Half-year Report

RNS Number : 4739I

Chesnara PLC

31 August 2016

Chesnara plc

Cash and Solvency underpin increase in dividend.

Chesnara today reported results for the six months ended 30 June 2016. The Group remains committed to delivering competitive returns to both its shareholders and policyholders, and continues to focus on:

· maximising value from the in-force life and pensions book.

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

· value enhancement through writing profitable new business in Sweden.

Financial Highlights

· Group solvency ratio of 148% (31 December 2015: 146%). After taking account of the interim dividend the Group solvency ratio has improved slightly and subsidiary solvency ratios remain strong and above internal targets, with the UK at 137% (31 December 2015: 135%); Movestic at 154% (31 December 2015: 154%) and Waard Group at 584% (31 December 2015: 597%). We have not used transitional arrangements.

· Cash generation of £13.6m ^{Note 1} (six months ended 30 June 2015: £16.8m *excluding exceptional cash gain on acquisition of Waard). UK cash generation has been adversely impacted by the reduction in the yield curve, but continued contributions from Movestic and Waard have added to a total half year figure which represents over 50% of the 2015 total dividend.

· Economic Value (EcV) of £459.9m ^{Note 2}(31 December 2015: £453.4m). Growth of 1.4% driven by the combined impact of a loss in the period of £3.5m, a dividend payment of £15.6m and a foreign exchange gain of £25.6m.

· IFRS profit before tax of £0.2m (six months ended 30 June 2015: £30.4m). The current period is adversely impacted by a reduction in the yield curve. The prior year result includes a gain of £16.2m recognised on the acquisition of the Waard Group. Significant foreign exchange gains not recognised in this financial metric have been made.

· IFRS Total Comprehensive Income of £15.7m (six months ended 30 June 2015: £22.9m). The current period includes a foreign exchange gain of £15.2m compared to a corresponding loss of £5.4m in 2015.

· Economic Value loss net of tax of £3.5m. Primarily the impact of the reduction in the yield curve on the UK results. Significant foreign exchange gains not included in this metric have been made.

· Movestic new business contribution of £4m (six months ended 30 June 2015: £2.4m). Improvements due to the combined impact of increased market share and higher average gross margins.

· 2.9% increase in interim dividend compared with 2015. Recommended interim dividend of 6.80p per share (2015: 6.61p per share). This increase represents the twelfth successive rise in interim dividends.

Strategic delivery highlights

EU Referendum Despite the initial short term impact of the further reduction in yield curve following the Bank of England's reduction in interest rate, we retain the view that the outlook for Chesnara remains largely unchanged.

Movestic continues to write targeted profitable new business. Profitable new business continues to be written against a backdrop of investment market volatility and uncertainty which creates a more competitive environment for traditional product providers compared to the Movestic unit linked proposition.

New acquisition opportunities. Value enhancing acquisition opportunities in the UK and Western Europe, principally in the £50m - £200m range, continue to be sought and examined. Our short term focus remains on the Dutch market where we see a positive environment for future acquisitions.

John Deane, Chief Executive said:

'The Chesnara strategy continues to deliver cash to support our dividend. Whilst the IFRS pre tax profits have been adversely impacted by the reduction in interest rates we have benefited from foreign exchange movements. I am particularly pleased to report that our Economic Value has increased during the period and our Group Solvency ratio has improved. The reductions in the yield curve in the UK has dampened the level of cash emerging from the UK books this half year but the overseas divisions have continued their cash generation that funds our dividend strategy.

In light of the operational achievements and financial results in the period, the Board is pleased to recommend an interim dividend of 6.80p per share, an interim dividend increase of 2.9% over 2015.'

Note 1 Cash generation represents the movement in the surplus assets that exists within the group over and above the level of capital that is required to be held. The level of capital required to be held takes account the buffers that management has set to hold over and above the solvency requirements imposed by our regulators. From 1 January 2016 cash generation has been determined with reference to the Solvency II prudential regime. Previously cash generation was determined with reference to Solvency I.

Note 2 Transition of our valuation methodology from Embedded Value reporting to Economic Value reporting has resulted in a small decrease in the valuation of Chesnara of £1.8m. Economic Value is based on the Solvency II "Own funds" valuation with adjustments for contract boundaries, risk margin and adding back the impact of restrictions placed on the value of certain ring-fenced funds. Solvency II rules regarding these items are deemed to understate the commercial value. Contract boundary rules require Solvency II Own Funds to assume no future regular premiums on certain contracts and the Solvency II risk margin is significantly higher than under Embedded Value.

The Board approved this statement on 30 August 2015.

Enquiries

John Deane, Chief Executive, Chesnara plc - 01772 972079

Roddy Watt, fwd Consulting - 0207 623 2368 / 07714 770493

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 intermediate holding company of 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 Netherlands-based Group comprising three closed book insurance companies and a servicing company, was acquired on 19 May 2015 for €69.9m. 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

As explained in Note 4 to the IFRS financial statements, 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.

In this half year report:

(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 the CA and S&P segments;

(v) 'CWA' refers to the long-term business 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 Assured plc;

(vii) 'PL' refers to the long-term business that was, prior to the Part VII transfer into CA plc on 31 December 2014, reported within Protection Life Company Limited; and

(viii) 'Movestic' may also refer to Movestic Livförsäkring AB, as the context implies.

HIGHLIGHTS

FINANCIAL

£0.2M IFRS PRE-TAX PROFIT

IFRS pre-tax profit for the six months ended 30 June 2016 of £0.2m (six months ended 30 June 2015: £30.4m*).

* includes gain on acquisition of Waard group of £16.2m.

£15.7M IFRS TOTAL COMPREHENSIVE INCOME

IFRS total comprehensive income for the six months ended 30 June 2016 of £15.7m (six months ended 30 June 2015: £22.9m). This is stated after foreign exchange gains of £15.3m in the period (six months ended 30 June 2015: foreign exchange loss of £5.4m).

£13.6M CASH GENERATION Note 2

Cash generation of £13.6m in the period (six months ended 30 June 2015: £56.7m).

£459.9M ECONOMIC VALUE (EcV) Note 3

Increase in economic value from £453.4m at 31 December 2015 to £459.9m at 30 June 2016. Movement of £6.5m includes the impact of dividend payments of £15.6m.

£(3.5)M ECONOMIC VALUE EARNINGS AFTER TAX Note 3

Economic value loss net of tax of £3.5m in the period.

£4.0M MOVESTIC EMBEDDED VALUE NEW BUSINESS CONTRIBUTION Note 4

Movestic has generated a new business contribution of £4.0m in the period (six months ended 30 June 2015: £2.4m).

148% GROUP SOLVENCY RATIO

Strong group solvency ratio of 148% (31 December 2015: 146%). We have not used transitional arrangements.

2.9% INTERIM DIVIDEND INCREASE

Interim dividend increased by 2.9% to 6.80p per share (2015: 6.61p interim and 12.33p final).

OPERATIONAL AND STRATEGIC

IMPLEMENTATION OF SOLVENCY II REPORTING

During 2015, significant effort was put in across the group to ensure that we were ready for Solvency II going live on 1 January 2016. The group has successfully met this challenge and has delivered all the reporting required under the new regulatory regime.

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. Cash generation represents the movement in the surplus assets that exists within the group over and above the level of capital that is required to be held. The level of capital required to be held takes account the buffers that management has set to hold over and above the solvency requirements imposed by our regulators. From 1 January 2016 cash generation has been determined with reference to the Solvency II prudential regime. Previously cash generation was determined with reference to Solvency I.

3. During the period a new valuation measure, replacing EEV, was introduced by the business. The opening Economic Value of £453.4m is £1.8m lower than on an EEV basis. As a result of reporting this new measure no earnings comparatives are available.

4. Although we have moved to the new economic value metric we have continued to use the embedded value methodology to report the value of new business in Movestic as it is deemed to remain the most commercially relevant and consistent measure at this point in time.

CHAIRMAN'S STATEMENT

During the first half of 2016 we have seen considerable political, economic and regulatory change. Whilst Chesnara is not immune to these external factors, I am pleased to see how resilient the Chesnara business model and financial results are to these challenging conditions.

Our group solvency ratio under the new regime has improved from 146% to 148% and our economic value has increased during the period, after recognising the impact of the final dividend payment.

Despite Brexit-driven yield curve reductions leading to reduced UK cash generation levels compared to recent years, we are able to continue our attractive dividend strategy because our overseas divisions have made notable cash contributions and our historic dividend payments have recognised the need to manage the exposure of short term cash volatility.

We await the conclusion from the FCA's review into the "Fair treatment of long-standing customers in the life insurance sector" and are ready to deliver any changes required to meet future best practice recommendations where appropriate and have reserved to cover the estimated cost of any process and communication change. Regulatory conditions in Sweden and the Netherlands remain broadly unchanged.

Peter Mason, Chairman

I start my Chairman's statement by reviewing how Chesnara has delivered against its three core strategic objectives.

MAXIMISE VALUE FROM EXISTING BUSINESS

ACQUIRE LIFE AND PENSIONS BUSINESSES

ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS

£13.6 million of cash generation which includes a further contribution from Movestic of £2.5m.

Closing economic value of £459.9m compared to an opening embedded value of £455.2m

Our short term focus is on the Dutch market where we continue to see a positive environment for future acquisitions.

New business profits of £4.0m continue to contribute to value growth. An improvement in new business margins has driven a 67% improvement compared to the prior year (six months to 30 June 2015: £2.4m)

Maximise value from existing business

Operationally, our in-force books have performed well during the six months to 30 June 2016. Customer service levels have been good across all our divisions and expense and persistency levels are broadly in line with expectation. In fact, in Movestic, there are encouraging signs that the level of business transferring out from the in-force book has reduced. We have not fully recognised this improvement in the half year results but would expect to do so at the year end should the low transfer out levels continue throughout the remainder of the year.

Despite a general decline in equity values in the Movestic book, the business has continued to grow its profits on an IFRS basis. Our Dutch business is not sensitive to economic variables and profit and value have emerged in line with expectations.

The UK business has not been as immune to the impact of economic conditions. In particular, the marked reduction in the yield curve, due at least in part to the impact of the result of the EU referendum, has led to losses arising from a significant increase in the cost of guarantees in the Save and Prosper book. Much of the yield curve impact on the IFRS and economic value results has been compensated by the impact of the reduction in the valuation of sterling post referendum, reflecting that 57% of our balance sheet economic value is in non sterling denomination. As such, our IFRS results, when taking into account all economic factors and excluding 2015 exceptional items, are broadly comparable to the prior year equivalent.

The currency exchange rate movement also has a positive impact on the cash generation result but the impact does not fully compensate for the low cash generation results in the UK resulting from the reduction in the yield curve. In partial compensation, our overseas divisions have increased their cash generation results across the group. The total cash generated represents 56.8% of the total 2015 dividend payment indicating that even in the difficult conditions the books continue to fund our dividend strategy.

Our closing valuation on the revised economic basis is £459.9m which is £4.7m higher than the closing 2015 value as reported on an embedded value basis. The overall increase is after recognising payment of the final 2015 dividend and includes a small negative item of £1.8m relating to the impact of the transition from European Embedded Value to the new Economic Value methodology.

Acquire life and pensions businesses

Our short term focus is on the Dutch market where we continue to see a positive environment for future acquisitions.

Group and local management continues to investigate opportunities and remains confident that the market drivers for consolidation are increasingly relevant and Chesnara is seen as a credible consolidation solution.

Enhance value through profitable new business

The improvement in new business profits, measured on our traditional embedded value basis, is encouraging and within management's target range. We have a realistic strategy regarding market share and continue to hold the view that there is little value in chasing volume at the expense of profitability. In light of this, whilst a 12% volume improvement is good to see, I am particularly encouraged to report our average gross new business margin has increased in the period.

Regulation and solvency

Across our group the primary focus has been the implementation of Solvency II. 2016 is a year of transition as we move Solvency II from being a development programme to it being embedded as a robust and effective ongoing governance framework. In light of this I am pleased to report that we have delivered all of our initial regulatory reporting requirements, our ORSA is becoming increasingly embedded in day to day management and our enhanced risk management framework has been fully implemented.

Our group solvency ratio has remained resilient to the generally difficult economic conditions.

Group solvency ratio 148%

(31 Dec 2015: 146%)

In the UK there have been three additional areas of regulatory focus during the first half of 2016:

- The FCA have issued their review into the "Fair treatment of long-standing customers in the life Insurance sector" for consultation. The consultation period ended in June and we await the conclusions. We are ready to initiate an action plan to deliver any changes required to meet future recommendations where appropriate. We hold a provision to cover the estimated costs of improvements to meet new standards of best practice.

- We continue to work closely with the FCA on the Countrywide Assured specific investigation they are undertaking with regards to the appropriateness of our level of disclosure regarding exit charges. To provide a little context I note that during the 8 year period under review 12,000 policies exited with capital unit charges (these represent a mechanism for recovering initial policy set-up costs over the life time of the policy) and 1,000 exited with other types of exit fee (20.7% and 1.7% of the total early exits in that period). I emphasise that the investigation is into the disclosure of exit charges only.

- The matter of pension exit charges remains under consideration. It appears that exit charges for those aged over 55 are likely to be capped at 1% of the fund value. Based on the normal level of early exits the impact of a 1% cap is not material to Chesnara's cash and economic value results.

Culture and values

Our continued focus on risk management, operational performance and financial stability is at the heart of ensuring we offer value to customers and shareholders. In light of this, the fact that we have delivered good service standards, provided investment returns that compare well against benchmark and have improved the solvency ratio of the group contributes to delivering a fair outcome to customers. We are committed to ensuring our customers benefit from any recommendations arising from the FCA's review into the "Fair treatment of long-standing customers in the life insurance sector". In light of our commitment to be transparent and fair to customers, we are giving the investigation into the disclosure of exit charges our full attention. We await conclusions from the investigation but remain of the view that customers have not been in any way disadvantaged by any inappropriate exit charges.

Investment proposition

The interim dividend continues our attractive dividend strategy. Whilst the results in the period have been affected by economic conditions, the dividend strategy is well supported by our continued strong solvency position and our previous policy to retain earnings to fund future acquisitions and protect our dividend from the short term impacts of economic profit volatility, as experienced in the first half of 2016.

Outlook post EU referendum result

Whilst the board remains vigilant regarding managing the potential impact of the vote to leave the European Union, our assessment is that in the long term the Chesnara business and financial model is not materially impacted by that decision. Our financial results are sensitive to equity market values and interest rates and the referendum therefore affects our results to the extent it impacts these economic variables. We benefit significantly from the sterling consequences of interest rates changes driven by Bank of England initiatives. In the short term equity values have performed well post the vote to leave. Fixed interest yields have however fallen further in the UK and we are assuming that one outcome of the referendum result is an increased likelihood of a sustained period of low interest rates. Our half year reserves fully reflect this low interest environment and the cost of our product guarantees has increased accordingly during the six months to 30 June 2016. The devaluing of sterling post referendum has a positive impact on Chesnara's value and improves the sterling value of cash flows emerging from our overseas divisions.

It is too early to conclude how the referendum result will affect the regulatory landscape. The fact that Chesnara does not rely on European passporting arrangements and the fact that we already operate with ring-fenced regulatory arrangements in our three business territories leads us to conclude that the business model will not be fundamentally affected by any potential regulatory changes in the UK.

From an operating perspective all of our territories operate virtually autonomously and as such there is no potential risk from any cross border trading constraints that Brexit may create.

Finally, we have considered how the referendum result has affected the outlook for our acquisition strategy. The fundamental drivers for life companies coming to the market remains unchanged. A general increase in uncertainty and hence market and exchange rate volatility may create some short term pricing challenges although arguably working with vendors to find mutually beneficial pricing arrangements is nothing new and to date Chesnara's ability to work constructively with vendors to find commercial solutions has been a key strength and this should remain the case. We are mindful that the Brexit process may create potential short term funding challenges. In particular raising equity in more nervous markets might be more challenging. However, given our core business model is expected to be able to absorb much of any Brexit fallout, an opportunity for investors to further invest into our dividend stream should make the right deal attractive. We do not expect the Brexit process to directly impact our ability to raise further debt for a deal with the appropriate risk profile and cashflow projections.

In summary, despite the significant initial concerns regarding Brexit we retain the view that once the dust settles the outlook for Chesnara remains largely unchanged and our dividend strategy will be increasingly attractive in a sustained low interest environment.

Peter Mason

Chairman

30 August 2016

BUSINESS REVIEW

INTRODUCTION

The business review is structured to report on how we have performed against each of our three stated strategic objectives and our culture and values. Where relevant the review reports separately for our UK, Swedish and Dutch operations.

This review focuses on:

- How we have performed generally.

- Key developments or challenges.

- Key performance indicators.

- Risks associated with each objective.

MAXIMISE VALUE FROM EXISTING BUSINESS		ACQUIRE LIFE AND PENSION BUSINESSES		ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS
Business model
Maintain adequate financial resources	Fair treatment of customers		Provide a competitive return to shareholders		Robust regulatory compliance
Responsible risk-based management

Our strategic objectives and culture and values are reassessed on an annual basis as part of the group business planning process. Their continued relevance gives consideration to recent performance, emerging risks and future opportunity and they are assessed giving full regard to both internal and external influences e.g. changes to regulatory requirements.

The three core strategic objectives, which are underpinned by the group's culture and values, are consistent with those reported in the 2015 Annual Report & Accounts. No significant change in focus is expected during the latter half of 2016.

The governance framework seeks to ensure that controls and procedures are in place to protect all stakeholders. The control environment has remained effective and robust throughout the period. Further details of the operation of the governance framework, and its future development, are included in Section C - Corporate Governance, of the 2015 Annual Report & Accounts.

STRATEGIC OBJECTIVES, CULTURE & VALUES	OVERVIEW
CULTURE & VALUES	Our strong culture and values underpin everything we do. - Responsible risk-based management for the benefit of all our stakeholders. - Fair treatment of customers. - Provide a competitive return to our shareholders. - Robust regulatory compliance. - Maintain adequate financial resources.
BUSINESS MODEL	Our strategic objectives and culture and values are delivered through the operation of our business model. In the UK Chesnara adopts an outsourced business model. Governance oversight and Corporate management is provided by a highly experienced centralised governance team. This governance team also ensures robust and consistent governance practice across the group, although operational autonomy is devolved to Sweden and the Netherlands to ensure we benefit from our strong divisional management teams. Core operations are not outsourced in Sweden or the Netherlands because it would not suit the open business model or inherited model in those territories respectively.
MAXIMISE VALUE FROM EXISTING BUSINESS	The existing in-force books are the principal source of value and cash generation and are hence the heart of the investment case. Detail of how we have delivered this objective is below.
ACQUIRE LIFE AND PENSIONS BUSINESSES	Chesnara is primarily a closed book operation and as such will inevitably lose scale over time. Acquisitions maintain the effectiveness of the operating model. In addition, well considered and appropriately priced acquisitions will create a source of value enhancement and sustain the cash generation potential of the group.
ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS	Whilst new business profits are a relatively modest component of the Chesnara financial model, they are an important and welcome regular source of value growth which supplements growth delivered from our periodic acquisitions. Detail of how we have delivered this objective is below.

Maximise value from EXISTING BUSINESS | UK

A challenging six months for the division driven by regulatory change and a reduction in gilt yields following the vote for Brexit.

Highlights

- Significant progress on preparing for changes arising from recent FCA market communications on the treatment of long-standing customers.

- Government bond yield falls dampen performance.

- Cash generation continues despite challenge of falling bond yields.

Review of the period

The UK division continues to focus on the efficient run off of the books it manages, which in turn helps deliver value to Chesnara and its shareholders. This means management's focus remains on value generation whilst continuing to ensure that the strong culture and values of the division and group is maintained. In practice this means that significant management attention is given to regulatory compliance, customer outcomes, solvency management, risk and governance, the key constituent parts of the culture and values of the division.

The first six months of the year can be characterised by two key external factors. Firstly, there has been an ongoing high level of focus by the FCA on legacy business in the life insurance sector. In particular, during March 2016 the FCA issued both firm-specific and industry-wide feedback (through a consultation process) in relation to the review work that it performed in late 2014 relating to the fair treatment of long-standing customers. During the first half of 2016 management has developed an action plan that considers the aforementioned FCA feedback, with an expectation that the observations and recommendations made in the March consultation will be issued as final guidance during Q4 2016. In addition the FCA issued a consultation paper proposing to cap early exit charges to 1% of the fund value for those policyholders aged over 55 in support of their plans to enhance pensions freedoms. The proposals have yet to come into force, but we are expecting this to apply in substantially the same form as currently drafted. As a result we have reserved for the impact of capping exit fees on pension policies over 55 to 1% of the fund value, resulting in a one off charge on an IFRS basis of £3.5m. The IFRS impact is influenced by the fact that IFRS reserving does not recognise best estimates of policy attrition. The direct impact of the cap on our Solvency II own funds and economic value is c£1m and this is deemed to be a more commercially realistic assessment of the impact of this cap.

The second key factor affecting the division is the impact of the vote to leave the EU. In the run up to the referendum decision UK government bond yields had declined from where they were at the start of the year. Following the decision to leave the EU yields have fallen further still. In general lower yields puts pressure on the financial results of the business, largely because government bonds are used to back a number of our products, including those which contain guaranteed minimum returns. That said, some of our unit-linked funds are invested in equities, both in the UK and overseas, and equity performance during the first half of the year, coupled with a depreciation of sterling resulting in growth in value in overseas equities, has slightly dampened the impact of the sharp decline in bond yields.

Financial performance and solvency

The solvency position of the UK division remains strong, at 137% (see below for further information), although IFRS and EcV losses have been reported in the period, largely driven by falling bond yields. Further financial information covering IFRS profitability, our new economic value measure (EcV) and cash generation can be found below).

Value driver metrics

Unit-linked funds under management

Funds under management are a key driver of value for the UK business as fund-related charges provide an important component of profit. Movements in value of the funds under management are driven by:

- performance of funds during the period;

- policyholder premiums; and

- policies closed, due to surrender, transfer or claim.

During the first half of 2016 funds under management have reduced by less than 1%. This is driven by 3% reduction in pension policies in the period off-set by investment returns and policyholder premiums.

Unit-linked funds under management (£m)

30 Jun 2016

£m

31 Dec 2015

£m

30 Jun 2015

£m

Total UK

2,067

2,083

2,182

Fund performance

Two out of the three managed funds out-performed their benchmark in the period, and the S&P managed fund was marginally below benchmark. Fund performance is monitored closely by management and actions are taken where there are apparent sustained periods of under-performance.

Fund performance (annual return)

	Twelve months to 30 Jun 2016	Twelve months to 30 Jun 2015
CA Pension Managed	2.9%	8.4%
CWA Balanced Managed Pension	5.4%	6.3%
S&P Managed Pension	1.6%	9.8%
Benchmark - ABI Mixed Inv 40%-85% shares	1.8%	6.6%

Policy attrition

There has been a slight increase in policy attrition in the period, predominantly owing to the impact of a slight increase in pension product attrition.

Annual policy attrition rate, based on policy count

	Six months to 30 Jun 2016	Six months to 30 Jun 2015
CA	8.4%	7.6%
S&P	6.4%	5.9%
Total UK	7.7%	7.0%

Risks associated with the strategic objective

The key risks that could affect the successful delivery of this objective are:

Expense risk: A key driver of value is the expense base of the business, which is critical to control on a closed book operation. A key factor in how we manage this is through operating an outsourced model, where the costs of policy administration are designed to reduce as the book runs off.

Market risk: Performance of equities and bonds affects the value of the division. For our unit-linked business value is created through strong investment returns to our policyholders, which in turn generates fee income. For our non-linked business certain products in the S&P book contains products that include minimum guaranteed returns, and in situations where investment performance does not meet the guarantee, this becomes a cost to the division. These risks are managed through setting appropriate investment strategies, using reputable investment managers and effective governance of both by management.

Lapse risk: 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.

Regulatory risk: The business operates in a highly regulated environment, and regulatory changes can pose a risk to this objective. This is managed through careful monitoring of enacted and proposed regulatory changes to ensue that we continue to operate within our regulatory requirements.

Maximise value from EXISTING BUSINESS | Sweden

The Swedish division has d elivered positive value generation and has continued to grow in challenging economic conditions.

Highlights

- Strong cash generation in period despite challenging economic conditions.

- Continued development of investment operations.

- Improved persistency levels.

Review of the period

The Swedish division continues to focus on a combination of managing its existing business whilst also developing its new business operation. Further information on the new business operation can be found on below.

Economic conditions have been an overriding factor affecting the development of the division in the period:

- Investment market volatility has been a feature in the period. Overall Movestic's equity funds have provided negative return in the period, amounting to -1.7%. The Stockholm OMX 30 equity index having been down as low as 14% on its opening position during the period. The Swedish economy was not immune to the impact of the referendum in the UK, with an 8% fall in the OMX 30 being seen immediately after the vote. A consequence of market volatility is that this creates a degree of uncertainty for policyholders and as a result this can drive more defensive and risk averse behaviour. This has been seen in the division through a slight shift in the balance of policyholder investments which have moved out of equity funds and into fixed income funds, much of the movement being in the mixed funds held by policyholders. Despite this slight shift fund rebates have held up well, although continued market uncertainty means this remains an area of management attention.

- From an interest rate perspective, the base rate in Sweden continues to be held at -0.5%, with expectations that this will remain until the second half of 2018.

- The Swedish krona has strengthened against sterling by 10% during the period, resulting in a positive impact to group solvency, cash generation and IFRS profits.

From an internal point of view, the investment operation within the division has continued to develop in line with plans. Performance fees have seen positive developments during the period and this, coupled with three new white label funds being launched in 2016 demonstrates the success of the effort put into developing this aspect of the Swedish operations.

In the year end report we commented on our IT developments. This work continues, with a particular current focus on front end development to ensure we continue to meet the demands of our customers and IFAs.

Financial performance

Despite the economic volatility the Swedish business has continued to deliver profit and cash in the first half of the year. Further information on solvency and financial performance can be seen 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 fees from asset managers and charges to policyholders. Despite a challenging investment market environment, assets under management have grown by 1.6% during the first six months of the year, closing at SEK 24.7bn. The growth in assets under management is a function of 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).

Assets under management

		30 Jun 2016	31 Dec 2015	30 Jun 2015
Total funds SEK (bn)		24.7	24.3	24.2

Investment performance: During the period overall policyholder fund performance has been negative at -1.4%. Although disappointing, this needs to be viewed in the context of an 8.5% decline in the Swedish stock market in the same period. Investment returns that are competitive relative to other providers 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 32 out of 64 funds out-performed their benchmark index during the period.

Fund performance (for those with benchmarks)

Six months

to 30 June

2016

Twelve months

to 31 Dec

2015

Outperformed against relevant index

Under-performed against relevant index

Policyholder behaviour: The division has seen positive experience on persistency during the period, with the number of policies that have either become paid up or surrendered decreasing slightly when compared with the same period in 2015. In addition there has been a decrease in policyholders transferring out their policies to another provider, resulting in the transfers-in to transfers-out ratio becoming more favourable compared with 2015. That said, customers moving to other providers remains a negative dynamic in the industry and remains a continued area of management focus. In particular, in the recent economic climate we have seen a slight increase in volumes of more traditional insurance products being sold in the market place.

Policy attrition

	30 Jun 2016	30 Jun 2015
Transfers (pensions)	4.1%	4.9%
Lapses/paid-ups (pensions and endowments)	16.8%	17.7%

Transfers

Six months

to 30 Jun

2016

Six months

to 31 Dec

2015

Six months

to 30 Jun

2015

Transferred in

48%

42%

44%

Transferred out

52%

58%

56%

Risks associated with the strategic objective

The key risks that could affect the successful delivery of this objective are:

Lapse risk:

- 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.

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

Market risk:

- 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.

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

Regulatory risk:

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, although we have embarked on restructuring plans to obviate the effects of this risk.

Maximise value from EXISTING BUSINESS | NETHERLANDS

Continued delivery of value and strong solvency position.

Highlights

- Positive cash generation in the period.

- Ongoing investment in systems and processes to support SII and wider group reporting requirements.

- Business now fully integrated, providing a sound platform for future acquisitions within the Netherlands.

Review of the period

As a closed book operation, the main priority of the Dutch division is the efficient run off of the existing book. In practice this means management focuses on three key areas, namely: management of the assets of the business, regulatory compliance and ensuring that a high quality service to policyholders is continued in terms of administration service levels. That said, an additional focus of local management is to support the group in delivering its objective of making value-adding acquisitions, with the Dutch market being a current priority for the group in this area.

As with the UK and Sweden the development of the division has been dominated by economic factors, in particular euro swap curves have fallen significantly, with the impact of the Brexit vote considered as being one of the main contributing factors. Equity performance is less of a consideration for the Dutch division as it does not hold material equity exposures directly and the impact of any equity movements on the small unit linked book is not material to the overall division. Falling swap rates have resulted in an increase in the value of the division's fixed interest investments, although this is offset by increases in liabilities for the term assurance book as a result of lower discount rates driving increases in the current value of future policyholder claims and future maintenance expenses.

From an internal perspective the division has continued to invest in developing its systems, processes and procedures as a result of the combined impact of our acquisition in May last year and the additional reporting requirements that Solvency II has introduced. Since acquisition significant effort has been put into integrating with the Chesnara group and this process has proved very successful. Close working relationships between the group and Dutch division ensure that there is a sound platform for pursuing any future acquisition opportunities that may arise within the Netherlands.

From a customer service perspective the division continues to focus on ensuring that its policyholders are treated fairly. Policyholder complaints continue to remain at low levels.

Financial performance

The division has delivered a half year IFRS result that is slightly ahead of expectations, and the solvency position of the business remains strong. Positive cash generation of £5.8m has been seen in the period, although this is driven by a strengthening of the euro against sterling. Further information on solvency and financial performance can be seen below.

Key value drivers

Value emerges primarily as a result of positive mortality experience on its term assurance contracts, close management of the expense base and investment returns. As a result of this one of the key variables affecting value is the number of policies in force, with a higher number resulting in a more efficient allocation of costs and more mortality surplus.

Policy numbers: Annualised policy attrition levels for 2015 and the first half of 2016 remain at a steady level of circa 8% across the total in-force book and are in line with the anticipated book run-off. There has been a high level of run off in the small unit-linked business, although this is expected and not a concern to management.

In-force policies

	30 Jun 2016	31 Dec 2015
Term assurance	50,800	52,500
Unemployment and disability	23,000	23,900
Unit-linked	2,700	3,300
Total	76,500	79,700

Policy attrition

	30 Jun 2016	31 Dec 2015
Term assurance	6.5%	7.7%
Unemployment and disability	7.8%	4.6%
Unit-linked	33.9%	40.0%
Total	8.0%	8.8%

Expenses: Managing an efficient cost base is a key priority for management. For the first half of the year expenses are slightly higher than expected, although this is mainly in relation to investing in systems and processes. In addition, the cost base of the business is geared up to support the delivery of future acquisitions and as such is not being managed with the sole focus of run off in mind.

Investments: Investment performance is a key driver of value emergence as investments are required to be held by the business to support the payment of policyholder claims. Since being acquired by Chesnara the division has continued to hold a large portion of liquid assets, something that built up under the previous owners. As a result a continued focus of management remains that of considering an optimal investment strategy for the division, balancing the desire for improved return with any associated risk this may bring.

Risks associated with the strategic objective

Insurance risk: The primary risk to the profit and cash emergence is that the positive mortality experience deteriorates significantly and exceeds the assumed rates.

Lapse risk: 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 should an alternative product be appropriate.

Expenses risk: 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.

Regulatory risk: 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.

Market risk: As with our Swedish division, the group is exposed to foreign currency fluctuations which impacts the sterling value emerging from the Dutch operations.

enhance value through PROFITABLE new business | Sweden

New business profits continue to enhance Movestic's value and support overall fund growth.

Highlights

- New business profit of £4.0m (H1 2015: £2.4m).

- Increase in new business volumes.

- Product mix changes have resulted in an increase in gross margins from 20% to 21%.

Review of the period

The new business operation in Movestic has continued to deliver a modest contribution to the group, having generated profits of £4.0m, as measured on the traditional embedded value basis.

There are a number of factors that affect the success of the new business operation. From an economic perspective we believe that market volatility in the period has continued to have an influence on the attractiveness of more traditional products rather than the unit-linked products sold by Movestic.

Whilst the overall size of the market may have reduced slightly in the period as a result of this dynamic Movestic continues to operate within its target range of 10% to 15% market share.

New products

One way that Movestic seeks to differentiate itself from competitors is to select and develop fund ranges that are attractive to policyholders. Developing the range of funds available remains a key priority of management, and three new "white label" funds were launched during the first half of 2016. Due to these funds being internally developed they tend to receive a higher proportion of the product value chain, thereby improving new business margins.

Trend analysis of new business premium income (£m)*

2015

2016

Total

10.8

10.7

11.3

11.8

10.9

13.2

*Historical information has been re-translated using average SEK/GBP rate for the first six months of 2016.

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

						H1 2016	H2 2015	H1 2015
Market share						13.7%	11.7%	10.1%

Information technology

An important aspect of the success of the new business proposition is the IT infrastructure in place, and as such Movestic is continuing its investment in its front and back office systems. An efficient and robust IT infrastructure provides many benefits, such as ease of access to policy information by customers, better communication and links with IFAs and partners. In addition this facilitates the ability to issue newly designed products more easily, supports new business pricing routines and can reduce the level of paperwork in the process.

Transfers

A feature of the new business operation is Movestic's relative attractiveness to policyholders looking to transfer their savings from another provider. During the period the ratio of transfers in to transfers out has seen an improvement illustrating the success of a revised transfer business sales strategy.

Profitability

The increase in the level of new business profits in Movestic in the period is a feature of three key themes:

- Gross margins have improved as a result of a change in product mix of the new policies sold in the period;

- Sales volumes are up on the same period in 2015; and

- The period has seen in increase in additional investments being made by existing policyholders.

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. That said 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.

- 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 continues to increase the breadth of IFA support reduces this concentration risk. Whilst Movestic has further broadened its coverage of the IFA market, the fact remains that a large proportion of new business comes from two large IFA firms thereby creating a level of concentration risk. Movestic continue to score highly when assessed by the main IFA distributors across all elements including, fund range, sustainability and cost.

- 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, and by improving sales mix towards the higher margin products.

CAPITAL MANAGEMENT - 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 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 include the concept of a "management buffer", which is incremental to the regulatory capital.

Chesnara group

Solvency	30 Jun 2016 £m	31 Dec 2015 £m
Total assets less liabilities	403.4	401.6
Ring-fenced fund restriction	(5.2)	(4.8)
Proposed dividend	(8.6)	(15.6)
Own funds	389.6	381.1

Solvency capital requirement	263.4	260.6
Surplus own funds above solvency capital requirement	126.3	120.5
Solvency ratio (post dividend)	148%	146%

Capital requirement including "Management buffer"	289.7	286.7
Surplus above internal capital requirement (includes "management buffer")	99.9	94.5

Movement in assets less liabilities	£m
31 Dec 2015	401.6
Expected in period	3.9
New Business	1.7
Operating variances	1.9
Operating assumptions	(3.4)
Economic impact	(6.5)
Non-operating variances	(1.8)
Risk margin	(7.9)
Taxation	6.1
Dividends	(15.6)
Foreign exchange	23.4
30 Jun 2016	403.4

Movement in SCR	£m
31 Dec 2015	260.6
Market risk	(10.3)
Counterparty	(0.4)
Life underwriting	3.9
Health underwriting	0.1
Operational risk	0.2
Diversification	(0.5)
Loss absorbing capacity of deferred tax	(1.2)
Capital requirement of other financial institutions	0.1
Forex impact	10.9
30 Jun 2016	263.4

Analysis

- Strong group solvency maintained with small increase in absolute level of surplus.

- Transitional arrangements have not been used.

- Solvency is stated after deducting interim dividend of £8.6m.

- Group own funds broadly in line with year end, with reduction in own funds in the UK being offset by growth in Swedish and Dutch divisions.

- Capital requirements increased due to the weakening of sterling against the Swedish krona and the euro, off-set by a reduction in investment related market risk capital requirements.

- The group solvency surplus shows only marginal difference in the impacts of a 25% equity and property stress and a 2% reduction in the yield curve.

Sensitivities	Own funds	SCR	Surplus	Solvency ratio %
Base valuation	389.6	(263.3)	126.3	148%
25 % reduction in equity and property value	(73.2)	41.5	(31.7)	(5)%
2% reduction in yield curve	(24.1)	(5.9)	(30.0)	(12)%

Solvency	30 Jun 2016 £m	31 Dec 2015 £m
Total assets less liabilities	198.4	203.0
Ring-fenced fund restriction	(5.2)	(4.8)
Proposed dividend	(30.5)	(30.5)
Own funds	162.8	167.7

Solvency capital requirement	118.4	123.8
Surplus own funds above solvency capital requirement	44.4	43.9
Solvency ratio (post dividend)	137%	135%

Capital requirement including "Management buffer"	142.1	148.5
Surplus above internal capital requirement (includes "management buffer")	20.7	19.1

Movement in assets less liabilities	£m
31 Dec 2015	203.0
Expected in period	1.6
Operating variances	4.6
Operating assumptions	(3.1)
Economic impact	(3.3)
Non-operating variances	(1.1)
Risk margin	(5.3)
Taxation	2.0
30 Jun 2016	198.4

Movement in SCR	£m
31 Dec 2015	123.8
Market risk	(6.7)
Counterparty	(0.3)
Life underwriting	1.9
Health underwriting	(0.4)
Operational risk	0.2
Diversification	0.6
Loss absorbing capacity of deferred tax	(0.7)
30 Jun 2016	118.4

Analysis

- Strong solvency maintained despite headwinds from falling bond yields.

- Dividend of £30.5m was paid to Chesnara on 20 July 2016.

- Own funds reduction driven by the net impact of economic variances arising from bond value appreciation, off-set by bond yield assumption changes giving rise to an increase in insurance technical provisions, mainly in relation to S&P products with embedded guaranteed returns.

- Capital requirements have decreased in the period and reflect the net impact of:

o Reduced equity and interest market risk related capital requirement.

o Increased life underwriting risk capital as a consequence of yield curve reduction.

- A 2% fall in the yield curve has a greater impact on the division's solvency ratio than a 25% equity and property stress.

Sensitivities	Own funds	SCR	Surplus	Solvency ratio %
Base valuation	162.8	(118.4)	44.4	137%
25 % reduction in equity and property value	(28.0)	15.4	(12.6)	(7)%
2% reduction in yield curve	(15.4)	(3.3)	(18.7)	(16)%

Sweden

Solvency	30 Jun 2016 £m	31 Dec 2015 £m
Total assets less liabilities	160.8	149.8
Proposed dividend	-	-
Own funds	160.8	149.8

Solvency capital requirement	104.5	97.5
Surplus own funds above solvency capital requirement	56.3	52.3
Solvency ratio (post dividend)	154%	154%

Capital requirement including "Management buffer"	125.4	117.0
Surplus capital resources above "Management requirement"	35.4	32.8

Movement in assets less liabilities	£m
31 Dec 2015	149.8
Expected in period	1.8
New business	1.7
Operating variances	(0.7)
Operating assumptions	(0.5)
Economic impact	(2.3)
Non-operating variances	(0.7)
Risk margin	(2.7)
Taxation	(0.2)
Exchange rates	14.6
30 Jun 2016	160.8

Movement in SCR	£m
31 Dec 2015	97.5
Market risk	(6.6)
Counterparty	0.7
Life underwriting	2.9
Health underwriting	0.6
Operational risk	0.1
Diversification	(0.6)
Other sectors	0.1
Forex impact	9.8
30 Jun 2016	104.5

Analysis

- Strong solvency maintained with small increase in absolute level of surplus.

- Own funds increase predominantly driven by exchange rate gains, with the Swedish krona strengthening against sterling by 10% during the period. This has offset the negative impact of investment market returns during the period.

- Capital requirements have increased during the period and reflect the net impact of:

o Exchange rate driven SCR increase; off-set by;

o Equity-driven market risk SCR reduction due to falling equity markets in the period.

- Movestic displays most sensitivity to an equity stress scenario due to its high level of collective investment holdings.

Movement in SCR	Own funds	SCR	Surplus	Solvency ratio %
Base valuation	160.8	(104.5)	56.3	154%
25 % reduction in equity and property value	(46.5)	20.6	(25.9)	(16%)
2% reduction in yield curve	(7.7)	(0.5)	(8.2)	(9)%

Netherlands

Solvency	30 Jun 2016 £m	31 Dec 2015 £m
Total assets less liabilities	78.8	69.8
Proposed dividend	-	-
Own funds	78.8	69.8

Solvency capital requirement	13.5	11.7
Surplus own funds above solvency capital requirement	65.3	58.1
Solvency ratio (post dividend)	584%	597%

Capital requirement including "Management buffer"	23.6	20.4
Surplus capital resources above "Management requirement"	55.2	49.4

Movement in assets less liabilities	£m
31 Dec 2015	69.6
Expected in period	0.5
Operating variances	0.7
Operating assumptions	0.2
Economic impact	(0.8)
Non-operating variances	0.0
Risk margin	0.1
Taxation	(0.3)
Forex impact	8.8
30 Jun 2016	78.8

Movement in SCR	£m
Dec 2015	11.7
Market risk	1.7
Counterparty	(0.5)
Life underwriting	(0.3)
Health underwriting	(0.0)
Operational risk	0.0
Diversification	(0.4)
Loss absorbing capacity of deferred tax	(0.0)
Forex impact	1.3
Jun 2016	13.5

Analysis

- Strong solvency maintained albeit reduced from the 2015 closing position due to a higher capital requirement.

- Own funds increase as a consequence of the euro strengthening against sterling in the period, offset by declining yield curve driven investment returns.

- Capital requirements increased in the period due to the combined impact of foreign exchange rate movements and market risk increases, arising from a slight shift in investment holdings, moving from cash into collective investment schemes.

- The Waard Group remains fairly insensitive to equity stress due to its underlying asset mix.

Movement in SCR	Own funds	SCR	Surplus	Solvency ratio %
Base valuation	78.8	(13.5)	65.3	582%
25 % reduction in equity and property value	(1.1)	0.3	(0.8)	4%
2% reduction in yield curve	(1.9)	(1.4)	(3.3)	(66)%

FINANCIAL REVIEW

The key financial performance indicators below are used by management to assess how we have performed in delivering our three strategic objectives and our core culture and values. The overriding feature of the results of the group in the first half of 2016 is the investment market performance during the period, most notably falling government bond yields in both the UK and Eurozone. In particular this has given rise to losses in the UK on our products with guarantees.

IFRS PRE-TAX PROFIT £0.2m (Six months ended 30 June 2015: £30.4m)

IFRS TOTAL COMPREHENSIVE INCOME £15.7m (Six months ended 30 June 2015: £22.9m)

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 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 profit is an indicator of how we are performing against our stated strategic objective of "maximising value from the existing business" and can also be impacted by one-off gains arising from delivering against our stated objective of "acquiring life and pensions businesses".

Risks

The IFRS 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.

Highlights

	H1 2016	H1 2015
CA	14.2	13.9
S&P	(13.9)	7.5
Movestic	3.6	3.4
Waard	2.0	-
Group & Consolidation adjustments	(5.7)	(10.7)
Profit on acquisition	-	16.2
Taxation	0.2	(2.1)
Forex impact	15.3	(5.4)
Total profit before tax and exceptional items	15.6	22.8

- A Brexit-driven set of results.

- IFRS pre-tax profit of £0.2m is significantly lower than same period in prior year largely as a result of:

o Loss in S&P segment driven by falling government bond yields in the period;

o Comparative figures include a large one-off gain of £16.2m arising on acquisition of the Waard group.

- At a total comprehensive income level the group has reported positive exchange rate gains arising from a weakening sterling against euro and Swedish Krona in the run up to, and post, the EU referendum result.

CASH GENERATION £13.6m (Six months ended 30 June 2015: £56.7m*)

What is it?

Net cash generation is a measure of how much distributable cash has been generated in the period. Cash generation is driven by 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 existing business". 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.

Risks

The ability of the underlying regulated subsidiaries within the group to generate cash is affected by a number of our principal risks and uncertainties as set out below. Whilst cash generation is a function of the regulatory surplus, as opposed to the IFRS surplus, they are impacted by similar drivers, 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.

Highlights

	H1 2016
UK	1.5
Sweden	2.5
Netherlands	5.8
Other group activities	3.8
Total	13.6

- Positive cash contributions from all divisions drives total cash generation in the period that continues to support our attractive dividend strategy.

- UK is at the lower end of the range, principally as a result of falling bond yields in the period.

- Movestic and Waard cash generation includes the benefit of positive foreign exchange gains.

* includes one-off cash generation of £39.9m arising on the acquisition of the Waard group.

ECONOMIC VALUE (ECV) £459.9m (31 December 2015: £453.4m)

What is it?

Economic value (EcV) has been introduced in the period by Chesnara as a replacement metric for European Embedded Value. This has been introduced following the introduction of Solvency II at the start of 2016, with EcV being derived from Solvency II own funds. Conceptually EcV is broadly similar to EEV in that both reflect a market-consistent assessment of the value of existing insurance business, plus adjusted net asset value of the non-insurance business within the group.

Why is it important?

EcV aims to reflect the market-related value of in-force business and net assets of the non-insurance business and hence 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 economic value. Analysis of EcV provides additional insight into the development of the business over time.

The EcV 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.

Risks

The economic 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 EcV 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 EcV of the group by 3.6% and 1.6% respectively, based on the composition of the group's EcV at 30 June 2016.

Highlights

	£m
31 Dec 2015	453.4
EcV Earnings	(3.5)
Dividends	(15.6)
Fx gain	25.6
30 Jun 2016	459.9

- Economic value at the end of June 2016 remains broadly in line with the start of the year.

- Negative EcV earnings in the period driven by investment markets, with the UK and Dutch businesses being impacted by bond yield falls and the Swedish business adversely affected by the suppressed equity markets that have been witnessed in the period.

- EcV benefited from large foreign exchange gains that were reported in the period as a result of sterling deprecation.

- The year end dividend of £15.6m was paid in May, thereby reducing EcV

ECV EARNINGS NET OF TAX £(3.5)m

What is it?

In recognition of the longer-term nature of the group's insurance and investment contracts, supplementary information is presented that provides information on the economic value of our business.

The principal underlying components of the economic value 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 market-related value of in-force business (in-force value), a different perspective is provided in the performance of the group and on the valuation of the business. Economic value earnings are an important KPI as they provide a longer-term measure of the value generated during a period. The economic value 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, economic value profit emergence from our existing businesses, and the economic value impact of acquisitions.

Risks

The EcV 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 EcV 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 EcV affect our long-term view of the future cash flows arising from our books of business.

Highlights

	£m
Operating earnings	(0.1)
Economic earnings	(5.5)
Other	2.1
Total EcV earnings	(3.5)

- EcV loss of £3.5m in the period primarily driven by impact of economic items, predominantly falling bond yields in the UK and Europe.

- The "other items" includes the net impact of risk margin movements and tax items. Included within this is the positive impact of refining our deferred tax modelling amounting to £4.2m.

IFRS PRE-TAX PROFIT £0.2m (Six months ended 30 June 2015: £30.4m)

IFRS TOTAL COMPREHENSIVE INCOME £15.7m (Six months ended 30 June 2015: £22.9m)

Executive summary

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

(1) 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 closed books, 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.

(2) 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.

(3) 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:

IFRS profit	Unaudited 6 months ended		Year ended	Note
	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m
CA	14.2	13.9	23.9	1
S&P	(13.9)	7.5	10.6	2
Movestic	3.6	3.4	6.7	3
Waard Group	2.0	-	0.9	4
Chesnara	(2.9)	(7.4)	(9.5)	5
Consolidation adjustments	(2.8)	(3.2)	(6.4)	6
Profit before tax and profit on acquisition	0.2	14.2	26.2
Profit arising on acquisition of the Waard group	-	16.2	16.6	4
Profit before tax	0.2	30.4	42.8
Tax	0.2	(2.1)	(3.0)
Profit after tax	0.4	28.3	39.8
Foreign exchange translations differences	15.3	(5.4)	(0.2)	7
Total comprehensive income	15.7	22.9	39.6

Note 1: The CA segment has reported results for the period in line with the same period in 2015, despite the downward pressure on results arising from falling bond yields in the period and relatively flat equity growth. Further insight is provided in the CA segmental analysis below.

Note 2: The S&P segment has reported a loss for the first half of the year driven by the impact of falling bond yields in the period causing a strain on the insurance provisions held for products that contain guaranteed returns. During the same period in 2015 bond yields increased slightly. Further detail can be found below.

Note 3: The Movestic result has improved slightly when compared with the same period in 2015. This is principally driven by an increase in the profits arising in the asset management business. Further analysis can be found on below.

Note 4: The Waard group was purchased on 19 May 2015 and therefore did not contribute materially to underlying profits. A one-off gain on acquisition of £16.6m was recognised in 2015, representing the excess of the net assets acquired over the purchase price. Profit contribution in 2015 was in line with expectations.

Note 5: The Chesnara result represents holding company expenses. 2016 costs are lower than 2015 costs 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 with the same period last year.

Note 7: As a result of sterling weakening against both euro and the Swedish krona in the period the IFRS result includes a large foreign exchange gain, off-setting the negative impact that falling bond yields have had on our results in the period.

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

The key components of the IFRS result for CA for the period are as follows:

	H1 2016 £m	H1 2015 £m	Note
Product-based charges	7.6	8.3	8
Administration expenses	(5.2)	(4.8)	8
Experience variances	5.5	7.0	9
Assumption changes	(0.7)	(1.0)	10
Policyholder tax	3.8	2.8	11
Variation from investment return	9.6	0.4	12
Economic assumption changes	(6.4)	1.2	12
Total	14.2	13.9

Note 8: Product-based deductions and administrative expenses have remained broadly in line period on period, as would be expected. Charges have remained resilient to policy attrition.

Note 9: Positive experience variances in the period are largely driven by mortality surpluses with a smaller contribution from positive lapse experience. A similar dynamic existed in 2015.

Note 10: No significant changes in assumptions have been made during the period.

Note 11: Policyholder tax represents the net impact of deductions taken from policyholders' funds to settle tax liabilities arising from returns in unit-linked funds and any reserves held to settle such tax. Deductions from policyholders exceeded the reduction in the reserve in the period as a result of favourable movements in fund values, underpinned by the increase seen in gilts and UK equities. There was no such equivalent gilt growth in the same period in 2015, and equity performance in that period was marginally adverse.

Note 12: variation from investment return and economic assumption changes should be considered together. Investment returns in the period are largely as a result of bond yields having fallen significantly across all durations, with 10 year gilt yields falling by 98 basis points. This has given rise to a large increase in the value of bonds that the segment is invested in. However, as a result of falling bond yields in the period the assumption for the estimated future investment return that was made at the start of the year has been reduced. This causes an increase in the value of our insurance liabilities, thereby causing the strain seen above. No such dynamic existed in the prior year equivalent period.

S&P

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

	H1 2016 £m	H1 2015 £m	Note
Product-based charges	7.0	7.2	1
Administration expenses	(4.6)	(4.6)	2
Experience variances	(1.6)	0.1	3
Assumption changes	(3.8)	(0.3)	4
Policyholder tax	1.2	1.1	5
Variation from investment return	17.5	0.5	6
Economic assumption changes	(29.6)	3.5
Total	(13.9)	7.5

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

Note 2: Slightly adverse experience in the period caused by marginally adverse mortality experience.

Note 3: The adverse assumption change in the period is driven by an increase in insurance provisions of £3.5m, attributable to assuming a 1% cap on exit fees for those policyholders with pension products who are aged over 55.

Note 4: Policyholder tax represents the net impact of deductions taken from policyholders' funds to settle tax liabilities arising from returns in unit-linked funds and any reserves held to settle such tax. The small positive contribution in the period is primarily the consequence of higher tax deductions due to increases in fund values, supported by gilt value appreciation and modest UK equity growth.

Note 5: Variation from investment returns and economic assumption changes should be considered in conjunction with each other. During the period bond yields have fallen significantly across all durations, with 10 year gilt yields falling by 98 basis points and this has given rise to a large increase in the value of bonds that the segment is invested in. However, falling bond yields have increase the value of our insurance liabilities, to a larger extent than the CA segment. This is because the S&P segment has a number of policies that contain minimum guaranteed returns, and as future investments returns reduce, this causes a strain on the segment's insurance liabilities because both the value and volume of product guarantees increases.

Movestic

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

	H1 2016 £m	H1 2015 £m	Note
Pension and savings	2.1	2.9	6
Life and health	0.4	0.1	7
Movestic Kapital	1.5	0.1	8
Other	(0.4)	0.3	9
Total	3.6	3.4

Note 6: The Pensions & Savings business continues to be the core source of IFRS profit in Movestic. The segment has reported IFRS profits that are slightly lower than in the same period in 2015. The main driver of the reduction is that the prior year included one off investment performance fees of £1.0m. In addition to this premium volumes are slightly lower than in the prior year, and investment performance in the first six months was down on last year due to poor performing equity markets in the period, with a knock on impact of slightly reduced asset management charges to policyholders.

Note 7: The Life and Health business has generated a slightly higher profit when compared with the same period in 2015. Underlying profits are broadly in line over each period, with 2016 reporting the benefits of a profit on commission from Modernac, the reinsurance company that Movestic owns 49% of, amounting to £0.5m.

Note 8: Movestic Kapital is the Swedish division's internal investment management business. Developing this operation has been a significant area of management focus, with the increase in contribution from this aspect of the division arising from increases in performance fees arising from general growth in the operation.

Note 9: The "Other" component includes: the results of Movestic's associated company, Modernac; investment income and fair value adjustments on the financial reinsurance that Movestic uses to fund the writing of new Pensions & Savings business. There have been no significant fluctuations in the profit contributions that these aspects of the business create.

Waard group

The Waard group has reported a profit of £2.0m in the period, slightly up on the profit of £0.9m that was reported in the latter half of 2015, post Chesnara acquisition. Profits principally arise from mortality surpluses arising from the Waard group's term assurance policies.

CASH GENERATION £13.6m (Six months to 30 June 2015: £56.7m)

Cash in the business is generated from increases in the group's surplus funds. Surplus funds represent the excess of assets held over management's internal capital needs, as laid down in each division's and the group management policy. These are based on regulatory capital requirements, with the inclusion of additional "management buffers". The first six months of 2016 is the first period that our cash generation metric has been calculated with reference to Solvency II based capital management policies. Comparatives as reported applied our previous Solvency I based capital policies.

Highlights

- Cash has continued to be generated across the group, with cash generation in the period of £13.6m continuing to be of a magnitude that would support our previous levels of dividend.

- Cash generation in the prior period benefitted from a one-off positive contribution of £39.9m, arising on the acquisition of the Waard group.

- UK cash continues to be generated despite being hampered by the impact of falling bond yields, which has had an overall negative impact on both own funds and required levels of capital.

- The Swedish and Dutch divisions have reported positive cash development in the period. A contributing factor of this is the positive Swedish krona and euro exchange gains witnessed.

- Other group activities reflects the impact of consolidation routines, specifically movements in capital requirements determined at a group level.

Cash generation for period ended 30 June 2016 (£m)	Group	UK	Sweden	Netherlands	Other group activities
Increase/(decrease) in own funds	17.0	(5.0)	10.9	9.0	2.1
Decrease/(increase) in management's internal capital requirement	(3.4)	6.5	(8.4)	(3.2)	1.7
Cash generation	13.6	1.5	2.5	5.8	3.8

Impact of moving from Solvency I to Solvency II on cash reporting:

- The "day 1" transitional impact on our cash reporting of moving from Solvency I to Solvency II is complex and has various dynamics at play:

- At a divisional level the transition to Solvency II had a modestly positive impact on collective absolute levels of surplus within our divisions, and hence absolute cash potential.

- At a group level incremental solvency capital is required to be held over and above that held in our divisions. This is required to cover the group's exposure to foreign currency fluctuations, driven by our operations in Sweden and the Netherlands, and this offsets the positive capital benefit of having diversified operations. As a result the absolute level of day one surplus at a group level is lower under Solvency II, as reported on page 23 of the 2015 Annual Report & Accounts.

- In the medium term this constraint will not impact cash distribution expectations.

- In the longer term the constraint can be reduced through management actions such as currency hedging. In addition, the process of distributing cash from the non-UK divisions to Chesnara, as is assumed to be the case in the long-term, will reduce the absolute value of the group level capital required to cover this foreign exchange exposure.

ECV EARNINGS £(3.5)m *

Economic value earnings are negative for the first six months of the year, driven by the negative impact of falling bond yields in the period.

Analysis of the EcV result in the period by earnings source:

	6m to 30 Jun 2016 £m
Expected movement in period	4.3
New business	4.0
Operating variances	3.2
Operating assumption changes	(8.5)
Other operating variances	(3.2)
Total operating earnings	(0.2)
Economic experience variances	34.2
Economic assumption variances	(39.7)
Total economic earnings	(5.5)
Other non-operating variances	(1.2)
Risk margin movement	(2.9)
Tax	6.3
Total EcV earnings	(3.5)

Analysis of the EEV result in the year by business segment

	6m to 30 Jun 2016 £m	Note
UK	(5.5)	1
Sweden	(3.8)	2
Netherlands	0.6	3
Group and group adjustments	(1.1)	4
EcV earnings before tax	(9.8)
Tax	6.3	5
EcV earnings after tax	(3.5)

* This is the first period that EcV earnings have been reported. Consequently comparative information has not been presented.

Economic conditions: As with our previously reported EEV metric, the EcV result is sensitive to investment market conditions. Key investment market conditions in the period are as follows:

- The FTSE All share index has increased by 2.1%;

- The Swedish OMX all share index has decreased by 6.8%; and

- 10 year UK gilt yields have fallen from 2.01% to 1.03%.

Note 1 - UK: Operating earnings of £1.6m in the UK business are largely in line with expectations. Economic losses of £3.3m have been reported in the period, driven by the impact of falling bond yields on the business, largely through increases in reserves held for policies with guarantees. The risk margin within the UK business has increased by £2.7m in the period, largely owing to the impact of falling bond yields on the level at which the risk margin is discounted.

Note 2 - Sweden: The Swedish division has reported a small operating loss in the period, largely driven by the net impact of profits on new business written of £4.0m being offset by adverse operating assumption changes of £5.3m caused by expense assumption strengthening in the period and a reduction in expected performed fees. A small economic loss of £1.4m has been reported, predominantly as a result of marginally negative equity returns in the period. The risk margin held for the Swedish division has increased by £1.3m in the period.

Note 3 - Netherlands: The Dutch division has not reported significant movements in its economic value in the period. This is largely because the division's value is not particularly sensitive to investment market movements.

Note 4 - Group: A small loss has been reported in the group component. This largely relates to costs incurred in the period.

Note 5 - Tax: The business is reporting a tax credit of £6.3m in the period. This is driven by a combination of deferred tax on the loss in the period in the UK, coupled with a modelling adjustment for deferred tax when compared with the opening period.

ECV £459.9m (31 December 2015: £453.4m)

The economic value of Chesnara represents the present value of future profits of the existing insurance business, plus the adjusted net asset value of the non-insurance business within the group. EcV is an important reference point by which to assess Chesnara's intrinsic value.

Value movement 1 January 2016 to 30 June 2016

	£m
EEV 31 Dec 2015	455.2
Adj to EcV	(1.8)
EcV 31 Dec 2015	453.4
EcV earnings	(3.5)
Dividends	(15.6)
Fx gain	25.6
EcV 30 Jun 2016	459.9

EEV adj: The opening EcV of the group is £1.8m lower than our previously reported EEV. As expected, the two reporting metrics provide a consistent view of the value of the group.

EcV earnings: Negative EcV earnings in the period driven by investment markets. In particular, the UK and Dutch businesses have been impacted by bond yield falls and the Swedish business has been adversely affected by the suppressed equity markets that have been witnessed in the period.

Dividends: Under EcV, dividends are recognised in the period in which they are paid. Dividends of £15.6m were paid during the first half of 2016, being the final dividend from 2015.

FX gain: The EcV of the group benefited from large foreign exchange gains that were reported in the period as a result of sterling deprecation.

EcV to Solvency II

	£m
Economic value	459.9
Risk margin	(37.6)
Contract boundaries	(18.9)
Own fund restrictions	(5.2)
Dividends	(8.6)
Group SII own funds	389.6

Our reported EcV is based on a Solvency II assessment of the value of the business, but adjusted for certain items where it is deemed that Solvency II does not reflect the commercial value of the business. The above waterfall shows the key difference between EcV and SII, with explanations for each item below.

Risk margin: Solvency II rules require a significant 'risk margin' which is held on the Solvency II balance sheet as a liability, and this is considered to be materially above a realistic cost. We therefore reduce this margin for risk for EcV valuation purposes from being based on a 6% cost of capital to a 3% cost of capital.

Contract boundaries: Solvency II rules do not allow for the recognition of future cash flows on certain in-force contracts, despite the high probability of receipt. We therefore make an adjustment to reflect the realistic value of the cash flows under EcV.

Ring-fenced fund restrictions: Solvency II rules require a restriction to be placed on the value of certain ring-fenced funds. These restrictions are reversed for EcV valuation purposes as they are deemed to be temporary in nature.

Dividends: The proposed interim dividend of £8.6m is recognised for SII regulatory reporting purposes. It is not recognised within EcV until it is actual paid.

EcV by segment at 30 June 2016

	£m
UK	230.3
Movestic	183.1
Waard	81.1
Other group activities	(34.6)
Group SII Own funds	459.9

The above table shows that the EcV of the group is diversified across its different markets. In particular, the EcV of the UK and Swedish operations are of similar sizes, showing that we are well-balanced and not over-exposed to one particular geographic market.

Replacement of EEV

During the period we have replaced the previous group valuation metric, European Embedded Value, with a new metric, economic value (EcV). This has been introduced to align our valuation metric with Solvency II, with EcV being derived from the Solvency II balance sheet.

As expected, the new valuation metric gives a broadly similar value of the Chesnara plc group. At 31 December 2015 our previously reported EEV was £455.2m, compared with an opening EcV of £453.4m.

Our Embedded Value figures have historically been subject to an external audit opinion addressed to the Directors of Chesnara plc. This reflected the significance of the Embedded Value figures and was consistent with industry best practice.

The Economic Value figures are at this stage not subject to audit opinion other than to the extent the general audit opinion of the Financial Statements considers their consistency with the Financial Statements.

External audit requirements regarding Solvency II disclosures remain to be finalised. The expectation is that the Solvency II figures will be subject to external audit from the 2016 year end and as such given the Economic Value figures are derived from the Solvency II balance sheet we expect to extend an audit opinion to the Economic Value disclosures in our full year Report and Accounts.

RISK MANAGEMENT

Managing risk is a key part of our business model. We achieve this by understanding the current and emerging risks to the business, mitigating them where appropriate and ensuring they are appropriately monitored and managed at all times.

Chesnara adopts the "three lines of defence" model across the group taking into account size, nature and complexity, with a single set of risk and governance principles applying consistently across the business, underpinned by board-approved group and divisional governance maps and risk policies.

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 treat customers fairly and maintain an attractive dividend profile.

There are a number of potential risks and uncertainties which could have a material impact on performance over the remaining months of the financial year causing material fluctuation in actual results from those expected.

Recent events such as the European Union referendum result has triggered an increase in economic uncertainty and the latest round of FCA consultations have increased the range of potential outcomes faced by the UK division.

The directors, however, do not consider that the principal risks and uncertainties have changed materially since publication of the annual report for the year ended 31 December 2015.

A detailed explanation of the risks faced by Chesnara and how they are mitigated can be found on pages 36 to 39 of the annual report. These risks are summarised in the table below.

RISK	IMPACT
Adverse mortality/ morbidity/ longevity experience	In the event that actual mortality or morbidity rates are worse than from the assumptions underlying product pricing and subsequent reserving, less profit will accrue to the group.
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.
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.
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.
Adverse exchange rate movements against sterling	Exposure to 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, EcV and SII results which are expressed in sterling.
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.
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.
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.
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.
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 FCA's review of legacy business; ii) the changes in pensions legislation in April 2015; and iii) HM Treasury's review of exit charges on pensions business.
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.
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.
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.
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).

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 from which this half year report has been signed.

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 most 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 30 June 2016 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.

The directors have considered the impact of the Brexit vote, and the potential economic uncertainty that this may continue to cause. They can confirm that the stressed scenarios considered in our most recent projections encompass a more extreme range of economic scenarios than it is envisaged the Brexit vote may bring.

In light of this information, the board has concluded that the group and company has adequate resources to continue in operational existence for at least 12 months from the date of approval of this half year report, and as a result the IFRS Financial Statements have been prepared on a going concern basis.

Directors' responsibiliTIES statement

We confirm that to the best of our knowledge:

- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

- the management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

- the management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Peter Mason John Deane

Chairman Chief Executive Officer

30 August 2016 30 August 2016

Independent Auditor's REVIEW Report to the Members of Chesnara plc

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cashflows and related notes 1 to 7. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Edinburgh

United Kingdom

30 August 2016

CONDENSED Consolidated Statement of Comprehensive Income (unaudited)


		Unaudited Six months ended 30 June		Year ended 31 December
		2016	2015	2015
	Note	£000	£000	£000
Insurance premium revenue		55,524	58,078	114,749
Insurance premium ceded to reinsurers		(22,586)	(23,780)	(46,811)
Net insurance premium revenue		32,938	34,298	67,938
Fee and commission income		34,769	33,327	66,249
Net investment return		108,657	182,231	148,514
Total revenue net of reinsurance payable		176,364	249,856	282,701
Other operating income		9,397	11,513	18,586
Total income net of investment return		185,761	261,369	301,287
Insurance contract claims and benefits incurred
Claims and benefits paid to insurance contract holders		(159,552)	(159,896)	(318,721)
Net increase/(decrease) in insurance contract provisions		(8,485)	77,595	191,850
Reinsurers' share of claims and benefits		34,372	21,144	32,004
Net insurance contract claims and benefits		(133,665)	(61,157)	(94,867)
Change in investment contract liabilities		(13,147)	(143,425)	(100,469)
Reinsurers' share of investment contract liabilities		1,918	1,031	733
Net change in investment contract liabilities		(11,229)	(142,394)	(99,736)
Fees, commission and other acquisition costs		(11,050)	(10,512)	(20,875)
Administrative expenses		(20,253)	(19,125)	(41,301)
Other operating expenses
Charge for amortisation of acquired value of in-force business		(4,645)	(4,580)	(9,274)
Charge for amortisation of acquired value of customer relationships		(114)	(112)	(222)
Other		(2,911)	(8,096)	(5,866)
Total expenses net of change in insurance contract provisions and investment contract liabilities		(183,867)	(245,976)	(272,141)
Total income less expenses		1,894	15,393	29,146
Share of (loss)/profit of associate		(428)	405	455
Profit recognised on business combination		-	16,209	16,644
Financing costs		(1,226)	(1,609)	(3,457)
Profit before income taxes	4	240	30,398	42,788
Income tax credit/(expense)		237	(2,138)	(3,000)

Profit for the period	3,4	477	28,260	39,788
Foreign exchange translation differences arising on the revaluation of foreign operations		15,188	(5,366)	(173)
Total comprehensive income for the period		15,665	22,894	39,615
Basic earnings per share (based on profit for the period)	2	0.38p	22.36p	31.48p
Diluted earnings per share (based on profit for the period)	2	0.38p	22.33p	31.41p

The notes and information below form part of these financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)


		Unaudited Six months ended 30 June		Year ended 31 December
		2016	2015	2015
	Note	£000	£000	£000
Assets
Intangible assets
Deferred acquisition costs		43,083	31,986	36,061
Acquired value of in-force business		67,753	72,483	68,341
Acquired value of customer relationships		841	948	875
Software assets		7,133	3,726	4,720
Property and equipment		584	490	537
Investment in associates		4,721	4,453	4,707
Investment properties		245	9,245	245
Reinsurers' share of insurance contract provisions		276,304	313,302	282,628
Amounts deposited with reinsurers		34,642	35,455	33,941
Financial assets
Equity securities at fair value through income		479,452	465,350	486,243
Holdings in collective investment schemes at fair value through income		3,682,362	3,563,740	3,499,355
Debt securities at fair value through income		494,774	385,847	423,754
Policyholders' funds held by the Group		209,073	176,267	189,919
Insurance and other receivables		55,775	73,813	43,674
Prepayments		6,079	5,599	6,565
Derivative financial instruments		3,443	2,872	2,721
Total financial assets		4,930,958	4,673,488	4,652,231
Reinsurers' share of accrued policyholder claims		21,367	19,744	19,042
Income taxes		1,693	4,182	3,611
Cash and cash equivalents		253,369	279,813	260,863
Total assets	4	5,642,693	5,449,315	5,367,802
Liabilities
Insurance contract provisions		2,260,524	2,330,084	2,232,083
Other provisions		925	3,017	1,905
Financial liabilities
Investment contracts at fair value through income		2,678,190	2,408,122	2,457,521
Liabilities relating to policyholders' funds held by the Group		209,073	176,267	189,919
Borrowings	5	83,737	87,837	79,025
Derivative financial instruments		3,884	656	444
Total financial liabilities		2,974,884	2,672,882	2,726,909
Deferred tax liabilities		7,246	10,599	7,906
Reinsurance payables		6,743	8,619	9,660
Payables related to direct insurance and investment contracts		66,772	80,288	62,284
Deferred income		5,815	17,486	6,212
Income taxes		1,660	8,260	6,328
Other payables		21,203	28,503	18,401
Bank overdrafts		1,509	2,897	952
Total liabilities	4	5,347,281	5,162,635	5,072,640
Net assets		295,412	286,680	295,162
Shareholders' equity
Share capital		42,600	42,600	42,600
Share premium		76,516	76,523	76,516
Treasury shares		(161)	(168)	(161)
Other reserves		14,374	(6,007)	(814)
Retained earnings	3	162,083	173,732	177,021
Total shareholders' equity		295,412	286,680	295,162

The notes and information below form part of these financial statements.

Approved by the Board of Directors and authorised for issue on 30 August 2016 and signed on its behalf by:

Peter Mason John Deane

Chairman Chief Executive Officer

CONDENSED Consolidated statement of cash flows (unaudited)


	Unaudited Six months ended 30 June		Year ended 31 December
	2016	2015	2015
	£000	£000	£000
Profit for the period	477	28,260	39,788
Adjustments for:
Depreciation of property and equipment	93	89	203
Amortisation of deferred acquisition costs	5,233	4,695	9,251
Amortisation of acquired value of in-force business	4,645	4,580	9,274
Amortisation of acquired value of customer relationships	114	112	222
Amortisation of software assets	549	715	1,346
Share based payment	171	96	212
Tax (recovery)/paid	(53)	2,138	2,999
Interest receivable	(7,997)	(11,297)	(24,693)
Dividends receivable	(18,076)	(13,867)	(31,501)
Interest expense	1,226	1,609	3,457
Change in fair value of investment properties	-	(4,400)	(4,277)
Fair value gains on financial assets	(203,005)	(152,542)	(87,934)
Profit arising on business combination	-	(16,209)	(16,644)
Share of loss/(profit) of associate	428	(404)	(455)
Interest received	8,096	11,590	(14,759)
Dividends received	16,897	12,768	24,458
(Increase)/decrease in intangible assets related to insurance and investment contracts	(8,848)	(7,520)	31,532
Changes in operating assets and liabilities:
Decrease in financial assets	140,550	37,410	62,365
Decrease in reinsurers share of insurance contract provisions	9,400	20,669	54,253
(Increase)/decrease in amounts deposited with reinsurers	(701)	43	1,557
(Increase)/decrease in insurance and other receivables	(9,589)	(26,802)	1,754
Decrease/(increase) in prepayments	902	(942)	(1,710)
Increase/(decrease) in insurance contract provisions	7,584	(84,884)	(201,453)
Increase in investment contract liabilities	46,916	170,875	149,011
Decrease in provisions	(1,125)	(691)	(1,893)
Decrease in reinsurance payables	(3,581)	(1,276)	(578)
Increase in payables related to direct insurance and investment contracts	3,233	20,448	1,708
Increase/(decrease) in other payables	4,978	7,326	(1,630)
Cash generated from operations	(1,483)	2,589	5,863
Income tax paid	(3,498)	(1,217)	(4,248)
Net cash generated from/(utilised by) operating activities	(4,981)	1,372	1,615
Cash flows from investing activities
Business combinations	-	54,258	54,258
Development of software	(2,404)	(987)	(2,418)
Purchases of property and equipment	(84)	(126)	(265)
Proceeds from the disposal of property and equipment	-	-	-
Net cash generated from/(utilised by) investing activities	(2,488)	53,145	51,575
Cash flows from financing activities
Proceeds from/(repayment of) borrowings	1,950	2,218	(7,815)
Dividends paid	(15,586)	(15,143)	(23,498)
Interest paid	(1,166)	(1,377)	(3,382)
Net cash generated from/(utilised by) financing activities	(14,802)	(14,302)	(34,695)
Net (decrease)/increase in cash and cash equivalents	(22,271)	40,215	18,495
Cash and cash equivalents at beginning of period	259,911	240,510	240,510
Effect of exchange rate changes on cash and cash equivalents	14,220	(3,809)	906
Cash and cash equivalents at end of the period	251,860	276,916	259,911

The notes and information below form part of these financial statements.

CONDENSED consolidated statement of changes in equity(unaudited)


Unaudited six months ended 30 June 2016
	Share capital	Share premium	Other reserves	Treasury shares	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
Equity shareholders' funds at 1 January 2016	42,600	76,516	(814)	(161)	177,021	295,162
Profit for the period	-	-	-	-	477	477
Dividends paid	-	-	-	-	(15,586)	(15,586)
Foreign exchange translation differences	-	-	15,188	-	-	15,188
Share based payment	-	-	-	-	171	171
Equity shareholders' funds at 30 June 2016	42,600	76,516	14,374	(161)	162,083	295,142


Unaudited six months ended 30 June 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 period	-	-	-	-	28,260	28,260
Dividends paid	-	-	-	-	(15,143)	(15,143)
Foreign exchange translation differences	-	-	(5,366)	-	-	(5,366)
Share based payment	-	-	-	-	96	96
Equity shareholders' funds at 30 June 2015	42,600	76,523	(6,007)	(168)	173,732	286,680


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

The notes and information below form part of these financial statements.

notes to the CONDENSED consolidated financial statements (unaudited)

1 Basis of preparation

This condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of consolidated financial statements has been prepared applying the accounting policies and presentation which were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2015.

The Group's published consolidated financial statements for the year ended 31 December 2015 were prepared in accordance with IFRS as adopted by the EU. Any judgements and estimates applied in the condensed set of financial statements are consistent with those applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2015.

The financial information shown in these interim financial statements is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The comparative figures for the financial year ended 31 December 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statements under section 498(2) or (3) of the Companies Act 2006.

2 Earnings per share

Earnings per share are based on the following:


	Unaudited Six months ended 30 June		Year ended 31 December
	2016	2015	2015
Profit for the period attributable to shareholders (£000)	477	28,260	39,788
Weighted average number of ordinary shares	126,404,892	126,398,396	126,401,635
Basic earnings per share	0.38p	22.36p	31.48p
Diluted earnings per share	0.38p	22.33p	31.41p

The weighted average number of ordinary shares in respect of the six months ended 30 June 2016 is based upon 126,552,427 shares in issue, less 147,535 own shares held in treasury.

The six months ended 30 June 2015 is based upon 126,552,427 shares in issue, less 154,031 own shares held in treasury at the beginning of the period, and 126,552,427 shares in issue less 154,031 own shares held in treasury at the end of the period.

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.

There were 525,648 share options outstanding at 30 June 2016 (30 June 2015: 180,765). Accordingly, there is dilution of the average number of ordinary shares in issue in respect of 2016. There were 271,000 share options outstanding as at 31 December 2015.

3 Retained earnings


	Unaudited Six months ended 30 June		Year ended 31 December
	2016	2015	2015
	£000	£000	£000
Retained earnings attributable to equity holders of the parent company comprise:
Balance at 1 January	177,021	160,519	160,519
Profit for the period	477	28,260	39,788
Share based payment	171	96	212
Dividends:
Final approved and paid for 2014	-	(15,143)	(15,143)
Interim approved and paid for 2015	-	-	(8,355)
Final approved and paid for 2015	(15,586)	-	-
Balance at period end	162,083	173,732	177,021

The interim dividend in respect of 2015, approved and paid in 2015 was paid at the rate of 6.61p per share.

The final dividend in respect of 2015, approved and paid in 2016, was paid at the rate of 12.33p per share so that the total dividend paid to the equity shareholders of the Parent Company in respect of the year ended 31 December 2015 was made at the rate of 18.94p per share.

An interim dividend of 6.80p per share in respect of the year ending 31 December 2016 payable on14 October 2016 to equity shareholders of the Parent Company registered at the close of business on 9 September 2016, the dividend record date, was approved by the Directors after the balance sheet date. The resulting dividend of £8.6m has not been provided for in these financial statements and there are no income tax consequences.

The following table summarises dividends per share in respect of the six month period ended 30 June 2016 and the year ended 31 December 2015:


	Six months ended	Year ended 31
	30 June 2016	December 2015
	p	p
Interim - approved/paid	6.80	6.61
Final - proposed/paid	-	12.33
Total	6.80	18.94

4 Operating segments

The Group considers that it has no product or distribution-based business segments. It reports segmental information on the same basis as reported internally to the Chief Operating Decision Maker, which is the Board of Directors of Chesnara plc.

The segments of the Group as at 30 June 2016 comprise:

CA: This segment is part of the Group's UK life insurance and pensions run-off portfolio and comprises the original business of Countrywide Assured plc, the Group's principal UK operating subsidiary, and 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 business of Save & Prosper Insurance Limited and its subsidiary Save & Prosper Pensions Limited. It is responsible for conducting both unit-linked and non-linked business, including a with-profits portfolio, which carries significant additional market risk, as described in Note 6 'Management of financial risk' in the Chesnara plc 2014 Annual Report and Accounts. 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 non-linked business.

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 six months ended 30 June 2016.

(i) Segmental income statement for the six months ended 30 June 2016


	CA	S&P	UK Total	Movestic	Waard Group	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000	£000
Net insurance premium revenue	21,730	2,622	24,352	7,118	1,468	-	32,938
Fee and commission income	14,431	1,326	15,757	19,000	12	-	34,769
Net investment return	92,909	43,364	136,273	(29,550)	1,822	112	108,657
Total revenue (net of reinsurance payable)	129,070	47,312	176,382	(3,432)	3,302	112	176,364
Other operating income	1,224	5,141	6,365	2,553	479	-	9,397
Segmental income/(expenses)	130,294	52,453	182,747	(879)	3,781	112	185,761
Net insurance contract claims and benefits incurred	(68,903)	(61,287)	(130,190)	(3,851)	376	-	(133,665)
Net change in investment contract liabilities	(40,343)	(467)	(40,810)	29,581	-	-	(11,229)
Fees, commission and other acquisition costs	(870)	(14)	(884)	(11,581)	(157)	-	(12,622)
Administrative expenses:
Amortisation charge on software assets	-	-	-	(1,340)	-	-	(1,340)
Depreciation charge on property and equipment	(22)	-	(22)	(180)	-	-	(202)
Other	(5,283)	(4,607)	(9,890)	(4,909)	(1,734)	(2,178)	(18,711)
Operating expenses	(603)	-	(603)	(2,308)	-	-	(2,911)
Financing costs	-	(1)	(1)	(403)	-	(822)	(1,226)
Share of profit from associates	-	-	-	(428)	-	-	(428)
Profit/(loss) before tax and consolidation adjustments	14,270	(13,923)	347	3,702	2,266	(2,888)	3,427
Other operating expenses:
Charge for amortisation of acquired value of in-force business	(2,324)	(302)	(2,626)	(1,725)	(294)	-	(4,645)
Charge for amortisation of acquired value of customer relationships	-	-	-	(114)	-	-	(114)
Fees, commission and other acquisition costs	-	-	-	1,572	-	-	1,572
Segmental income less expenses	11,946	(14,225)	(2,279)	3,435	1,972	(2,888)	240
Profit/loss before tax	11,946	(14,225)	(2,279)	3,435	1,972	(2,888)	240
Income tax (expense)/credit			144	(333)	(684)	1,110	237
(Loss)/profit after tax			(2,135)	3,102	1,288	(1,778)	477

(ii) Segmental balance sheet as at 30 June 2016


	CA	S&P	Movestic	Waard Group	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000
Total assets	1,835,090	1,187,101	2,380,344	204,527	35,631	5,642,693
Total liabilities	(1,715,423)	(1,145,106)	(2,307,514)	(125,701)	(53,537)	(5,347,281)
Net assets	119,667	41,995	72,830	78,826	(17,906)	295,412
Investment in associates	-	-	4,721	-	-	4,721
Additions to non-current assets	-	-	11,894	7	-	11,901

(iii) Segmental income statement for the six months ended 30 June 2015 (re-stated)*


		CA	S&P	UK Total		Movestic	Waard Group	Other Group Activities	Total
		£000	£000	£000		£000	£000	£000	£000
	Net insurance premium revenue	24,548	2,871	27,419		6,716	163	-	34,298
	Fee and commission income	15,160	1,225	16,385		16,940	2	-	33,327
	Net investment return	26,519	28,191	54,710		129,068	(1,780)	233	182,231
	Total revenue (net of reinsurance payable)	66,227	32,287	98,514		152,724	(1,615)	233	249,856
	Other operating income	1,411	5,792	7,203		3,943	367	-	11,513
	Segmental income/(expenses)	67,638	38,079	105,717		156,667	(1,248)	233	261,369
	Net insurance contract claims and benefits incurred	(33,938)	(24,912)	(58,850)		(3,357)	1,050	-	(61,157)
	Net change in investment contract liabilities	(12,781)	(771)	(13,552)		(128,842)	-	-	(142,394)
(iv)	Fees, commission and other acquisition costs	(1,038)	(11)	(1,049)	(10,808)		(9)	-	(11,866)
	Administrative expenses:
	Amortisation charge on software assets	-	-	-	(2,188)		-	-	(2,188)
	Depreciation charge on property and equipment	(22)	-	(22)	(187)		-	-	(209)
	Other	(5,214)	(4,922)	(10,136)	(3,594)		267	(3,265)	(16,728)
	Operating expenses	(652)	(6)	(658)	(3,913)		7	(3,532)	(8,096)
	Financing costs	-	(1)	(1)	(687)		-	(921)	(1,609)
	Share of profit from associates	-	-	-	405		-	-	405
	Profit/(loss) before tax and consolidation adjustments	13,993	7,456	21,449	3,496		67	(7,485)	17,527
	Other operating expenses:
	Charge for amortisation of acquired value of in-force business	(2,495)	(330)	(2,825)	(1,661)		(94)	-	(4,580)
	Charge for amortisation of acquired value of customer relationships	-	-	-	(112)		-	-	(112)
	Fees, commission and other acquisition costs	-	-	-	1,354		-	-	1,354
	Segmental income less expenses	11,498	7,126	18,624	3,077		(27)	(7,485)	14,189
		-	-	-	-		-	16,209	16,209
	Profit/(loss) before tax	11,498	7,126	18,624	3,077		(27)	8,724	30,398
	Income tax (expense)/credit			(3,628)	(14)		(12)	1,516	(2,138)
	Profit/(loss) after tax			14,996	3,063		(39)	10,240	28,260

(v) Segmental balance sheet as at 30 June 2015 (re-stated)*


	CA	S&P	Movestic	Waard Group	Other Group Activities	Total
	£000	£000	£000	£000	£000	£000
Total assets	1,903,488	1,227,757	2,048,599	194,583	74,888	5,449,315
Total liabilities	(1,803,562)	(1,174,449)	(1,991,196)	(127,288)	(66,140)	(5,162,635)
Net assets	99,926	53,308	57,403	67,295	8,748	286,680
Investment in associates	-	-	4,453	-	-	4,453
Additions to non-current assets	-	26	8,607	26	-	8,659

* CA includes Protection Life Company Limited (previously shown separately).

Segmental income statement for the year ended 31 December 2015


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

(vi) Segmental balance sheet as at 31 December 2015


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

5 Borrowings


	Unaudited 30 June		31 December
	2016	2015	2015
	£000	£000	£000
Bank loan	52,580	64,431	52,522
Amount due in relation to financial reinsurance	31,157	23,406	26,503
Total	83,737	87,837	79,025

The bank loan subsisting at 30 June 2016 comprises the following:

- on 7 October 2013 tranche one of a new facility was drawn down, amounting to £30.0m. This facility is unsecured and is repayable in five increasing annual instalments on the anniversary of the draw down date. The outstanding principal on the loan bears interest at a rate of 2.25 percentage points above the London Inter-Bank Offer Rate and is repayable over a period which varies between one and six months at the option of the borrower. To date, £10.4m of the debt has been repaid.

- on 27 November 2013 tranche two of the new loan facility was drawn down, amounting to £31.0m. As with tranche one, this facility is unsecured and is repayable in five increasing annual instalments on the anniversary of the draw down date. The outstanding principal on the loan bears interest at a rate of 2.25 percentage points above the London Inter-Bank Offer Rate and is repayable over a period which varies between one and six months at the option of the borrower. To date, £10.6m of the debt has been repaid.

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

The fair value of the bank loan at 30 June 2016 was £52,800,000 (31 December 2015: £52,800,000).

The fair value of amounts due in relation to financial reinsurance was £31,736,000 (31 December 2015: £26,879,000).

Bank loans are presented net of unamortised arrangement fees. Arrangement fees are recognised in profit or loss using the effective interest rate method.

6 Financial instruments fair value disclosures

The table below shows the determination of the fair value of financial assets and financial liabilities according to a three-level valuation hierarchy. Fair values are generally determined at prices quoted in active markets (Level 1). However, where such information is not available, the Group applies valuation techniques to measure such instruments. These valuation techniques make use of market-observable data for all significant inputs where possible (Level 2), but, in some cases it may be necessary to estimate other than market-observable data within a valuation model for significant inputs (Level 3).

The Group held the following financial instruments at fair value at 30 June 2016. There have not been any transfers of assets or liabilities between levels of the fair value hierarchy. There are no non-recurring fair value measurements.


	Fair value measurement at 30 June 2016 using
		Level 1	Level 2	Level 3	Total
	Financial Assets	£000	£000	£000	£000
	Equities
	Listed	479,452	-	-	479,452
	Holdings in collective investment schemes	3,682,362	-	-	3,682,362
	Debt securities - fixed rate
	Government Bonds	375,822	-	-	375,822
	Listed	93,916	-	-	93,916
	Debt securities - floating rate Listed	3,432	21,604	-	25,036
	Total debt securities	473,170	21,604	-	494,774
	Policyholders' funds held by the group	209,073	-	-	209,073
	Derivative financial instruments	125	3,318	-	3,443
	Total	4,844,182	24,922	-	4,869,104
	Current				2,347,461
	Non-current				2,521,643
	Total				4,869,104

	Financial liabilities
?	Investment contracts at fair value through income	-	2,678,190	-	2,678,190
	Liabilities related to policyholders' funds held by the group	209,073	-	-	209,073
	Derivative financial instruments	3,740	144	-	3,884
	Total	212,813	2,678,334	-	2,891,147

Included within Holdings in collective investment schemes are amounts held with JPMorgan Life Limited through a reinsurance arrangement, under which the Group has reassured certain unit-linked liabilities. The contract does not transfer significant insurance risk and is accounted for as Holdings in collective investment schemes, representing the substance of the arrangement in place. These amounts have been classified as level 2 in the above hierarchy table as the reinsurance contract itself is not quoted but is valued using market-observable data.

The debt securities classified as Level 2 are structured bond-type or non-standard debt products, held by our newly acquired Dutch subsidiaries, for which there is no active market. These products were structured such that the principal amount invested was protected by high security assets, with the returns being linked to underlying pools of riskier, higher-return assets. At acquisition and the balance sheet date, the underlying assets supporting the coupon had under performed such that no coupon is being paid, resulting in these assets all now behaving like zero coupon bonds.

These assets are valued using counterparty or broker quotes and are periodically validated against third-party models.

These assets have been classified as Level 2 because the third-party valuation models include observable inputs to the valuation of these assets, including counterparty default spreads, yield curve swaps and foreign exchange swaps.

Within derivative financial instruments is a financial reinsurance embedded derivative related to our Movestic operation. The Group has entered into a reinsurance contract with a third party that has a section that is deemed to transfer significant insurance risk and a section that is deemed not to transfer significant insurance risk. The element of the contract that does not transfer significant insurance risk has two components and has been accounted for as a financial liability at amortised cost and an embedded derivative asset at fair value.

The embedded derivative represents an option to repay the amounts due under the contract early at a discount to the amortised cost, with its fair value being determined by reference to market interest rate at the balance sheet date. It is, accordingly, determined at Level 2 in the three-level fair value determination hierarchy set out above.

The Investment contract liabilities in Level 2 of the valuation hierarchy represent the fair value of non-linked and guaranteed income and growth bonds liabilities valued using established actuarial techniques utilising market observable data for all significant inputs, such as investment yields.

Except as detailed in the following table, the Directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values:


	Carrying amount				Fair value
	30 June	30 June	31 December	30 June		30 June	31 December
	2016	2015	2015	2016		2015	2015
	£000	£000	£000	£000		£000	£000

Financial liabilities:
Borrowings	83,737	87,837	79,025	84,536		88,744	79,679

Borrowings consist of bank loans and an amount due in relation to financial reinsurance.

The fair value of the bank loans are taken as the principal outstanding at the balance sheet date.

The amount due in relation to financial reinsurance is fair valued with reference to market interest rates at the balance sheet date.

There were no transfers between levels 1, 2 and 3 during the period.

The Group holds no Level 3 liabilities as at the balance sheet date.

7 Approval of consolidated report for the six months ended 30 June 2016

This condensed consolidated report was approved by the Board of Directors on 30 August 2016. A copy of the report will be available to the public at the Company's registered office, 2nd Floor, Building 4, West Strand Business Park, West Strand Road, Preston, PR1 8UY and at www.chesnara.co.uk.

ADDITIONAL INFORMATION

BOARD OF DIRECTORS

PETER MASON: CHAIRMAN		MIKE EVANS: SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
Non-executive Chairman of the Board, Peter is responsible for the leadership of the Board, setting the agenda and ensuring the Board's effectiveness on all aspects of its role. Appointment to the Board: Appointed to the Board in March 2004 and as Chairman in January 2009. Committee membership: Nomination & Governance (Chairman) and a member of the Remuneration Committee. Peter attends the Audit & Risk Committee by invitation. Current directorships/business interests: - Chairman of Movestic Livförsäkring AB - Chairman of Chesnara Holdings BV - Chairman of Countrywide Assured plc - Non-executive Director of Countrywide Assured Life Holdings Limited		Appointment to the Board: Appointed to the Chesnara plc Board in March 2013. Mike became Senior Independent Director in May 2013. Committee membership: Nomination and Governance, Audit & Risk and Remuneration. Current directorships/business interests: - Hargreaves Lansdown plc, Chairman - Zoopla Property Group plc, Chairman - Chesnara Holdings BV - Countrywide Assured plc

PETER WRIGHT: NON-EXECUTIVE DIRECTOR AND CHAIRMAN OF THE AUDIT & RISK COMMITTEE		VERONICA OAK: NON-EXECUTIVE DIRECTOR, CHAIRMAN OF THE REMUNERATION COMMITTEE
Appointment to the Board: Appointed to the Chesnara plc Board and as Chairman of the Audit & Risk Committee in January 2009. Committee membership: Audit & Risk and Nomination & Governance. Current directorships/business interests: - Chairman of the With-Profits Committee Countrywide Assured plc - Countrywide Assured plc		Appointment to the Board: Appointed to the Chesnara plc Board in January 2013. Committee membership: Nomination & Governance, Audit & Risk, and Remuneration. Current directorships/business interests: - Hanley Economic Building Society, NED - With-Profits Committee, Countrywide Assured plc - Countrywide Assured plc - Investment and Life Assurance Group Limited - Sanlam UK Limited and Sanlam Investments Holdings UK Limited, NED.

DAVID BRAND: NON-EXECUTIVE DIRECTOR		JANE DALE: NON-EXECUTIVE DIRECTOR
Appointment to the Board: Appointed to the Chesnara plc Board and the Board of Movestic Livförsäkring AB in January 2013. Committee membership: Nomination & Governance, Audit & Risk, and Remuneration. Current directorships/business interests: - Exeter Friendly Society, Chairman of the Investment Committee - Movestic Livförsäkring AB, Chair of the Audit & Risk Committee - Countrywide Assured plc		Appointment to the Board: Appointed to the Chesnara plc Board and the Board of Countrywide Assured plc in May 2016. Committee membership: Nomination & Governance and Audit & Risk Current directorships/business interests: - Countrywide Assured plc - BHSF Group Limited - Chairman - British Gas Services Limited

JOHN DEANE: CHIEF EXECUTIVE		DAVID RIMMINGTON: GROUP FINANCE DIRECTOR
Appointment to the Board: Appointed as Chief Executive in January 2015. Career, skills and experience: John is a qualified Actuary and has over 30 years experience in the life assurance industry. John joined Century Life, a closed book acquisition company in 1993. As CEO, he oversaw the creation of the outsourcing company Adepta in 2000. He joined Old Mutual plc in 2003 becoming their Corporate Development Director later that year. In 2007 he joined the Board of Royal London with responsibility for its open businesses in the UK, Ireland and Isle of Man.		Appointment to the Board: Appointed as Group Finance Director with effect from May 2013. Career, skills and experience: David trained as a chartered accountant with KPMG, has more than 17 years' experience in financial management within the life assurance and banking sectors and has had a significant role in a number of major acquisitions and business integrations. Prior to joining Chesnara plc in 2011 as Associate Finance Director, David held a number of financial management positions within the Royal London Group including 6 years as Head of Group Management Reporting.

FRANK HUGHES: BUSINESS SERVICES DIRECTOR
Appointment to the Board: Appointed as an executive director in March 2004. Career, skills and experience: Frank joined Countrywide Assured plc in November 1992 as an IT Project Manager and was appointed to the CA board as IT Director in May 2002 and to the Chesnara board as Business Services Director in May 2004. He has 27 years' experience in the life assurance industry gained in CA and Chesnara and also with Royal Life, Norwich Union and CMG.

financial calendar

31 August 2016

Interim results for the six months ending 30 June 2016 announced.

8 September 2016

Ex dividend date.

9 September 2016

Interim dividend record date.

14 October 2016

Interim dividend payment date.

31 March 2017

Results for the year ending 31 December 2016 announced.

KEY CONTACTS

Registered and Head Office

2^nd Floor, Building 4

West Strand Business Park

West Strand Road

Preston

Lancashire

PR1 8UY

Tel: 01772 972050

Fax: 01772 482244

www.chesnara.co.uk

Legal Advisors

Ashurst LLP

Broadwalk House

5 Appold Street

London

EC2A 2HA

Addleshaw Goddard LLP

100 Barbirolli Square

Manchester

M2 3AB

Auditor

Deloitte LLP

Chartered Accountants and Statutory Auditor

Saltire Court

20 Castle Terrace

Edinburgh

EH1 2DB

Registrars

Capita Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

Stockbrokers

Panmure Gordon

One New Change

London

EC4M 9AF

Shore Capital Stockbrokers Limited

Bond Street House

14 Clifford Street

London

W1S 4JU

Bankers

National Westminster Bank plc

135 Bishopsgate

London

EC2M 3UR

The Royal Bank of Scotland

8^th Floor, 135 Bishopsgate

London

EC2M 3UR

Lloyds TSB Bank plc

3^rd Floor, Black Horse House

Medway Wharf Road

Tonbridge

Kent

TN9 1QS

Public Relations Consultants

FWD

145 Leadenhall Street

London

EC3V 4QT

Corporate Advisors

Shore Capital Stockbrokers Limited

Bond Street House

14 Clifford Street

London

W1S 4JU

GLOSSARY

ABI	Association of British Insurers - represents the collective interests of the UK's insurance industry.
AGM	Annual General Meeting.
ALM	Asset Liability Management - management of risks that arise due to mismatches between assets and liabilities.
APE	Annual Premium Equivalent - an industry wide measure that is used for measuring the annual equivalent of regular and single premium policies.
CA	Countrywide Assured plc.
CALH	Countrywide Assured Life Holdings Limited and its subsidiary companies.
Directors or Board	The directors of the Company as at the date of this document whose names are set out on pages 44 and 45 of this document.
DPF	Discretionary Participation Feature - a contractual right under an insurance contract to receive, as a supplement to guaranteed benefits, additional benefits whose amount or timing is contractually at the discretion of the issuer.
Dutch business	Waard Group, consisting of Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V. and Tadas Verzekeringen B.V.
EEV	European Embedded Value.
EcV	Economic Value, representing adjusted Solvency II own funds.
FCA	Financial Conduct Authority.
FI	Finansinspektionen, being the Swedish Financial Supervisory Authority.
Form of proxy	The form of proxy relating to the General Meeting being sent to Shareholders with this document.
FSMA	The Financial Services and Markets Act 2000 of England and Wales, as amended.
Gross cash generation	This represents the operational cash that has been generated in the period. The cash generating capacity of the Group is largely a function of the movement in the solvency position of the insurance subsidiaries within the Group, and takes account of the buffers that management has set to hold over and above the solvency requirements imposed by our regulators.
Group	The Company and its existing subsidiary undertakings.
Guardian	Guardian Assurance plc.
HCL	HCL Insurance BPO Services Limited.
IFRS	International Financial Reporting Standards.
IFA	Independent Financial Adviser.
KPI	Key performance indicator.
London Stock Exchange	London Stock Exchange plc.
LTI	Long-Term Incentive Scheme - a reward system designed to incentivise employees' long-term performance.
Movestic	Movestic Livförsäkring AB.
Modernac	Modernac SA, an associated company which is 49% owned by Movestic.
Net cash generation	This represents the cash that has become available for distribution to shareholders during the period. It builds on "gross cash generation" and makes adjustments for items (either positive or negative) that affect the availability of cash for distribution. For example, capital releases arising from capital restructuring and one-off cash generation from acquisitions.
Official List	The Official List of the Financial Conduct Authority.
Ordinary shares	Ordinary shares of five pence each in the capital of the Company.
ORSA	Own Risk and Solvency Assessment.
PRA	Prudential Regulation Authority.
PL	Protection Life Company Limited.
QRT	Quantitative Reporting Template.
RCR	Risk Capital Requirement - additional amounts of capital required to be held for regulatory purposes as a result of two stress tests.
Resolution	The resolution set out in the notice of General Meeting set out in this document.
RMF	Risk Management Framework.
SCR	Solvency Capital Requirement, representing the amount of capital required to be held under Solvency II.
Shareholder(s)	Holder(s) of Ordinary Shares.
Solvency II	A fundamental review of the capital adequacy regime for the European insurance industry. Solvency II aims to establish a set of EU-wide capital requirements and risk management standards that will replace the current Solvency I requirements.
STI	Short-Term Incentive Scheme - a reward system designed to incentivise employees' short-term performance.
Swedish Business	Movestic and its subsidiaries and associated companies.
S&P	Save & Prosper Insurance Limited and Save & Prosper Pensions Limited.
TCF	Treating Customers Fairly - a central PRA principle that aims to ensure an efficient and effective market and thereby help policyholders achieve a fair deal.
TSR	Total Shareholder Return, measured with reference to both dividends and capital growth.
UK Business	CA, S&P, CALH and PL.
VIF	Value of In-force business.

This information is provided by RNS

The company news service from the London Stock Exchange

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