new business volumes

vi) Adverse exchange rate experience

Based on the results of this analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.

RISK MANAGEMENT

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 profile.

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 and the Netherlands;

ii) notwithstanding this, the Group has a material segment, which comprises an open life and pensions business; 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 below table identifies the principal risks and uncertainties of the Group and what controls are in place to mitigate or manage their impact. It has been drawn together following a robust assessment performed by the Directors of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. These have been updated to reflect the risks of the Waard Group, and it is worth noting that they have remained materially unchanged as a result of this update since those reported in the 2014 Annual Report & Accounts.

Risk	Impact	Control
Adverse mortality / morbidity / longevity experience	In the event that actual mortality or morbidity rates vary from the assumptions underlying product pricing and subsequent reserving, 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	If persistency rates are significantly lower than those assumed in product pricing and subsequent reserving, this will lead to reduced Group profitability in the medium to long-term.	- Active investment management to ensure competitive policyholder investment funds. - Stringent customer service management information ensures Management is aware of any customer servicing issues, with any issues being tracked and followed up. - Product distributor relationship management processes. - Close monitoring of persistency levels across all groups of business.
Expense overruns and unsustainable unit cost growth	For the closed UK and Dutch 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 business the Group pursues a strategy of outsourcing functions with charging structures such that the policy administration cost is aligned 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. - The Dutch business pursues a low cost-base strategy using a designated service company. The cost base is supported by service income from third party customers. - For all three divisions, the Group maintains a strict regime of budgetary control.
Significant and prolonged equity 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 proportional to the value of funds under management and, as the managed investment funds overall comprise a significant equity content, the Group is 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 are intended to give rise to a degree of diversification of risk. - Certain investment management costs are also proportional to fund values thereby reduce in the event of market falls and hence some cost savings arise partially hedging the impact on income. - There is a wide range of investment funds and managers so that there is no significant concentration of risk. - In the Movestic business, management options include the ability to increase charges in the circumstances of a material fall in assets under management.
Adverse exchange rate movements against Sterling	Exposure to adverse Sterling:Swedish Krona and Sterling:Euro exchange rate movements arises from actual planned cash flows between Chesnara and its overseas subsidiaries 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. - The impact of any adverse currency movements can be reduced by timing the cash flows from subsidiaries to Group, if appropriate given various other applicable criteria for transfers.
Counterparty failure	The Group carries significant inherent risk of counterparty failure in respect of: - its fixed interest security portfolio; - cash deposits; and - payments due from reinsurers.	- Operation of guidelines which limit the level of exposure to any single counterparty and which impose limits on exposure to credit ratings. - In respect of a significant 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.
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.
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 any of the service providers to fulfil their contractual obligations, in whole or in part, to the requisite standards specified in the contracts, the Group may suffer losses, poor customer outcomes, or reputational damage as its functions degrade.	- Rigorous service level measures and management information flows under its contractual arrangements. - Continuing and close oversight of the performance of all 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 it relies on a number of key individuals who have particular knowledge, experience and know how. The Group is, accordingly, exposed to the sudden loss of the services of these individuals.	- The Group promotes the sharing of knowledge 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 and embedding of Solvency II requirements; ii) the FCA's review of legacy business; iii) the changes in pensions legislation in April 2015; iv) HM Treasury's review of exit charges on pensions business; and v) Commission and rebate income changes in Sweden.	Strong project management disciplines are applied when delivering regulatory change programmes. Chesnara seeks to limit any potential impacts of Regulatory change on the business by: - Having processes in place for monitoring changes, to enable timely actions to be taken, as appropriate - Being a member of the ABI and other means of joint industry representation - Performing internal reviews of compliance with regulations - Utilising external specialist advice, when appropriate, including Assurance Chesnara maintains strong relationships with all key regulators including regular and open dialogue about areas of potential change that could affect any of the Chesnara businesses. Through the Risk Management Framework, regulatory risk is monitored and scenario tests are performed to understand the potential impacts of adverse regulatory or legal changes, along with consideration of actions that may be taken to minimise the impact, should they arise.
Inconsistent regulation across territories	Chesnara currently operates in three regulatory domains and is therefore exposed to inconsistent application of regulatory standards across divisions, such as the imposition of higher Capital Buffers over and above regulatory minimums. Potential consequences of this risk for Chesnara constraining the efficient and fluid use of capital within the Group, or creating a non-level playing field with respect to future deal assessments.	- Strong and open relationships are maintained with all regulators. Evidence is provided to Regulators that demonstrates consistent stability and control across Divisions, achieved through strong risk management and governance standards. - In extremis, Chesnara could consider the re-domiciling of subsidiaries or legal restructure of the business.
Availability of future acquisitions	Chesnara's inorganic growth strategy is dependent on the availability of attractive future acquisition opportunities. Hence, the business is exposed to the risk of a reduction in the availability of available acquisition opportunities in Chesnara's current target markets, for example arising as a result of a change in competition in the consolidation market or from regulatory change influencing the extent of life company strategic restructuring.	- Chesnara's financial strength and market reputation for successful execution of transactions enables the company to adopt a patient and risk-based approach to assessing acquisition opportunities. - Operating in multi-territories provides some diversification against the risk of changing market circumstances in one of the territories. - Maintaining strong relationships and reputation as "safe hands acquirer" via regular contact with regulators, banks and target companies.
Defective acquisition due diligence	Through the execution of acquisitions, Chesnara is exposed to the risk of erosion of value or financial losses arising from risks inherent within businesses or funds acquired which are not adequately priced for or mitigated within the transaction.	- Structured Board approved risk-based acquisition process including CRO involvement in due diligence process. - Management team with significant and proven mergers and acquisitions experience. - Cautious risk appetite and pricing approach.
Cyber fraud	Cyber fraud is a growing risk affecting all companies, particularly in the financial sector. This risk exposes Chesnara to potential financial losses and disruption to Policyholder services (and corresponding reputational damage).	- Ongoing specialist external advice, modifications to IT infrastructure and updates as appropriate. - Penetration and vulnerability testing.

DIRECTORS' RESPONSIBILITIES STATEMENT

With regards to this preliminary announcement, the Directors confirm to the best of their knowledge that:

- The financial statements have been prepared in accordance with International Reporting Financial Standards as adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation as a whole;

- The EEV supplementary information has been prepared in accordance with the EEV Principles; and

- Pursuant to Disclosure and Transparency Rules Chapter 4, the Chairman's Statement and Management Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the business.

On behalf of the Board

Peter Mason John Deane

Chairman Chief Executive Officer

30 March 2016 30 March 2016

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF CHESNARA PLC ON THE PRELIMINARY ANNOUNCEMENT OF CHESNARA PLC

We confirm that we have issued an unqualified opinion on the full financial statements of Chesnara plc.

We also confirm that we have issued an unqualified opinion on the EEV Basis Supplementary Information of Chesnara plc. Our audit report on the EEV Basis Supplementary Information should be read in conjunction with the full financial statements prepared on an IFRS basis.

Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks:

1. Save and Prosper cost of Guarantees;

2. Valuation of the Protection Life acquired in-force business intangible;

3. Credit adjustment to the valuation rate of interest; and

4. Waard acquisition.

1) Save and Prosper cost of Guarantees

The risk

The assessment of the cost of guarantee reserves for policies written by Save and Prosper is complex and material, including the use of a stochastic model based on a variety of possible economic scenarios. The carrying value of the liability within the IFRS financial statements has fluctuated significantly over the last 3 years, and has a value of £37.2m at 31 December 2015 (31 December 2014: £34.6m). The value is determined by a third party actuarial consultant and he directors compare this valuation against an in-house derived estimate using an approximation model to validate its reasonableness.

See the 'S&P Pre-tax IFRS profit' section of the Financial Review for disclosure of the charge to income for the current and prior year and narrative of the driver underpinning this movement.

How the scope of our audit responded to the risk

We have assessed the competence of the actuarial consultant. Such an assessment includes a direct challenge of the actuarial consultant's working papers and a challenge of the historical accuracy of modelling when compared with actual experience. We used actuarial specialists within our audit team to challenge the appropriateness of assumptions input into the model and benchmark against external actuarial data. Sensitivity analysis was also performed to assess potential management bias. We developed an independent expectation of how the assumptions impact the model and challenged management's explanation and analysis to support any variations.

We have assessed the design and implementation of the internal controls in place to monitor and manage the risks associated with the cost of guarantee reserve.

2) Valuation of the Protection Life acquired in-force business intangible

The risk

At 31 December 2015 the group carries an intangible asset for the Protection Life acquired in-force business of £15.0m (31 December 2014: £17.6m). Following a review of available headroom, the key risk has been focussed on the Protection Life acquired in-force business intangible from the Movestic acquired in-force business intangible in the previous year.

Assessing the recoverable value of the acquired in-force business intangible asset requires significant judgment in the estimation of the net present value of cash flows arising from the pre-acquisition policies acquired in past business combinations. The key assumptions are persistency rates, discount rates and economic assumptions. In performing the impairment review management has used a variety of discount rates (4%, 5%, 6% and 7%).

How the scope of our audit responded to the risk

We evaluated the recoverability of the Protection Life acquired in-force business intangible asset by reviewing and challenging:

- the mechanical accuracy of the net present value calculation;

- the cash flows within the model to ensure these were the latest available and were those used consistently throughout the business;

- the level of headroom this calculation generated by reference to the post amortisation carrying value of the asset; and

- the appropriateness of the key assumptions used within the model by reference to actual experience and performance of sensitivity analysis where appropriate.

We tested the design and implementation of the controls over the impairment test performed by management to assess the suitability of the carrying value of the intangible asset.

3) Credit adjustment to the valuation rate of interest

The risk

Actuarial liabilities are calculated using an appropriate discount rate to take account of the time value of future expected payments. The discount rate used to determine the actuarial liabilities includes an adjustment to reflect the credit risk of those future cash flows. The determination of the credit risk adjustment which is applied to non-Government bond yields is a source of significant judgment and is material to the Balance Sheet.

How the scope of our audit responded to the risk

We evaluated the appropriateness of the principal assumptions relating to the credit risk element of the valuation rate of interest assumption for discounting the technical provisions. This involved benchmarking the credit risk assumptions used against those obtained from external data, including a comparison with those adopted by industry peers, where available.

We substantively agreed a sample of non-government bonds used within the calculation of the valuation rate of interest to the value of those bonds on the balance sheet to check consistency.

We have evaluated the design and implementation of the internal controls around the determination and application of the credit element of the valuation rate of interest applied in discounting actuarial liabilities.

4) Waard acquisition

The risk

The acquisition of the Waard Group required the exercise of judgment on the identification and valuation of the assets and liabilities acquired. The key judgments included the calculation of future cash flows arising from the Waard Group and the discount rate applied in adjusting these cash flows to a present value measurement. These judgements have a material impact on the financial position and result for the year.

A profit of £16.6m was recognised along with an intangible asset of £5.5m representing the acquired in-force business, which will be amortised over the life of the business. A profit on acquisition was recognised due to the deal being a "bargain purchase" given the owner of the Waard Group was subject to bankruptcy proceedings in the Netherlands during the deal negotiation and completion.

See Note 3 for the accounting policy adopted by management, the consideration of significant accounting judgment and the disclosure of the acquired in-force business intangible.

How the scope of our audit responded to the risk

We supervised audit procedures on the acquired Balance Sheet, including an independent valuation of a sample of derivative contracts held within the Balance Sheet and other investment balances.

We challenged the methodology applied to the underlying cash flows used to calculate the acquired in-force business intangible asset, and the judgments made by management. Specifically we recalculated an independent discount rate based on observable inputs to assess whether the rate used by management was reasonable. We used actuarial specialists within our audit team to challenge the appropriateness of assumptions used with reference to the actual experience observed within the book.

We assessed and challenged the completeness and accuracy of adjustments made in the consolidation process by independent recalculation. This included adjustments made to bring the Waard reporting in line with the group accounting policies, and any consolidation adjustments made.

We obtained and challenged the acquisition hindsight review performed by Management in the post-acquisition period against the performance of the acquired business.

We have evaluated the design and implementation of the internal controls in place around the Waard acquisition. Such controls included Board approval of the assumptions used and approval of the acquisition accounting workings.

These matters were addressed in the context of our audit of the full financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

Our liability for this report, and for our audit report on the full financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our liability for our audit report on the EEV Basis Supplementary Information is to the company directors in accordance with our engagement letter. Our audit work on the full financial statements and on the EEV Basis Supplementary Information has been undertaken so that we might state to the company's members and directors those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

Deloitte LLP

Chartered Accountants and Statutory Auditor

CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December	2015	2014
	£000		£000
Insurance premium revenue	114,749		128,384
Insurance premium ceded to reinsurers	(46,811)		(51,646)
Net insurance premium revenue	67,938		76,738
Fee and commission income	66,249		66,592
Net investment return	148,514		430,673
Total revenue net of reinsurance payable	282,701		574,003
Other operating income	18,586		23,624
Total income net of investment return	301,287		597,627
Insurance contract claims and benefits incurred
Claims and benefits paid to insurance contract holders	(318,721)		(303,521)
Net increase in insurance contract provisions	191,850		39,676
Reinsurers' share of claims and benefits	32,004		44,627
Net insurance contract claims and benefits	(94,867)		(219,218)
Change in investment contract liabilities	(100,469)		(267,140)
Reinsurers' share of investment contract liabilities	733		2,272
Net change in investment contract liabilities	(99,736)		(264,868)
Fees, commission and other acquisition costs	(20,875)		(21,707)
Administrative expenses	(41,301)		(42,494)
Other operating expenses
Charge for amortisation of acquired value of in-force business	(9,274)		(9,281)
Charge for amortisation of acquired value of customer relationships	(222)		(263)
Other	(5,866)		(8,840)
Total expenses net of change in insurance contract provisions and investment contract liabilities	(272,141)		(566,671)
Total income less expenses	29,146		30,956
Share of profit of associate	455		855
Profit recognised on business combination	16,644		-
Financing costs	(3,457)		(3,008)
Profit before income taxes	42,788		28,803
Income tax expense	(3,000)		(3,228)
Profit for the year	39,788		25,575
Foreign exchange translation differences arising on the revaluation of foreign operations	(173)		(7,844)
Total comprehensive income for the year	39,615		17,731
Basic earnings per share (based on profit for the year)	31.48p		22.10p
Diluted earnings per share (based on profit for the year)	31.41p		22.08p

CONSOLIDATED BALANCE SHEET

31 December	2015	2014
	£000	£000
Assets
Intangible assets
Deferred acquisition costs	36,061	31,298
Acquired value of in-force business	68,341	73,469
Acquired value of customer relationships	875	1,143
Software assets	4,720	3,715
Property and equipment	537	477
Investment in associates	4,707	4,388
Investment properties	245	5,520
Reinsurers' share of insurance contract provisions	282,628	335,936
Amounts deposited with reinsurers	33,941	35,498
Financial assets
Equity securities at fair value through income	486,243	475,983
Holdings in collective investment schemes at fair value through income	3,499,355	3,516,424
Debt securities at fair value through income	423,754	377,193
Policyholders' funds held by the Group	189,919	164,858
Insurance and other receivables	43,674	45,360
Prepayments	6,565	4,821
Derivative financial instruments	2,721	3,580
Total financial assets	4,652,231	4,588,219
Reinsurers' share of accrued policyholder claims	19,042	14,722
Income taxes	3,611	1,962
Cash and cash equivalents	260,863	241,699
Total assets	5,367,802	5,338,046
Liabilities
Insurance contract provisions	2,232,083	2,308,043
Other provisions	1,905	729
Financial liabilities
Investment contracts at fair value through income	2,457,521	2,389,812
Liabilities relating to policyholders' funds held by the Group	189,919	164,858
Borrowings	79,025	87,296
Derivative financial instruments	444	49
Total financial liabilities	2,726,909	2,642,015
Deferred tax liabilities	7,906	8,340
Reinsurance payables	9,660	10,499
Payables related to direct insurance and investment contracts	62,284	58,789
Deferred income	6,212	6,974
Income taxes	6,328	4,168
Other payables	18,401	18,467
Bank overdrafts	952	1,189
Total liabilities	5,072,640	5,059,213
Net assets	295,162	278,833
Shareholders' equity
Share capital	42,600	42,600
Share premium	76,516	76,523
Treasury shares	(161)	(168)
Other reserves	(814)	(641)
Retained earnings	177,021	160,519
Total shareholders' equity	295,162	278,833

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December	2015	2014
	£000	£000
Profit for the year	39,788	25,575
Adjustments for:
Depreciation of property and equipment	203	206
Amortisation of deferred acquisition costs	9,251	9,729
Amortisation of acquired value of in-force business	9,274	9,281
Amortisation of acquired value of customer relationships	222	263
Amortisation of software assets	1,346	1,802
Share based payment	212	114
Tax paid	2,999	3,228
Interest receivable	(24,693)	(26,975)
Dividends receivable	(31,501)	(30,032)
Interest expense	3,457	3,008
Change in fair value of investment properties	(4,277)	(2,526)
Fair value gains on financial assets	(87,934)	(370,641)
Profit arising on business combination	(16,644)	-
Share of profit of associate	(455)	(855)
Increase in intangible assets related to insurance and investment contracts	(14,759)	(16,219)
Interest received	24,458	27,346
Dividends received	31,532	29,835
Changes in operating assets and liabilities:
Decrease in financial assets	62,365	44,847
Decrease in reinsurers share of insurance contract provisions	54,253	34,654
Increase/(decrease) in amounts deposited with reinsurers	1,557	(1,205)
Increase/(decrease) in insurance and other receivables	1,754	(2,492)
Increase in prepayments	(1,710)	(317)
Decrease in insurance contract provisions	(201,453)	(44,940)
Increase in investment contract liabilities	149,011	369,838
Decrease in provisions	(1,893)	(4,600)
(Decrease)/increase in reinsurance payables	(578)	222
Increase in payables related to direct insurance and investment contracts	1,708	12,820
Decrease in other payables	(1,630)	(7,402)
Net cash generated from operations	5,863	64,564
Income tax paid	(4,248)	(8,839)
Net cash generated from operating activities	1,615	55,725
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired	54,258	-
Development of software	(2,418)	(1,079)
Purchases of property and equipment	(265)	(224)
Proceeds from the disposal of property and equipment	-	152
Net cash generated from/( utilised by) investing activities	51,575	(1,151)
Cash flows from financing activities
Proceeds from issue of share capital	-	34,573
Repayment of borrowings	(7,815)	(4,469)
Sale treasury shares	-	44
Dividends paid	(23,498)	(20,731)
Interest paid	(3,382)	(2,593)
Net cash (utilised by)/generated from financing activities	(34,695)	6,824
Net increase in net cash and cash equivalents	18,495	61,398
Net cash and cash equivalents at beginning of year	240,510	183,136
Effect of exchange rate changes on net cash and cash equivalents	906	(4,024)
Net cash and cash equivalents at end of the year	259,911	240,510

Note: Net cash and cash equivalents includes overdrafts.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2015
	Share capital	Share premium	Other reserves	Treasury shares	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
Equity shareholders' funds at 1 January 2015	42,600	76,523	(641)	(168)	160,519	278,833
Profit for the year	-	-	-	-	39,788	39,788
Dividends paid	-	-	-	-	(23,498)	(23,498)
Foreign exchange translation differences	-	-	(173)	-	-	(173)
Share based payment	-	-	-	-	212	212
Sale of treasury shares	-	(7)	-	7	-	-
Equity shareholders' funds at 31 December 2015	42,600	76,516	(814)	(161)	177,021	295,162

Year ended 31 December 2014
	Share capital	Share premium	Other reserves	Treasury shares	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
Equity shareholders' funds at 1 January 2014	42,024	42,526	7,203	(212)	155,561	247,102
Profit for the year	-	-	-	-	25,575	25,575
Dividends paid	-	-	-	-	(20,731)	(20,731)
Foreign exchange translation differences	-	-	(7,844)	-	-	(7,844)
Share based payment	-	-	-	-	114	114
Issue of new shares	576	33,971	-	-	-	34,547
Sale of treasury shares	-	26	-	44	-	70
Equity shareholders' funds at 31 December 2014	42,600	76,523	(641)	(168)	160,519	278,833

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS

1. Basis of presentation

The preliminary announcement is based on the Group's financial statements for the year ended 31 December 2015, which are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('Adopted IFRSs') as adopted by the EU.

2. Significant accounting policies

The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements.

3. Business Combination

On 19 May 2015, Chesnara plc acquired the entire issued share capital (100%) of the Waard Group, a closed life assurance company based in the Netherlands, from DSB Beheer B.V., a Dutch financial services group for a total consideration of £50,123,000. The acquired companies comprise of the three insurance companies Waard Leven N.V., Hollands Welvaren Leven N.V. and Waard Schade N.V., and a service company, Tadas Verzekering. The Waard Group's policy base is predominantly made up of term life policies, although also includes unit-linked policies and some non-life policies, covering risks such as occupational disability and unemployment. The acquisition represents an attractive opportunity to purchase a closed book with the potential to generate significant cash flow over the near-to-medium term, while also providing a platform to participate in further consolidation within the Dutch and other European markets.

The acquisition of this shareholding has given rise to a profit on acquisition of £16.6m calculated as follows:

	Book value	Provisional fair value adjustments	Fair value
	£000	£000	£000
Assets
Intangible assets
Acquired value of in-force business	-	5,506	5,506
Software assets	25	-	25
Property and equipment	13	-	13
Reinsurers' share of insurance contract provisions	5,522	-	5,522
Financial assets:
Equity securities at fair value through income	170	-	170
Holdings in collective investment schemes at fair value through income	45,131	-	45,131
Debt securities at fair value through income	37,793	-	37,793
Insurance and other receivables	679	-	679
Prepayments	64	-	64
Total financial assets	83,837	-	83,837
Reinsurers' share of accrued policyholder claims	1,084	-	1,084
Deferred tax asset	1,824	-	1,824
Income taxes	255	-	255
Cash and cash equivalents	104,381	-	104,381
Total assets	196,941	5,506	202,447
Liabilities
Insurance contract provisions	125,045	-	125,045
Other provisions	3,025	-	3,025
Deferred tax liabilities	2,099	1,377	3,476
Reinsurance payables	72	-	72
Payables related to direct insurance contracts	2,241	-	2,241
Income taxes	70	-	70
Other payables	1,751	-	1,751
Total liabilities	134,303	1,377	135,680
Net assets	62,638	4,129	66,767

Net assets acquired			66,767
Total consideration, paid in cash			(50,123)

Profit arising on business combination			16,644

The assets and liabilities at the acquisition date in the table above are stated at their provisional fair values and may be amended for 12 months after the date of acquisition in accordance with IFRS 3, Business Combinations. In our interim financial statements, the profit arising upon business combination was reported at £16.2m. This has subsequently been revised to reflect more accurately the fair value of the net assets acquired. The adjustment includes an increase in the expense assumptions used to calculate the Acquired value of in-force business and also the recognition of a deferred tax asset, which existed at the acquisition date but was not recognised due to uncertainty surrounding its ability to be utilised against future profit emergence. This has subsequently been established as being off-settable against future profit emergence within the Waard fiscal tax unity and is now recognised on the acquisition balance sheet.

Acquired receivables: Within the net assets acquired are reinsurance related and other receivable balances totalling £7.3m, which are held at fair value. For all receivables other than reinsurers' share of insurance contract provisions the gross contractual amounts receivable are equal to fair value. The reinsurers' share of insurance contract provisions receivable balance of £5.5m is discounted as a result of the long-term nature of this asset. Gross contractual amounts receivable are estimated as being £6.4m.

Acquired value of in-force business: The acquisition has resulted in the recognition of net of tax intangible asset amounting to £4.1m, which represents the present value of the future post-tax cash flows expected to arise from policies that were in force at the point of acquisition. The asset has been valued using a discounted cash flow model that projects the future surpluses that are expected to arise from the business. The model factors in a number of variables, of which the most influential are; the policyholders' ages, mortality rates, expected policy lapses, expenses that are expected to be incurred to manage the policies and future investment growth, as well as the discount rate that has been applied. This asset will be amortised over its expected useful life.

Gain on acquisition: As shown on the previous page, a gain of £16.6m has been recognised on acquisition. Under IFRS 3, a gain on acquisition is defined as being a "bargain purchase". At the point of price negotiation and subsequent deal completion, the Waard Group was owned by DSB Bank N.V. (a wholly-owned subsidiary DSB Beheer B.V.) which was subject to bankruptcy proceedings in the Netherlands. In the opinion of the Directors this resulted in a disposal pricing strategy for the Waard Group that would have differed to that which would have been used had the businesses been sold by a Group that was a going concern.

Acquisition-related costs: The costs in respect of the transaction amounted to £3.5m. £2.5m of these costs have been included in Administration Expenses, of which £1.9m was recognised within the Consolidated Statement of Comprehensive Income in 2014, with the remainder recognised in the current period. Transaction costs of £1.0m were incurred in respect of the equity fund-raising and were deducted from equity in 2014.

Results of the Waard Group: The results of the Waard Group have been included in the consolidated financial statements of the Group with effect from 19 May 2015. Net insurance premium revenue for the period was £1.1m, with contribution to overall consolidated profit before tax of £0.9m, before the amortisation of the AVIF intangible asset. Had the Waard Group been consolidated from 1 January 2015, the Consolidated Statement of Comprehensive Income would have included net insurance premium revenue of £2.2m, and would have contributed £2.1m to the overall consolidated profit before tax.

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 31 December 2015 comprise:

CA: This segment is part of the Group's UK life insurance and pensions run-off portfolio and comprises the original business of Countrywide Assured plc, the Group's principal UK operating subsidiary, and of City of Westminster Assurance Company Limited which was acquired in 2005 and the long-term business of which was transferred to Countrywide Assured plc during 2006. This segment also contains the business of Protection Life, which was purchased on 28 November 2013. Following the Part VII transfer on 31 December 2014 of the long-term business of Protection Life Company Limited into Countrywide Assured plc, the business of Protection Life (PL) is now reported within the CA segment, effective from 1 January 2015. Previously PL was reported as a separate segment. Comparative information has been restated to reflect this change. CA is responsible for conducting unit-linked and non-linked business.

S&P: This segment, which was acquired on 20 December 2010, comprises the historical business of Save & Prosper Insurance Limited and its then subsidiary Save & Prosper Pensions Limited. It is responsible for conducting both unit-linked and non-linked business, including a with-profits portfolio, which carries significant additional market risk, 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.

Movestic: This segment comprises the Group's Swedish life and pensions business, Movestic Livförsäkring AB ('Movestic') and its subsidiary and associated companies, which are open to new business and which are responsible for conducting both unit-linked and pensions and savings business and providing some life and health product offerings.

Waard Group: This segment represents the Group's Dutch life and general insurance business, which was acquired on 19 May 2015 and comprises the three insurance companies Waard Leven N.V., Hollands Welvaren Leven N.V. and Waard Schade N.V., and a servicing company, Tadas Verzekering. The Waard Group's policy base is predominantly made up of term life policies, although also includes unit-linked policies and some non-life policies, covering risks such as occupational disability and unemployment.

Other Group Activities: The functions performed by the parent company, Chesnara plc, are defined under the operating segment analysis as Other Group Activities. Also included therein are consolidation and elimination adjustments.

The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal commercial terms in normal market conditions. The Group evaluates performance of operating segments on the basis of the profit before tax attributable to shareholders and on the total assets and liabilities of the reporting segments and the Group. There were no changes to the measurement basis for segment profit during the year ended 31 December 2015.

(i) Segmental income statement for the year ended 31 December 2015

	CA	S&P	UK Total	Movestic	Waard Group	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000	£000
Net insurance premium revenue	47,880	5,413	53,293	13,515	1,130	-	67,938
Fee and commission income	30,216	2,513	32,729	33,502	18	-	66,249
Net investment return	24,539	37,605	62,144	87,163	(1,238)	445	148,514
Total revenue (net of reinsurance payable)	102,635	45,531	148,166	134,180	(90)	445	282,701
Other operating income	2,854	11,331	14,185	4,399	2	-	18,586
Segmental income/(expenses)	105,489	56,862	162,351	138,579	(88)	445	301,287
Net insurance contract claims and benefits incurred	(54,093)	(37,282)	(91,375)	(6,079)	2,587	-	(94,867)
Net change in investment contract liabilities	(13,240)	641	(12,599)	(87,137)	-	-	(99,736)
Fees, commission and other acquisition costs	(1,986)	(21)	(2,007)	(21,864)	83	-	(23,788)
Administrative expenses:
Amortisation charge on software assets	-	-	-	(1,340)	-	-	(1,340)
Depreciation charge on property and equipment	(22)	-	(22)	(180)	-	-	(202)
Other	(10,691)	(9,628)	(20,319)	(9,884)	(1,715)	(7,841)	(39,759)
Operating expenses	(1,501)	-	(1,501)	(4,481)	-	-	(5,982)
Financing costs	-	-	-	(1,340)	-	(2,116)	(3,456)
Share of profit from associates	-	-	-	455	-	-	455
Profit before tax and consolidation adjustments	23,956	10,572	34,528	6,729	867	(9,512)	32,612
Other operating expenses:
Charge for amortisation of acquired value of in-force business	(4,975)	(661)	(5,636)	(3,282)	(356)	-	(9,274)
Charge for amortisation of acquired value of customer relationships	-	-	-	(107)	-	-	(107)
Fees, commission and other acquisition costs	-	-	-	2,913	-	-	2,913
Segmental income less expenses	18,981	9,911	28,892	6,253	511	(9,512)	26,144
Profit arising on business combinations	-	-	-	-	-	16,644	16,644
Profit before tax	18,981	9,911	28,892	6,253	511	7,132	42,788
Income tax (expense)/credit			(4,139)	(14)	(124)	1,277	(3,000)
Profit after tax			24,753	6,239	387	8,409	39,788

(ii) Segmental balance sheet as at 31 December 2015

	CA	S&P	Movestic	Waard Group	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000
Total assets	1,809,494	1,181,272	2,134,143	188,993	53,900	5,367,802
Total liabilities	(1,702,363)	(1,125,113)	(2,070,860)	(120,216)	(54,088)	(5,072,640)
Net assets	107,131	56,159	63,283	68,777	(188)	295,162
Investment in associates	-	-	4,707	-	-	4,707
Additions to non-current assets	-	26	17,368	73	-	17,467

(iii) Segmental income statement for the year ended 31 December 2014 (re-stated)*

	CA*	S&P	UK Total	Movestic	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000
Net insurance premium revenue	54,946	6,330	61,276	15,462	-	76,738
Fee and commission income	30,773	2,333	33,106	33,486	-	66,592
Net investment return	115,757	90,292	206,049	224,278	346	430,673
Total revenue (net of reinsurance payable)	201,476	98,955	300,431	273,226	346	574,003
Other operating income	3,011	11,664	14,675	6,086	2,863	23,624
Segmental income	204,487	110,619	315,106	279,312	3,209	597,627
Net insurance contract claims and benefits incurred	(104,341)	(106,986)	(211,327)	(7,891)	-	(219,218)
Net change in investment contract liabilities	(38,319)	(2,637)	(40,956)	(223,912)	-	(264,868)
Fees, commission and other acquisition costs	(1,991)	(26)	(2,017)	(23,014)	-	(25,031)
Administrative expenses:
Amortisation charge on software assets	-	-	-	(2,188)	-	(2,188)
Depreciation charge on property and equipment	(22)	-	(22)	(187)	-	(209)
Other	(11,190)	(9,741)	(20,931)	(11,273)	(7,893)	(40,097)
Operating expenses	(1,809)	(411)	(2,220)	(6,104)	(647)	(8,971)
Financing costs	-	(4)	(4)	(663)	(2,341)	(3,008)
Share of profit from associates	-	-	-	855	-	855
Profit before tax and consolidation adjustments	46,815	(9,186)	37,629	4,935	(7,672)	34,892
Other operating expenses:	-
Charge for amortisation of acquired value of in-force business	(4,778)	(701)	(5,479)	(3,802)	-	(9,281)
Charge for amortisation of acquired customer relationships	-	-	-	(132)	-	(132)
Charge for amortisation of deferred acquisition cost	-	-	-	3,324	-	3,324
Segmental income less expenses	42,037	(9,887)	32,150	4,325	(7,672)	28,803
Profit arising on business combinations	-	-	-	-	-	-
Profit/(loss) before tax	42,037	(9,887)	32,150	4,325	(7,672)	28,803
Income tax (expense)/credit			(5,045)	929	888	(3,228)
Profit/(loss) after tax			27,105	5,254	(6,784)	25,575

* Now includes Protection Life segment (previously shown separately).

(iv) Segmental balance sheet as at 31 December 2014 (re-stated)*

	CA*	S&P	Movestic	Other Group Activities	Total
	£000	£000	£000	£000	£000
Total assets	2,020,863	1,234,780	1,999,102	83,301	5,338,046
Total liabilities	(1,870,682)	(1,181,721)	(1,940,262)	(66,548)	(5,059,213)
Net assets	150,181	53,059	58,840	16,753	278,833
Investment in associates	-	-	4,388	-	4,388
Additions to non-current assets	-	-	17,297	-	17,297

* Now includes Protection Life segment (previously shown separately).

5. Borrowings

31 December
	2015 £000	2014 £000
Bank loan	52,522	64,327
Amount due in relation to financial reinsurance	26,503	22,969
Total	79,025	87,296

Current	18,448	17,198
Non-current	60,577	70,098
Total	79,025	87,296

The bank loan subsisting at 31 December 2015, comprises the following:

- on 7 October 2013 tranche one of a loan facility was drawn down, amounting to £30.0m. This facility is unsecured and is repayable in five increasing annual instalments on the anniversary of the draw down date. The outstanding principal on the loan bears interest at a rate of 2.25 percentage points above the London Inter-Bank Offer Rate and is repayable over a period which varies between one and six months at the option of the borrower. During the year, £6.0m of the debt was repaid.

- on 27 November 2013 tranche two of the loan facility was drawn down, amounting to £31.0m. As with tranche one, this facility is unsecured and is repayable in five increasing annual instalments on the anniversary of the draw down date. The outstanding principal on the loan bears interest at a rate of 2.25 percentage points above the London Inter-Bank Offer Rate and is repayable over a period which varies between one and six months at the option of the borrower. During the year, £6.0m of the debt was repaid.

- on 27 November 2013 a short-term loan of £12.8m was drawn down. This was originally repayable in full on 27 May 2015. During 2014, the repayment date of this loan has been extended to December 2018. The outstanding principal on the loan bears interest at a rate of 2.75 percentage points above the London Inter-Bank Offer Rate.

The fair value of the bank loan at 31 December 2015 was £52,800,000 (31 December 2014: £64,800,000).

The fair value of amounts due in relation to financial reinsurance was £26,879,000 (31 December 2014: £23,767,650). 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. Earnings per share

Year ended 31 December	2015	2014

Profit for the year attributable to shareholders (£000)	39,788	25,575
Weighted average number of ordinary shares	126,401,635	115,711,981
Basic earnings per share	31.48p	22.10p
Diluted earnings per share	31.41p	22.08p

The weighted average number of ordinary shares in respect of the years ended 31 December 2015 is based upon 126,552,427 shares in issue less 147,535 own shares held in treasury. The weighted average number of ordinary shares in respect of the years ended 31 December 2014 was based upon 126,552,427 shares in issue less 154,031 own shares held in treasury.

There were 271,000 share options outstanding at 31 December 2015 (2014: 117,000). Accordingly, there is dilution of the average number of ordinary shares in issue in respect of 2015.

7. Retained earnings

Year ended 31 December
	2015 £000	2014 £000
Retained earnings attributable to equity holders of the parent company comprise:
Balance at 1 January	160,519	155,561
Profit for the year	39,788	25,575
Share based payment	212	114
Dividends
Final approved and paid for 2013	-	(13,357)
Interim approved and paid for 2014	-	(7,374)
Final approved and paid for 2014	(15,143)	-
Interim approved and paid for 2015	(8,355)	-
Balance at 31 December	177,021	160,519

The interim dividend in respect of 2014, approved and paid in 2014 was paid at the rate of 6.42p per share. The final dividend in respect of 2014, approved and paid in 2014, was paid at the rate of 11.98p per share so that the total dividend paid to the equity shareholders of the Parent Company in respect of the year ended 31 December 2014 was made at the rate of 18.40p per share.

The interim dividend in respect of 2015, approved and paid in 2015, was paid at the rate of 6.61p per share to equity shareholders of the Parent Company registered at the close of business on 11 September 2015, the dividend record date.

A final dividend of 12.33p per share in respect of the year ended 31 December 2015 payable on 23 May 2016 to equity shareholders of the Parent Company registered at the close of business on 8 April 2016, the dividend record date, was approved by the Directors after the balance sheet date. The resulting total final dividend of £15.6m has not been provided for in these financial statements and there are no income tax consequences.

The following summarises dividends per share in respect of the year ended 31 December 2015 and 31 December 2014:

Year ended 31 December
	2015 p	2014 p
Interim - approved and paid	6.61	6.42
Final - proposed/paid	12.33	11.98
Total	18.94	18.40

8. Related parties

(a) Identity of related parties

The shares of the Company were widely held and no single shareholder exercised significant influence or control over the Company.

The Company has related party relationships with:

(i) key management personnel who comprise only the Directors of the Company;

(ii) its subsidiary companies;

(iii) its associated company; and

(v) other companies over which the Directors have significant influence.

(b) Related party transactions

(i) Transactions with key management personnel.

Key management personnel comprise of the Directors of the Company. There are no executive officers other than certain of the Directors. Key management compensation is as follows:

	2015 £000	2014 £000
Short-term employee benefits	1,713	1,593
Post-employment benefits	71	65
Long-term employment benefits	-	161
Total	1,784	1,819

In addition to their salaries the Company also provides non-cash benefits to Directors, and contributes to a post employment defined contribution pension plan on their behalf, or where regulatory contribution limits are reached, pay an equivalent amount as an addition to base salary.

The following amounts were payable to Directors in respect of bonuses and incentives:

	2015 £000	2014 £000
Annual bonus scheme (included in the short-term employee benefits above)	495	493
Long-term incentive plan	-	161
Compensation for loss of office	-	384
Total	495	1,038

These amounts have been included in Accrued Expenses.

The amounts payable under the annual bonus scheme were payable within one year.

(ii) Transactions with subsidiaries

The Company undertakes centralised administration functions, the costs of which it charges back to its operating subsidiaries. The following amounts which effectively comprised a recovery of expenses at no mark up were credited to the Consolidated Statement of Comprehensive Income of the Company for the respective periods:

Year ended 31 December
	2015 £000	2014 £000
Recovery of expenses	3,054	2,629

(iii) Transactions with associate

Movestic Livförsäkring AB and its associate Modernac SA

Year ended 31 December
	2015 £000	2014 £000
Reinsurance premiums paid	(8,456)	(9,829)
Reinsurance recoveries received	4,200	4,600
Reinsurance commission received	1,570	1,853
	(2,686)	(3,376)
Amounts outstanding as at balance sheet date	(5,321)	(4,654)

Movestic Livförsäkring AB had the following amounts outstanding at the balance sheet date:

2015

2014

Amounts owed by associate

£000

Amounts owed to associate

£000

Amounts owed by associate

£000

Amounts owed to associate

£000

Modernac S.A.

5,321

4,654

These amounts have been included in other payables.

SUPPLEMENTARY INFORMATION - EUROPEAN EMBEDDED VALUE BASIS

SUMMARISED EEV CONSOLIDATED INCOME STATEMENT

31 December
	2015	2014
	£000	£000
Covered business
New business contribution	6,061	9,698
Return from in-force business:
Expected return	6,300	7,149
Experience variances	10,754	541
Operating assumption changes	8,394	11,000
Return on shareholder net worth	(28)	9,134
Operating profit of covered business	31,481	37,522
Variation from longer-term investment return	12,195	32,040
Effect of economic assumption changes	(698)	(7,451)
Profit of covered business before tax and gain on acquisition	42,978	62,111
Tax thereon	2,676	(12,237)
Profit of covered business after tax and gain on acquisition	45,654	49,874
Profit recognised on business combination	21,313	-
Non-covered business and other group activities	(10,403)	(7,409)
Tax on uncovered business	947	1,782
Profit for the year attributable to the equity holders of the parent company	57,511	44,247
Earnings per share
Based on profit for the year	50.17p	38.24p
Diluted profit per share
Based on profit for the year	50.06p	38.20p

SUMMARISED EEV CONSOLIDATED BALANCE SHEET

31 December
	2015	2014
Assets	£000	£000
Value of in-force business	264,765	243,671
Adjusted shareholder net worth	190,411	173,571
Net assets	455,176	417,242

Equity
Share capital	42,600	42,600
Share premium	76,516	76,523
Treasury shares	(161)	(168)
Foreign exchange reserve	(5,531)	(3,335)
Other reserves	50	50
Retained earnings	341,702	301,572
Total shareholders' equity	455,176	417,242

SUMMARISED EEV STATEMENT OF CHANGES IN EQUITY

Year ended 31 December	2015 £'000		2014 £'000
Shareholders' equity at beginning of the year		417,242		376,370
Profit for the year attributable to shareholders before modelling adjustments	57,511		44,247
Effect of modelling adjustments	5,903		-
Profit for the year		63,414		44,247
Issue of new shares
Share premium		-		576
Share premium		(7)		33,971
Sale of treasury shares		7		70
Share based payment		212		-
Foreign exchange reserve movement		(2,194)		(17,261)
Dividends paid		(23,498)		(20,731)
Shareholders' equity at end of the year		455,176		417,242

Effect of modelling adjustments

Year ended 31 December 2015

During the year ended 31 December 2015 an adjustment of £5.9m has been reported relating to a tax error in the EEV model which resulted in the tax charge in the EEV model being overstated at 31 December 2014. This has been corrected in the year.

NOTES TO THE EEV SUPPLEMENTARY INFORMATION

1 Basis of preparation

The EEV Supplementary Information is 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. The EEV Supplementary Information has 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, using the methodology and assumptions set out in notes 5 to 7 below. 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 3 to the IFRS basis Financial Statements referred to above.

2 Summarised analysis of profit/(loss)

The profit for the year before modelling adjustments is analysed as:

Year ended 31 December 2015	CA	S&P	UK Total	Movestic	Waard Group	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000	£000
Covered business
New business contribution	361	-	361	5,700	-	-	6,061
Return from in-force business
Expected return	3,267	713	3,980	3,044	(724)	-	6,300
Experience variances	6,943	2,461	9,404	127	1,223	-	10,754
Operating assumption changes	(2,599)	5,077	2,478	5,661	255	-	8,394
Return on shareholder net worth	382	(410)	(28)	-	-	-	(28)
Operating profit/(loss) of covered business	8,354	7,841	16,195	14,532	754	-	31,481
Variation from longer-term investment return	802	2,848	3,650	8,545	-	-	12,195
Effect of economic assumption changes	1,619	(2,950)	(1,331)	864	(231)	-	(698)
Profit/(loss) of covered business before tax	10,775	7,739	18,514	23,941	523	-	42,978
Tax thereon			2,676	-	-	-	2,676
Profit of covered business after tax			21,190	23,941	523	-	45,654
Results of non-covered business and of other group companies
Profit recognised on business combination			-	-	-	21,313	21,313
Effect of modelling adjustments			-	-	-	5,903	5,903
(Loss)/profit before tax			-	(1,282)	389	(9,510)	(10,403)
Tax				(33)	-	980	947
Profit after tax			21,190	22,626	912	18,686	63,414

Year ended 31 December 2014	CA	S&P	UK Total	Movestic	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000
Covered business
New business contribution	794	-	794	8,904	-	9,698
Return from in-force business
Expected return	2,552	(548)	2,004	5,145	-	7,149
Experience variances	5,437	(4,803)	634	(93)	-	541
Operating assumption changes	20,851	(4,632)	16,219	(5,219)	-	11,000
Return on shareholder net worth	1,626	7,508	9,134	-	-	9,134
Operating profit/(loss) of covered business	31,260	(2,475)	28,785	8,737	-	37,522
Variation from longer-term investment return	22,458	(8,582)	13,876	18,164	-	32,040
Effect of economic assumption changes	(4,651)	(3,121)	(7,772)	321	-	(7,451)
Profit of covered business before tax	49,067	(14,178)	34,889	27,222	-	62,111
Tax thereon			(12,237)	-	-	(12,237)
Profit of covered business after tax			22,652	27,222	-	49,874
Results of non-covered business and of other group companies
Profit/(loss) before tax			-	262	(7,671)	(7,409)
Tax			-	894	888	1,782
Profit/(loss) after tax			22,652	28,378	(6,783)	44,247

The results of the non-covered business and of other group companies before tax and before exceptional item are presented as 'other operational result' in the consolidated income statement.

3 Sensitivities to alternative assumptions

The following tables show the sensitivity of the embedded value as reported at 31 December 2015, and of the new business contribution of Movestic, to variations in the assumptions adopted in the calculation of the embedded value. Sensitivity analysis is not provided in respect of the new business contribution of CA and the Waard Group for the year ended 31 December 2015 as the reported level of new business contribution is not considered to be material.

	Embedded value						New business contribution
	UK business				Swedish business	Dutch business	Swedish business
	CA Pre-tax	S&P Pre-tax	Tax	UK Post-tax	Post-tax	Post-tax
	£m	£m	£m	£m	£m	£m	£m
Published value as at 31 December 2015	186.9	62.1	(15.0)	234.0	145.4	61.3	5.6

Changes in embedded value/new business contribution arising from:
Economic sensitivities
100 basis point increase in yield curve	(4.5)	7.1	-	2.6	1.0	(3.4)	(0.2)
100 basis point reduction in yield curve	4.9	(8.6)	(1.4)	(5.1)	(1.0)	1.8	0.2
10% decrease in equity and property values	(7.4)	(11.4)	2.6	(16.2)	(14.5)	-	(0.2)
Operating sensitivities
10% decrease in maintenance expenses	3.3	4.1	(0.8)	6.6	7.4	0.9	0.8
10% decrease in lapse rates	2.0	(1.2)	-	0.8	9.8	-	1.4
5% decrease in mortality/morbidity rates:
Assurances	2.6	0.4	(0.2)	2.8	0.1	1.3	-
Annuities	(2.2)	(0.5)	(0.1)	(2.8)	n/a	n/a	-
Reduction in the required capital to statutory minimum	1.5	0.4	(0.5)	1.4	-	0.2	-

	Embedded value					New business contribution
	UK business				Swedish business	Swedish business
	CA Pre-tax	S&P Pre-tax	Tax	UK Post-tax	Post-tax
	£m	£m	£m	£m	£m	£m
Published value as at 31 December 2014	233.3	61.3	(22.8)	271.8	126.5	7.6

Changes in embedded value/new business contribution arising from:
Economic sensitivities
100 basis point increase in yield curve	(4.2)	9.7	(1.1)	4.4	1.0	(0.2)
100 basis point reduction in yield curve	5.8	(9.8)	0.4	(3.6)	(1.0)	0.2
10% decrease in equity and property values	(10.3)	(12.6)	2.5	(20.3)	(13.2)	(0.2)
Operating sensitivities
10% decrease in maintenance expenses	3.3	4.8	(1.0)	7.1	7.0	0.8
10% decrease in lapse rates	2.7	(1.0)	-	1.7	9.0	1.5
5% decrease in mortality/morbidity rates:
Assurances	2.5	0.5	(0.2)	2.8	0.1	-
Annuities	(2.1)	(0.3)	-	(2.4)	n/a	n/a
Reduction in the required capital to statutory minimum	1.7	0.4	-	2.2	-	-

The key assumption changes represented by each of these sensitivities are as follows:

Economic sensitivities

(i) 100 basis point increase in the yield curve: The reference rate is increased by 1% and the rate of future inflation has also been increased by 1% so that real yields remain constant;

(ii) 100 basis point reduction in the yield curve: The reference rate is reduced by 1% 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 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.

4 Earnings per share

Year ended 31 December
	2015	2014
	p	p
Basic earnings per share
Based on profit for the year	50.17	38.24
Diluted earnings per share
Based on profit for the year	50.06	38.20

5 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, Sweden and Netherlands, 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.

(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) for the Dutch Business the covered business comprises the long-term insurance business of Waard Leven and Hollands Welvaren. The general insurance business within Waard Schade is not included in the covered business, with the result relating to this business being established in accordance with IFRS principles and is included within 'other operating result' within the EEV consolidated income statement.

(iv) 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.

6 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 businesses, which are either regarded as required capital or which represent surplus assets within that business.

New business

CA, S&P and Waard Group

Much of the covered business is in run-off and is therefore substantially closed to new business. Accordingly, for these segments, 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 "Enhance value through new business" on page 22 are not consistent with this definition, as they include non-covered business.

New business premium volumes for the year are as follows:

Pensions and savings covered business 31 December
	2015 £m	2014 £m
New business premium income	40.7	47.4
Regular premium increments	14.2	15.8
Total new business premium income*	54.9	63.2

*Basis: annualised premium plus 1/10 single premium translated into sterling at the 2015 average rate of SEK 12.8946 = £1 (2014: SEK 11.2989) = £1).

The new business contribution has been assessed as at the end of the year, 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. All previously announced changes in corporation tax affecting future periods has been allowed for, with the exception of the most recent reduction in corporation tax rates, announced by the Chancellor on 16 March 2016.

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, corporation tax rate for the Waard Group 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 Note 6(b)) is reflected as a deduction from the value of in-force business.

Financial options and guarantees

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.

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.

Waard Group

The unit-linked business within Hollands Welvaren contains a minimum return to policyholders, of 20% of the premium. As this guarantee is substantially out of the money, it is ignored on materiality grounds.

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 Note 6(c)); 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 7(d).

(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 Regulation Authority in the UK;

(ii) for Movestic, 150% of the regulatory solvency requirement as determined by the regulations of the Finansinspektionen in Sweden.

(iii) for the Waard Group, 200% of the regulatory solvency requirements as determined by the regulations of De Nederlandsche Bank in the Netherlands.

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;

(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; and

(iii) for the Waard Group, by the retained surplus and by share capital and retained earnings within the shareholder funds of the regulated entities.

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.

(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 year 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 year in respect of new business written in that year, 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 year applied to establish the value of in-force business at the beginning of the year;

(ii) variances between the actual experience over the year and the assumptions made to establish the value of business in force at the beginning of the year; and

(iii) the net effect of changes in future assumptions, made prospectively at the end of the year, from those used in establishing the value of business in force at the beginning of the year, 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 reviewed in December 2015.

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.

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 2015 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 financial 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.

7 Assumptions

(a) Investment Returns

Investment returns are assumed to be equal to the reference rate, as covered in Note 6(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:


31 December
	CA*		S&P		Movestic		Waard Group
	2015	2014	2015	2014	2015	2014	2015	2014
5 year	1.60%	1.46%	1.60%	1.46%	0.68%	0.65%	0.33%	-
10 year	2.04%	1.88%	2.04%	1.88%	1.59%	1.27%	1.02%	-
15 year	2.22%	2.12%	2.22%	2.12%	2.04%	1.63%	1.45%	-
20 year	2.25%	2.26%	2.25%	2.26%	2.28%	1.82%	1.63%	-
25 year	2.21%	2.29%	2.21%	2.29%	2.28%	1.82%	1.66%	-
30 year	2.17%	2.30%	2.17%	2.30%	2.28%	1.82%	1.67%	-
Inflation - RPI	2.50%	2.60%	2.50%	2.60%	1.89%	1.42%	1.50%	-

*The PL segment is now reported within the CA segment, and as such a single rate of 1.90% is applied for all durations (31 December 2014: 1.80%).

(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.

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 8 July 2015, so reflect a reduction from the current rate of 20% to 19% from April 2017 and to 18% from April 2020.

(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 and S&P, 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 year and, in relation to maintenance expenses, the average number of policies in force during the year.

For the Waard Group, these have been determined by reference to:

(i) expenses of the covered business excluding those deemed to not relate to ongoing management of the covered business;

(ii) consideration of a suitable allocation between fixed expenses and those that vary with business volumes; and

(iii) the agreement in place with Tadas as the Group's internal administration company for the Dutch covered business.

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 and S&P (as at 31 December 2014: 50 basis points) and 100 basis points for Movestic (as at 31 December 2014: 100 basis points) and 50 basis points for the Waard Group, 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:

(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) reinsurance is used to significantly reduce insurance risks; and

(iii) a number of the risks provide diversification benefits within the Chesnara Group, in relation to reinsurance counterparties, market exposures and policyholder populations.

d) For the Waard Group:

(i) the covered business is substantially closed to new business;

(ii) reinsurance is used to significantly reduce insurance risks; and

(iii) there are no material guarantees or other asymmetrical items within the cash flows.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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