Interim Management Statement
Interim Management Statement
Chesnara plc
Interim Management Statement for the period from 1 January 2010 to 18 November
2010
19 November 2010
This statement relates primarily to the financial position of Chesnara plc (the
'Group') as at 30 September 2010 and to its financial performance during the
first three quarters of the year. Where events and transactions have occurred
since the end of the third quarter, which are estimated to have a material
impact on management's core expectation of the financial position and/or
financial performance of the Group, then these are identified, together with a
broad indication of their impact.
EEV
The movement in Group European Embedded Value ('EEV'), since the position last
reported in the interim financial statements for the six months ended 30 June
2010, is set out in the following table:
Quarter ended Quarter ended Year ended
30 September 30 September 31 December
2010 2009 2009
GBPm GBPm GBPm
EEV at beginning of 255.1 178.9 182.7
period
Profit arising on
acquisition of Swedish
Business - 54.7 54.2
Earnings for the period,
net of tax
- UK Business 10.1 13.2 28.1
- Swedish Business 4.9 4.9 8.7
- Other Group (0.8) (1.3) (0.7)
Activities
Foreign exchange reserve
movement
9.2 8.3 5.5
Dividends paid - - (15.9)
---------- ---------- ----------
EEV at end of period 278.5 258.7 262.6
---------- ---------- ----------
EEV of GBP278.5m as at 30 September 2010 is stated before appropriation of a
dividend of GBP5.9m which was paid on 12 October 2010. EEV of GBP258.7m as at
30 September 2009 is stated before appropriation of a dividend of GBP5.7m which
was paid on 12 October 2009.
The third quarter result has been significantly impacted by favourable
experience in investment markets. Leading UK equity market indices improved by
some 13% over the quarter and leading Swedish market indices improved by 8-10%.
While rates on fixed interest investments continued to drift down during the
quarter in the UK they have, by contrast, strengthened in Sweden. Given the
different mixes of underlying investment and insurance contracts in the UK and
Swedish Businesses these contrasting movements have, in fact, led to beneficial
outcomes in both as set out below.
UK Business
Within the UK Business favourable investment market effects gave rise to
pre-tax gains of some GBP8.0m (GBP6.3m net of tax) in the third quarter,
arising principally from higher deductions from unit-linked funds, which
have increased in value, and through significant increases in the capital value
of fixed interest securities which match non-linked funds.
This result has been enhanced by:
(i) continuing favourable mortality and morbidity experience of GBP0.5m (GBP0.4m
net of tax);
(ii) continuing favourable persistency experience of GBP1.9m (GBP1.5m net of tax);
(iii) unwind of the risk discount rate on existing business of GBP1.2m (GBP1.0m net
of tax); and
(iv) new business contribution and expense efficiencies together realising GBP1.2m
(GBP1.0m net of tax).
Swedish Business
(all stated amounts are pre-tax, tax effects for the period being immaterial)
Within the Swedish Business favourable investment markets effects gave rise to
gains of some GBP6.0m in the quarter, arising principally from the impact
of higher investment growth in both equity and fixed interest markets on
assumed future earnings from the core pensions and savings business.
This outcome has been enhanced by:
(i) GBP0.8m favourable outturn on risk and health insurance business, underpinned
by the performance of the Aspis business acquired earlier in the year;
(ii) GBP1.6m unwind of the risk discount rate; and
(iii) a new business contribution of GBP0.8m.
On the adverse side, the result has been impacted by:
(i) unfavourable persistency experience of GBP0.8m;
(ii) an expense overrun of GBP1.6m; and
(iii) an unfavourable effect of GBP1.8m arising from the change in the investment mix
in the underlying unit-linked contracts.
The foreign exchange gain of GBP9.2m set out in the table above arises from the
effect of translating the SEK-denominated EEV of the Swedish business into UK
pounds sterling which depreciated 9% against the Swedish Krona over the third
quarter. The subsequent 4% appreciation of sterling against the Swedish Krona
is estimated to have reduced this gain by GBP4.1m.
IFRS
The IFRS result arising in the quarter ended 30 September 2010 is set out in
the following table:
Quarter ended Quarter ended Year ended
30 September 30 September 31 December
2010 2009 2009
GBPm GBPm GBPm
Beginning
of the
period*
Pre-tax 12.0 11.2 -
earnings
Tax (4.2) (2.9) -
---------- ---------- ----------
Post-tax 7.8 8.3 -
earnings
---------- ---------- ----------
Pre-tax
earnings
arising in
the third
quarter
Profit - 25.6 25.1
arising on
acquisition
of the
Swedish
Business
UK Business 7.8 9.5 24.7
result
Swedish (0.5) (1.4) (2.6)
Business
result
Other group (0.8) (1.3) (2.5)
activities
---------- ---------- ----------
6.5 32.4 44.7
Tax arising (1.8) (1.9) 1.2
in the
period
---------- ---------- ----------
Post-tax
earnings
arising in
the period 4.7 30.5 45.9
---------- ---------- ----------
End of
period
Pre-tax 18.5 43.6 44.7
earnings
Tax (6.0) (4.8) 1.2
---------- ---------- ----------
Post-tax 12.5 38.8 45.9
earnings
---------- ---------- ----------
* Cumulative earnings position for the first two quarters of 2010
The total IFRS pre-tax result for the third quarter continues to be dominated
by the surplus arising within the UK life and pensions business which is in
run-off. This was enhanced in the period by favourable investment market
effects of GBP1.7m and favourable mortality and morbidity experience of
GBP1.6m.
The following key performance indicators relating to the Swedish Business
underpin the progress which has been made during the quarter:
Three quarters Three quarters
ended ended Year ended
30 September 30 September 31 December
2010 2009 2009
Total premium
income*
Pensions and 189.0 193.4 257.6
savings
Risk insurance 26.8 21.2 26.6
Total GBP215.8m GBP214.6m GBP284.2m
New business
premium income*
Pensions and 36.7 37.3 49.4
savings
Risk insurance 7.1 1.0 3.3
---------- ---------- ----------
Total GBP43.8m GBP38.3m GBP52.7m
---------- ---------- ----------
Quarter ended Quarter ended Year ended
30 September 30 September 31 December
2010 2009 2009
Market share of
unit-linked
pensions business
Total business 3.1% 5.3% 5.7%
Company-paid
contribution
Business 10.3% 9.3% 9.9%
30 September 30 September 31 December
2010 2009 2009
Assets under GBP1156.7m GBP922.3m GBP1015.2m
management*
---------- ---------- ----------
* Translated into sterling at a constant rate of SEK10.9 = GBP1
During the quarter, Moderna Försäkringar Liv AB ('Moderna') has continued to
seek to re-establish its sales and market share in Sweden and, consequent
upon a refocused sales and marketing approach, has slightly improved its share
of its main target market as can be seen in the table above.Generally the
Pensions and Savings side of the business has made some ground although it
continues, as expected, to generate losses albeit these are at a lower
level than the run rate experienced in the first half of 2010. On a positive
note the Risk and Health insurance side of the business has made good ground
following the acquisition of Aspis Försäkrings Liv AB ('Aspis') with lower
claims ratios than expected. As a result it has contributed GBP0.8m to
IFRS profit (matching its contribution on the EV basis).
Solvency
The underlying emergence of surplus in the UK Business, and hence the capacity
of the Group to continue to pursue its dividend policy, remains strong. This is
reflected in the ratio of regulatory capital resources to regulatory capital
requirements in the UK life company, which has improved from 263% as at 30 June
2010 to 307% as at the end of the third quarter. The Swedish life business
solvency ratio as at 30 September 2010 is estimated to be 176%, compared with
220% as at 30 June 2010. This solvency ratio has reduced over the quarter as a
result of the growth in the Risk and Health business and the associated
increase in the capital resource requirement. Both the UK and Swedish life
businesses continue to have a target ratio of a minimum of 150%. As at the
quarter end, the corresponding Group (IGD) position remains strong at 329%
compared with 330% as at 30 June 2010.
Market Opportunity
We continue to review a flow of potential acquisition opportunities and
will readily progress these where we see value and a clear strategic fit.
As regards opportunities, we remain open-minded as to location in the UK
and Western Europe and will continue to apply strict financial and risk
criteria in assessing them.
Enquiries
Graham Kettleborough
Chief Executive, Chesnara plc 07799 407519
Michael Henman, Cubitt Consulting 0207 367 5100
Notes to Editors
Chesnara plc, which listed on the London Stock Exchange in May 2004, is the
owner of Countrywide Assured plc ("CA") and Moderna Försäkringar Liv AB
("Moderna"). CA is a UK life assurance subsidiary that is substantially closed
to new business. In June 2005 Chesnara acquired a further closed life insurance
company - City of Westminster Assurance ("CWA") - for GBP47.8m. With effect
from 30 June 2006, CWA's policies and assets were transferred into CA. Moderna,
a life assurance company which focuses on pensions and savings, was acquired on
23 July 2009 for GBP20m. The company, which was launched in 2002, continues to
write new business and grow its strong position in the Swedish unit-linked
market. Moderna's market presence was increased through the acquisition of a
controlling stake in AkademikerRÃ¥dgivning I Sverige AB, an IFA, in late 2009
and the purchase of the policyholders, personnel, intellectual property and
systems of Aspis Försäkrings Liv AB, a life and health insurer, in February
2010.
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