Chesnara Annual Report 2012

FY2012 Annual Report · Chesnara
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—
Annual Report and Accounts 
2012

SECTION A
OVERVIEW & STRATEGY

06 
07—09 
10  
11—13 
14 
15 

2012 Highlights
Chairman’s Statement
Our Vision and Strategy
Strategic Objectives
The Chesnara Business
Business Model

SECTION B
PERFORMANCE

18—25 
26—37 
38—41 
42—44 
45 

Chief Executive’s Review 
Financial Review 
Financial Management 
Risk Management 
Focus on Solvency II

SECTION C
GOVERNANCE

Governance Overview from the Chairman 
Board of Directors 
Board Proﬁle 
Corporate Governance Report 

48 
49 
50 
51—55 
56—60  Directors’ Remuneration Report 
Audit & Risk Committee Report 
61—62 
63 
Corporate and Social Responsibility Statement
64—65  Directors’ Report

SECTION D
IFRS FINANCIAL STATEMENTS

68 
69 
71 
72 
73 
74 
75 
76 
77 
78—149  Notes to the Consolidated Financial Statements

Directors’ Responsibility Statement 
Independent Auditor’s Report to the Members of Chesnara plc
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet 
Company Balance Sheet 
Consolidated Statement of Cash Flows 
Company Statement of Cash Flows 
Consolidated Statement of Changes in Equity 
Company Statement of Changes in Equity 

SECTION E
EEV SUPPLEMENTARY
INFORMATION

152 
153 
154 
155 
156—169  Notes to the EEV Supplementary Information

Directors’ Responsibility Statement 
Independent Auditor’s Report 
Summarised EEV Consolidated Income Statement 
Summarised EEV Consolidated Balance Sheet 

SECTION F
ADDITIONAL INFORMATION

Financial Calendar
Key Contacts

172 
173 
174—177  Notice of Annual General Meeting
178—180  Explanatory Notes to the Notice 

of Annual General Meeting

 
 
SECTION A
OVERVIEW & STR ATEGY

FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS

This document may contain forward-looking statements 
with respect to certain of the plans and current expectations 
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(cid:56)(cid:46)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:15)(cid:3)(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
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(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)
(cid:71)(cid:72)(cid:79)(cid:68)(cid:92)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
and other regulations in the jurisdictions in which Chesnara 
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(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)
(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:74)(cid:82)(cid:68)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
expressed or implied in these forward-looking statements.

02

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION A
OVERVIEW & STR ATEGY

NOTE ON TERMINOLOGY
NOTE ON TERMINOLOGY

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the principal reporting segments of the Group are:

CA(cid:3)

S&P 

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(cid:87)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:183)(cid:86)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:56)(cid:46)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)(cid:3) 
(cid:82)(cid:73)(cid:3)(cid:58)(cid:72)(cid:86)(cid:87)(cid:80)(cid:76)(cid:81)(cid:86)(cid:87)(cid:72)(cid:85)(cid:3)(cid:36)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)
(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:19)(cid:24)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) 
of which was transferred to Countrywide Assured plc 
during 2006;

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(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:183)(cid:86)(cid:3)(cid:56)(cid:46)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)
transferred from Save & Prosper Insurance Limited and  
Save & Prosper Pensions Limited to Countrywide Assured 
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of the Financial Services and Markets Act 2000 (referred  
(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:182)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:3)(cid:57)(cid:44)(cid:44)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:183)(cid:12)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)

Movestic   (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:183)(cid:86)(cid:3)(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)

(cid:47)(cid:76)(cid:89)(cid:73)(cid:124)(cid:85)(cid:86)(cid:108)(cid:78)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:36)(cid:37)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:17)

In this Report and Accounts:
i. 

 The CA and 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.    ‘CA’ may also refer to Countrywide Assured plc, as the context implies;

iv.     ‘CWA’ refers to City of Westminster Assurance Company Limited or to its 

long-term business funds transferred to Countrywide Assured plc;

v.  

  ‘S&P’ may also refer collectively to Save & Prosper Insurance Limited and 
Save & Prosper Pensions Limited, as the context implies. Where it is 
necessary to distinguish reference to Save & Prosper Insurance Limited and 
Save & Prosper Pensions Limited, or to the businesses subsisting in those 
companies prior to the transfer referred to above, they are designated ‘SPI’ 
and ‘SPP’ respectively; and 

vi.   ‘Movestic’ may also refer to Movestic Livförsäkring AB, as the context implies.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

03

04

CHESNARA |(cid:3)(cid:36)(cid:49)(cid:49)(cid:56)(cid:36)(cid:47)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:3)(cid:9)(cid:3)(cid:36)(cid:38)(cid:38)(cid:50)(cid:56)(cid:49)(cid:55)(cid:54)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)

SECTION A

OVERVIEW 
& STRATEGY

IN THIS SECTION

06 
2012 Highlights
07—09  Chairman’s Statement
10 
11—13  Strategic Objectives
14 
15 

The Chesnara Business
Business Model 

Our Vision and Strategy

CHESNARA |(cid:3)(cid:36)(cid:49)(cid:49)(cid:56)(cid:36)(cid:47)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:3)(cid:9)(cid:3)(cid:36)(cid:38)(cid:38)(cid:50)(cid:56)(cid:49)(cid:55)(cid:54)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)

(cid:19)(cid:24)

SECTION A
OVERVIEW & STR ATEGY

Notes

 1.  (cid:55)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:183)(cid:86)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:183)(cid:86)(cid:3)(cid:53)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
(cid:53)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)
(cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)
the impact of consolidation adjustments 
relating to the amortisation of acquired 
value in force (VIF(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)
arising on the acquisition of Movestic. 
These consolidation adjustments are 
(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)(cid:21)(cid:27)(cid:17)

 2.  (cid:49)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:192)(cid:81)(cid:72)(cid:71)(cid:3)
as the net amount of the following items:

  i.  The change in the excess of actual 

regulatory capital resource over target 
capital resource in respect of the CA 
and S&P operating segments to the 
(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3) 
to shareholder funds is not restricted;

 ii.  (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)
to the Movestic operating segment; and

 iii.  (cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:51)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)

operations.

Details of target capital resource  
(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:22)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:41)(cid:53)(cid:54)(cid:3)
(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)

Throughout the Report and  
Accounts the following symbols  
are used to help distinguish  
between the various ﬁnancial and 
non ﬁnancial measures reported:

  IFRS

  Cash generation

  EEV 

  EEV earnings

  Solvency

  Dividend

  Part VII

   Operational performance

  Compliance

   New business market share

(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)(cid:43)(cid:44)(cid:42)(cid:43)(cid:47)(cid:44)(cid:42)(cid:43)(cid:55)(cid:54)

FINANCIAL

9% INCREASE IN IFRS PRE-TAX PROFIT
Increase in IFRS pre-tax proﬁt to £24.5m excluding  
exceptional item (2011: £22.4m). 
Financial Review Page 28

(cid:38)(cid:36)(cid:54)(cid:43)(cid:3)(cid:42)(cid:40)(cid:49)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:3)(cid:133)(cid:23)(cid:20)(cid:17)(cid:19)(cid:48)(cid:3)Note 2
Net cash generated during 2012 of £41.0m (2011: £31.4m). 
Cash Generation Page 32

(cid:40)(cid:40)(cid:57)(cid:3)(cid:44)(cid:49)(cid:38)(cid:53)(cid:40)(cid:36)(cid:54)(cid:40)(cid:3)(cid:50)(cid:41)(cid:3)(cid:133)(cid:20)(cid:25)(cid:17)(cid:25)(cid:48)
Increase in EEV from £294.5m to £311.1m after recognising  
the impact of £19.5m dividend distributions. 
Financial Review Page 35

(cid:40)(cid:40)(cid:57)(cid:3)(cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:49)(cid:42)(cid:3)(cid:51)(cid:53)(cid:50)(cid:41)(cid:44)(cid:55)(cid:3)(cid:133)(cid:20)(cid:28)(cid:17)(cid:19)(cid:48)
Pre-tax EEV operating proﬁt increased to £19.0m from £15.3m.
Financial Review Page 33

GROUP SOLVENCY 244%
Strong Insurance Group Directive solvency cover of 244%  
(2011: 198%).
Financial Management Page 40

FINAL DIVIDEND INCREASED BY 3%
Proposed ﬁnal dividend increased by 3% to 11.25p per share.

OPER ATIONAL

PART VII TRANSFER
Final stages of the S&P Part VII Transfer programme completed 
releasing £7m of capital.

S&P INTEGRATION
S&P fully integrated into the UK business.

STRONG OUTSOURCER PERFORMANCE
All administration and asset management par tners have 
out-performed their respective targets and benchmarks.

MOVESTIC SERVICE IMPROVEMENTS
Process re-engineering programme successfully mitigated 
the servicing problems experienced in 2011 and into 2012.

GOOD COMPLIANCE RECORD
Good regulatory compliance record continues.

NEW BUSINESS MARKET SHARE
Recovery in new business market share in the core 
Movestic unit-linked pensions target market during the 
second half of 2012.

06

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
(cid:38)(cid:43)(cid:36)(cid:44)(cid:53)(cid:48)(cid:36)(cid:49)(cid:183)(cid:54)(cid:3)(cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)

SECTION A
OVERVIEW & STR ATEGY

Continued strong operational 
performance in the UK, together 
with encouraging signs that  
Movestic is through the worst of  
(cid:77)(cid:88)(cid:87)(cid:3)(cid:86)(cid:73)(cid:71)(cid:73)(cid:82)(cid:88)(cid:3)(cid:83)(cid:84)(cid:73)(cid:86)(cid:69)(cid:88)(cid:77)(cid:82)(cid:75)(cid:3)(cid:72)(cid:77)(cid:74)(cid:189)(cid:71)(cid:89)(cid:80)(cid:88)(cid:77)(cid:73)(cid:87)(cid:16)(cid:3)
when combined with the generally 
favourable investment market 
conditions during the year, means 
we end 201(cid:22)(cid:3)(cid:77)(cid:82)(cid:3)(cid:75)(cid:83)(cid:83)(cid:72)(cid:3)(cid:189)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:3) 
shape and well positioned  
to continue to deliver value  
to our stakeholders.

Peter Mason 
Chairman

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

07

SECTION A
OVERVIEW & STR ATEGY

(cid:38)(cid:43)(cid:36)(cid:44)(cid:53)(cid:48)(cid:36)(cid:49)(cid:183)(cid:54)(cid:3)(cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55) (CONTINUED(cid:12)

Chesnara has delivered a strong set of ﬁnancial results, 
beneﬁting in part from generally favourable investment market 
conditions during the year. 

– During the year we have undertaken a full independent 

review of our UK Internal Audit function and will implement 
the relevant recommendations.

Whilst we have beneﬁted from investment markets 
performance during 2012, the Board remains mindful that the 
ﬁnancial strength, and hence dividend paying capacity of  
the Group, remains sensitive to economic conditions outside 
of its direct control and, as such, the management of market 
risk remains a key priority.

The Chesnara Group has a relatively low risk and transparent 
investment model as a direct result of our long-established 
values which put responsible risk management at the heart 
of all decisions we make. During 2012 we have continued to 
enhance our management of market risk, in particular through 
improvements in the management of our asset and liability 
matching position and through the continuing development 
of long-term projection models.

Whilst the 2012 results illustrate the signiﬁcant levels of 
cash generation available in favourable economic conditions, 
we remain vigilant to the fact that continued market 
recovery, growth and stability cannot be taken for granted. 
The ongoing improvements in our management of market 
risk gives me signiﬁcant comfort regarding the ability of the 
Group to weather any future adverse investment market 
conditions that may arise. 

Risk management and Solvency II
We have continued to progress the Solvency II programme 
such that I remain conﬁdent that we will be in a position to 
adhere to statutory requirements and timeframes ultimately 
agreed by both European and UK Regulators.

(cid:55)(cid:75)(cid:68)(cid:87)(cid:3)(cid:86)(cid:68)(cid:76)(cid:71)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:86)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:44)(cid:44)(cid:3)
(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:73)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:15)(cid:3) 
(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:80)(cid:92)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:38)(cid:75)(cid:72)(cid:86)(cid:81)(cid:68)(cid:85)(cid:68)(cid:3)(cid:68)(cid:79)(cid:85)(cid:72)(cid:68)(cid:71)(cid:92)(cid:3)
(cid:72)(cid:80)(cid:69)(cid:85)(cid:68)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:44)(cid:44)(cid:17)(cid:3)(cid:53)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)
(cid:85)(cid:76)(cid:86)(cid:78)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:72)(cid:17)

–  Within Movestic we have begun the roll-out of the most 

appropriate elements of the well-established and effective 
UK risk management framework.

Financial results

IFRS
On the IFRS basis, we have achieved a pre-tax proﬁt of 
£24.5m, excluding an exceptional item, for the year ended 
31 December 2012. This compares with a pre-tax proﬁt of 
£22.4m for the year ended 31 December 2011. Pre-tax proﬁt 
of £33.1m (2011: £33.2m) from the UK closed books which 
are in run-off, have remained resilient to policy attrition. The 
pre-tax contribution from CA at £18.5m has declined from 
the £25.7m contribution posted in 2011, although the core 
product-based surpluses which underpin long-term proﬁt 
emergence have held up well. Conversely pre-tax contribution 
of £14.6m from the more volatile S&P business has improved 
signiﬁcantly compared with the 2011 contribution of  
£7.5m, primarily reﬂecting more beneﬁcial investment market 
conditions. Further, there is a £1.0m improvement in 
Movestic pre-tax proﬁt which has increased from £0.4m to 
£1.4m. The IFRS results are analysed in more detail within 
the “Financial Review” section on page 28.

EEV
On the EEV basis of reporting, excluding the effect of 
modelling adjustments, we have posted a proﬁt after tax of 
£31.2m compared with a loss after tax of £(29.8)m for the 
year ended 31 December 2011. Investment market factors 
directly account for a year-on-year improvement of £70.9m. 
During 2012 economic related proﬁts were £21.5m (2011: 
£(49.4)m loss). The underlying operating result has improved 
by £3.7m to £19m in 2012 (2011: £15.3m). The EEV results 
are analysed in more detail within the “Financial Review” 
section on page 33.

Cash generation and solvency
The capacity of the Group to pursue its dividend policy relies 
on the continuing generation of cash in the UK businesses. 
During 2012 net cash generation within the Group was £41m. 
This healthy outcome reﬂects a proposed dividend of  
£40m from CA to Chesnara and is reinforced by a strong CA 
post-dividend solvency ratio of 199% as at 31 December 
2012. The associated Group Solvency ratio was also strong 
at 244%.

Regardless of the Solvency II regulatory requirements,  
we continue to develop our internal risk-based  
management model:

Dividend

–  The Board has approved the development of a risk-based 

business planning model, to be fully implemented by 2014.

– The first phase of risk-based projection modelling has  

been developed, with outputs used by the Board during 2012. 
Further enhancements are under development.

–  Asset and liability matching is actively monitored and assessed 
throughout the year with investment changes implemented 
to ensure the most appropriate level of market risk for  
all stakeholders.

The proposed full year 
(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:133)(cid:20)(cid:28)(cid:17)(cid:28)(cid:80)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) 
(cid:76)(cid:86)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3) 
the level of cash generated 
(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
the continuation of our 
attractive dividend policy. 

(See cash generation analysis on page 32).

08

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION A
OVERVIEW & STR ATEGY

Existing business development

S&P
During the year we have completed the ﬁnal stages of the 
integration of S&P. The S&P regulated entities have been 
de-authorised, thereby releasing £7m of capital and giving rise 
to a corresponding cash generation. We have also ﬁnalised 
the transfer of operational and governance responsibilities into 
the core Chesnara head ofﬁce structure, thereby ensuring 
consistent practice and generating cost synergies.

Movestic
Without question Movestic has been through a difﬁcult 
period, partly due to market conditions but also due to internal 
systems and administration process deﬁciencies. The 
difﬁculties clearly had an adverse impact on the business 
during 2011 and through much of 2012. The servicing 
proposition failings resulted in a loss of IFA support with a 
direct impact on the main business performance indicators, 
namely new business growth and in-force book retention.

Against this backdrop I am encouraged by signs of recovery 
in the Movestic business as evidenced by the recent 
improvements in several measures, including investment 
performance, improved lapse rates and improvements in 
new business volumes in the last quarter of 2012.

Although the recent 
(cid:71)(cid:76)(cid:73)(cid:192)(cid:70)(cid:88)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:75)(cid:68)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)
impact on the Movestic 
(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)
(cid:80)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
Swedish equity market 
(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:15)(cid:3)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
with an improved level of 
management direction and 
(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:15)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3) 
of staff motivation and the 
early indication of a recovery 
(cid:76)(cid:81)(cid:3)(cid:44)(cid:41)(cid:36)(cid:3)(cid:70)(cid:82)(cid:81)(cid:192)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3) 
(cid:44)(cid:3)(cid:68)(cid:80)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:192)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)
that Movestic is in a good 
position to generate the 
(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:71)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:192)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)
the Chesnara Group.

Corporate governance and Board effectiveness
We note the continuing dialogue relating to the corporate 
governance of publicly-listed companies and I provide further 
comment in my overview on page 48.

We continually assess and challenge the effectiveness of 
the Board and of the Senior Management team. It is a long 
established view that the expertise of the Board and Senior 
Management team is a core strength of the Chesnara business 
model but that said, we always look to strengthen the team 
where possible. I am pleased to, therefore, report the 
appointment of three new Non-executive Directors who will 
add to the general effectiveness and diversity of the Board. 

The appointments of Veronica France, David Brand and  
Mike Evans are consequent upon the planned departure of 
Mike Gordon, our current Senior Independent Director, and 
Terry Marris, who will have both served full nine-year terms 
and, therefore, in accordance with accepted corporate 
governance guidelines, are standing down. I would like to 
record the Group’s, and my own personal, thanks to each  
of them for the notable contribution they have made to the 
development and success of Chesnara and, indeed, to their 
signiﬁcant service to Countrywide Assured plc before it was 
demerged into Chesnara in 2004. I also wish to express 
sincere thanks to Ken Romney who steps down as Finance 
Director of Chesnara at the forthcoming Annual General 
Meeting. Not only has Ken been Finance Director of Chesnara 
since its inception in 2004, he has also been a loyal servant  
of Countrywide Assured since 1989 having been appointed 
as Finance Director to the Board of CA in 1997. Ken has 
been integral in the development of Chesnara and contributed 
signiﬁcantly to its success. 

Further assessment of Board effectiveness is included in 
section C on page 50.

People and business partners
The fact that we end the year in good shape and well 
positioned for the future is largely due to the skill and 
dedication of our people and those within our outsource 
partners. All UK administration and asset management 
partners have out-performed their respective targets and 
benchmarks which is testament to their expertise and 
continued commitment. The Swedish business has been 
through a challenging year and that we are now in a 
signiﬁcantly stronger position than 12 months ago is largely 
due to the drive, dedication and positive outlook of our 
Swedish colleagues. As always the Chesnara Head Ofﬁce 
governance team continues to ensure the Group maintains 
and develops governance procedures that deliver a sound 
level of regulatory control across the business.

Outlook
Investment markets recovered during 2012 and this has 
continued into the early months of 2013. However, we do not 
take market recovery or stability for granted and our ﬁnancial 
and capital management procedures will continue to recognise 
the risk of continued poor, or indeed worsening, economic 
conditions. The modelling of our business indicates continued 
healthy cash generation and a solvency capital surplus  
in both base and realistic adverse scenarios in the short to 
medium term.

Peter Mason 
Chairman
27 March 2013

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

09

SECTION A
OVERVIEW & STR ATEGY

MISSION

OUR VISION & STRATEGY

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returns to policyholders. Underpinning everything we do is a desire to 
maintain regulatory and legal compliance. Meeting these aims is achieved 
through attracting and retaining highly talented people who not only 
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also have a passion for improving outcomes for our customers and 
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(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)

VISION

(cid:55)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3) 
(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:46)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:58)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)(cid:3)
Europe through:

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(cid:69)(cid:82)(cid:82)(cid:78)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)

– Further acquisitions where they meet stringent assessment criteria.

– Realisation of increasing economies of scale.

–  Continued delivery of competitive returns to shareholders  

and policyholders.

While we focus on delivering value to shareholders primarily through 
dividend streams arising from strong cash generation as the UK life  
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(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:71)(cid:68)(cid:92)(cid:16)(cid:87)(cid:82)(cid:16)(cid:71)(cid:68)(cid:92)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:83)(cid:76)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:36)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3) 
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(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:86)(cid:82)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
values and principles of management wholly align with strategic 
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(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
evidenced on the following pages.

STR ATEGIC

OBJECTIVES

(cid:20)(cid:19)

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION A
OVERVIEW & STR ATEGY

STRATEGIC OBJECTIVES

MAXIMISE VALUE FROM THE IN-FORCE BOOK

Why is this of strategic importance?
Chesnara is primarily a “closed book” operation and as such 
generating surplus and cash from the existing in-force books 
is at the heart of its investment proposition. 

How do we deliver this strategic objective?
We proactively manage continuing ﬁnancial exposures:

–  Signiﬁcant ﬁnancial exposures in life and pensions portfolios 
typically arise in the areas of onerous policy options and 
guarantees and of compensation claims for past misselling 
of products. The Group’s portfolios have, historically had 
very little exposure to the impact of investment market 
performance on options and guarantees. However, just over 
29% of the policies managed by S&P, which was acquired  
in December 2010, contain guarantees to policyholders and 
therefore the Group’s exposure has increased. Furthermore, 
the Group continues to have exposure to market falls by way 
of the impact on policyholders’ linked funds, from which 
surplus is generated. We seek to minimise this exposure by 
regular review of investment asset holdings and by adjusting 
investment manager guidelines where appropriate and within 
the boundaries of our obligations to policyholders.

We operate in a manner that ensures policy attrition is as 
low as possible, as this is a key determinant of our future 
proﬁtability and of the level and longevity of the emergence 
of surplus, which underpins our dividend-paying capacity.

We will continue to invest in a service proposition that ensures 
a high level of customer satisfaction. 

We continue to maintain a focus on the retention of policies 
where it is in the interest of customers to continue with  
their arrangements.

We continue to manage investment performance so as to 
provide a competitive level of return to our policyholders. The 
CA funds are primarily managed by Schroder Investment 
Management Limited while the CWA funds continue to be 
managed by Irish Life Investment Managers Limited. The 
S&P funds are managed by JPMorgan Asset Management 
(UK) Ltd in order to maintain continuity for policyholders.  
We meet formally with fund managers on a quarterly basis 
to assess past performance and future strategy. 

The Movestic funds are managed by a carefully selected 
range of fund managers who have strong performance 
records in the relevant sector. Performance is monitored very 
closely and regular meetings are held with fund managers. 
Should under performance continue then an alternative 
manager is sourced and appointed to manage the relevant 
assets. Where a new market niche or speciﬁc opportunity  
is identiﬁed new funds may also be added. 

We adopt a business operating model which ensures unit 
expenses remain appropriate for the scale of the in-force book.

–  UK operations are predominantly outsourced, with contract 

charging structures that ensure a signiﬁcant element of the 
cost base is variable with run off of the business. 

–  Acquisitions are integrated into the Chesnara Group in a 

manner to ensure optimum operational and ﬁnancial synergies.

Risks associated with this strategic objective
–  Sustained adverse investment market conditions  

undermine our ability to manage ﬁnancial risks inherent  
in the in-force portfolio.

–  Despite the effective cost management model, in the absence 
of further acquisitions or management action, there remains  
a risk that unit costs will increase in the long-term.

–  A number of factors including economic recession, adverse 
investment performance and a deterioration in customer 
servicing standards could lead to an increase in policy attrition.

ACQUIRE LIFE AND PENSIONS BUSINESSES

Why is this of strategic importance?

–  As with any business, it is important that we use our capital 

efﬁciently to provide optimum return to shareholders.

– As a primarily “closed book” operation, further acquisitions 

can maintain and increase the Group’s cash ﬂow and 
operational economies of scale.

How do we deliver this strategic objective?
Ultimately we rely on acquisition opportunities being available 
in the market. To maximise our opportunities we have 
extended our target market beyond the UK, to include 
Western Europe.

We actively engage with various investment bank advisers 
(including Canaccord Genuity Limited on a retained  
basis) to ensure we are aware of acquisition opportunities.  
We extend our network to cover opportunities in the UK  
and Western Europe.

We will leverage our proven track record in the consolidation 
market. Past experience suggests we maintain a high degree 
of credibility with regulators, policyholders, lenders and 
shareholders. All prior acquisitions have been delivered with 
no adverse impact in terms of treating customers fairly, 
regulatory standing or our reputation in the life and pensions 
consolidation market.

We will not pursue opportunities which do not meet very 
stringent assessment criteria.

Risks associated with this strategic objective

–  If Chesnara makes no further acquisitions there will be  
a potential strain on the per policy unit costs of the  
existing business.

–  Any departure from the current, stringent acquisition 

assessment criteria and due diligence procedures could  
result in an acquisition that, under certain stress  
scenarios, adversely impacts the ﬁnancial strength  
of the Group.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

(cid:20)(cid:20)

SECTION A
OVERVIEW & STR ATEGY

ENHANCED VALUE THROUGH NEW 

MAINTAIN A STRONG SOLVENCY POSITION

BUSINESS IN SELECTED MARKETS

Why is this of strategic importance?

– The Chesnara business model primarily focuses on “closed 
book” consolidation. However, where acquisitions offer  
the potential to write new business at an adequate return  
on capital we will continue to invest in the new business 
operations so as to maximise value for the Group.

–  Maintaining a ﬂexible position regarding the willingness to 
remain open to new business will potentially increase the 
number of acquisition targets and indeed our attractiveness 
to such targets.

How do we deliver this strategic objective?
Currently the only part of the Chesnara Group writing material 
levels of new business is Movestic, our Swedish business. 
Movestic has a new business operation that delivers a positive 
new business contribution. There are detailed business plans 
in place that aim to increase new business proﬁts through  
a combination of new product launches and improvements 
to operational effectiveness. Local and group management 
receive management information to enable a continuous 
assessment of the performance to ensure being open to new 
business continues to enhance value.

Why is this of strategic importance?
Adequate solvency capital:

–  Protects against volatility particularly due to external economic 

conditions outside management control.

–  Ensures compliance with regulatory requirements.

–  Supports potential acquisition opportunities.

–  Supports ongoing dividend capability.

How do we deliver this strategic objective?
We ensure the Board is furnished with high quality 
information regarding the solvency position. This includes 
information regarding the actual solvency position together 
with the projection of solvency under stress scenarios. The 
management team tracks the performance of the key 
factors known to impact the solvency position. Trigger points 
are set and documented such that management action will 
be instigated should any of the key trigger points be reached. 
The setting and review of trigger points is an integral 
component of the Group’s risk appetite model.

Potential acquisitions are assessed by taking a prudent view 
on not only the short-term impact on the Group’s Solvency 
position but also on the potential risk to long-term solvency.

Risks associated with this strategic objective

– New business volumes fall below levels required to ensure 

Risks associated with this strategic objective

sufﬁcient return on the acquisition cost base.

–  Sustained adverse economic conditions outside of risk appetite 

–  Product margins fall to unsustainable levels due to factors 

including; market price pressures, reduced investment growth, 
increased policy lapse rates and increasing maintenance  
unit costs.

tolerances will erode the solvency surplus.

–  Changes in legal or regulatory requirements e.g. Solvency II.

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CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION A
OVERVIEW & STR ATEGY

Deliver value to stakeholders on a responsible  
and balanced basis
Underlying the fulﬁlment of strategic objectives is the 
core value shared by the Board and Management 
Team of recognising responsibilities to all stakeholders 
on a balanced basis.

Often decisions are required that may have conﬂicting 
impacts on the different stakeholders. Maintaining a 
balanced view across the stakeholder groups is critical 
to ensuring management continue to make decisions 
that will beneﬁt all stakeholders in the longer term.

The general governance framework ensures controls 
and procedures are in place to protect all stakeholders. 

ADOPT GOOD REGULATORY PR ACTICE  

AT ALL TIMES 

Why is this of strategic importance?
Chesnara management fully recognises the beneﬁts to both 
shareholders and policyholders of adherence to good 
regulatory practice. We comply not because the regulations 
insist but because the rules clearly reﬂect good, responsible 
business management and governance. 

How do we deliver this strategic objective?
We maintain a strong internal risk management culture and 
regime throughout the Group and we maintain systems and 
controls which satisfy regulatory requirements at all levels. 

The UK and Swedish life assurance and pensions industries 
are both highly regulated, in terms of the conduct of business 
operations and of ﬁnancial reporting. We place particular 
emphasis on managing our regulatory compliance through a 
proactive and prudent approach and on maintaining a positive 
relationship with our principal regulators, the Financial 
Services Authority (‘FSA’) and the Finansinspektionen (‘FI’). 

Accordingly, signiﬁcant effort is directed towards ensuring 
that the operations are effectively managed in terms of 
conduct of business regulations and of prudential solvency 
requirements and towards the signiﬁcant change that is 
required in the business to implement Solvency II and to 
ensure continuing compliance with its requirements.

We have developed a strong Governance core at the heart 
of the Chesnara operating model, which exists within a robust 
and effective Corporate Governance framework.

– All governance roles, with direct impact on regulatory 
compliance, are carried out by people with signiﬁcant 
industry experience.

– The level of investment in the Governance team is fully 
reﬂective of the Board’s recognition and understanding  
of the implications and challenges of effective adherence  
to all regulatory best practice.

–  The Chesnara culture ensures other objectives do not conﬂict 
with the objective of adopting good regulatory practice at  
all times. 

Risks associated with this strategic objective
The key risk relating to regulatory compliance is that rules and 
regulations are poorly understood or implemented. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

(cid:20)(cid:22)

SECTION A
OVERVIEW & STR ATEGY

THE CHESNARA BUSINESS

The history of the development of  
(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:75)(cid:72)(cid:86)(cid:81)(cid:68)(cid:85)(cid:68)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3) 
a description of the characteristics  
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how we have endeavoured to achieve 
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we have created the platform for their 
ongoing realisation.

The higher proportion of pensions policies in the successive 
acquisitions made by Chesnara has progressively increased 
the overall longevity of its run-off portfolio, while diversifying 
the long-term policy base. At 31 December 2012, the Group 
had 258,000 pension policies and 119,000 life policies in force.

Chesnara continues to seek to 
participate in the consolidation of life 
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in the UK and Western Europe. 

We primarily target acquisitions with a value of between £50m 
and £200m, although other opportunities are considered.  
All opportunities are assessed against a number of key criteria 
including size, risk (including actual or potential product  
and ﬁnancial liabilities), discount to embedded value, capital 
requirements and the pattern and quality of predicted proﬁt 
emergence. Our strategic approach, however, remains that 
such potential acquisitions should not detract signiﬁcantly 
from, and should contribute to the primary aim of delivering  
an attractive dividend yield, although opportunities which 
present a signiﬁcant value uplift or growth opportunity will 
also be evaluated.

History (2004 – 2012)

Chesnara listed on the London Stock 
Exchange, following its acquisition of CA  
on the latter’s demerger from Countrywide 
plc, a large estate agency group. CA is a 
substantially closed UK Life and Pensions 
business whose portfolio predominantly 
comprises unit-linked endowment and 
protection policies.

Chesnara acquired CWA from Irish Life and 
Permanent plc for a consideration of £47.8m, 
funded principally by a mixture of debt and 
new equity capital. CWA is also a substantially 
closed UK Life and Pensions business.  
Its portfolio, which is also predominantly 
unit-linked, comprises endowments, 
protection and pensions policies.

The long-term business of CWA was 
transferred to CA under the provisions of 
Part VII of the Financial Services and Markets 
Act 2000 (‘FSMA’), thereby realising 
signiﬁcant ﬁnancial and operational synergies.

Chesnara acquired Movestic Liv, an open 
predominantly unit-linked Swedish Life and 
Pensions business, for £20m at a signiﬁcant 
discount to its embedded value. Subsequently 
a new subsidiary, Movestic Kapitalförvaltning 
was established to separate out fund 
selection and management activities from 
Movestic Liv and to develop these services  
in the wider marketplace.

Movestic acquired the in-force business, 
personnel, expertise and systems of Aspis 
Försäkrings Liv AB, a small Swedish life and 
health insurer, thereby complementing 
Movestic’s existing focus on pensions and 
savings contracts. Chesnara acquired SPI and 
its subsidiary, SPP, from JPMorgan Asset 
Management Limited for a consideration of 
£63.5m, funded by a mixture of debt and new 
equity capital. SPI and SPP are also closed 
UK Life and Pensions businesses whose 
portfolios predominantly comprise pensions 
policies (both unit-linked and with-proﬁts), 
endowments (some with-proﬁts) and 
protection policies.

The long-term business funds and part of 
the shareholder funds of SPI and SPP were 
transferred to CA under the provisions of 
Part VII of FSMA, thereby realising signiﬁcant 
ﬁnancial and operational synergies.

SPI and SPP were de-authorised from 
conducting activities regulated under the 
provisions of the Financial Services and 
Markets Act 2000, thereby releasing £7m  
of solvency capital.

04

05

06

09

10

11

12

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CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION A
OVERVIEW & STR ATEGY

Sweden

–  The primary focus of the Swedish business is to grow market 
share in the company-paid and individual pensions market, 
whilst developing further proﬁtable business in other areas, 
in particular in the risk and health market. Writing new 
business requires funding to support the initial costs incurred: 
this is provided by way of external ﬁnancial reinsurance or 
cash contributions from Chesnara. As the in-force business 
portfolio grows in scale the income generated by it eventually 
allows the business to self-fund and become a net generator 
of cash. Movestic is targeted to reach this pivotal point over 
the next two years. 

–  In Sweden, as the Movestic book is open and in a growth 

phase, we retain a broader-based management and operational 
team. Rather than outsource core functions, we believe  
that it is important that the drive and team ethic of Movestic 
is preserved as they seek to grow proﬁtable market share  
in our target markets. Whilst Movestic manages the selection 
of appropriate investment funds, investment decisions are 
made solely by the fund managers. 

BUSINESS MODEL

Business model
The following sets out the key operating characteristics  
of the Chesnara business:

Chesnara plc and the UK business activities are based in 
Preston, Lancashire, while Movestic is based in Stockholm 
in Sweden. Chesnara has 20 full-time equivalent employees 
in its corporate governance team in the UK. In Sweden, the 
headcount is 127.

UK

–  The primary focus of the UK business is the efﬁcient run-off 
of their existing life and pensions portfolios. This gives rise  
to the emergence of surplus which supports our primary aim 
of delivering an attractive long-term dividend yield to our 
shareholders. By the very nature of the life business assets, 
the surplus arising will deplete over time as the policies 
mature, expire or are the subject of a claim.

– In the UK we maintain a small professional corporate 

governance team who are responsible for both the regulatory 
and operational requirements of the listed entity Chesnara 
and those of the UK business. Our team in the UK is 
intentionally small and focused in the interests of keeping the 
overall expense base tight. It has the capability to manage 
the UK business and to assess acquisition opportunities, but 
it is supplemented from time to time by temporary resource  
if justiﬁed by operational or strategic demands.

–  The operating model of our UK business is directed towards 
maintaining shareholder value by outsourcing all support 
activities to professional specialists. This typically embraces 
policy administration, systems, accounting and investment 
management and reduces the impact of potential ﬁxed and 
semi-ﬁxed cost issues which would otherwise occur as  
the income streams arising from a declining in-force portfolio 
diminish. By securing long-term contracts to support these 
activities we aim to enhance the variability of the expense base 
with the size of the in-force policy portfolio. This also leads  
to the avoidance of the full weight of systems development 
costs, as these will, where possible, be shared with other 
users of the outsourcers’ platforms.

–  Oversight of the outsourced functions is a signiﬁcant part  
of the responsibility of the central governance team.  
The maintenance of service and performance standards, 
and thereby the core interests of shareholders and 
policyholders, is maintained through a strict regime of service 
level agreements and through continuous monitoring of 
performance. This is reinforced by adherence to the principles 
and practice of treating customers fairly.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

(cid:20)(cid:24)

(cid:20)(cid:25)

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SECTION B

PERFORMANCE

IN THIS SECTION

18—25  Chief Executive’s Review 
26—37  Financial Review
38—41  Financial Management 
42—44  Risk Management 
45 

Focus on Solvency II

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

17

SECTION B
PERFORMANCE

CHIEF EXECUTIVE’S REVIEW

HIGHLIGHTS

Business review

–  Growth in IFRS pre-tax proﬁt, excluding exceptional item,  

to £24.5m (2011: £22.4m).

– Despite operational performance issues, Movestic has 

delivered growth in IFRS pre-tax proﬁt to £1.4m (2011: £0.4m).

–  Cash generation and Group solvency remain strong.

– Signiﬁcant progress made to resolve Movestic servicing 

issues with a gradual recovery in IFA support.

–  Increase in Group EEV by £16.6m after recognition of dividend 

payments of £19.5m.

– 3.6% increase in total group funds under management.

–  Strong investment performance in both the UK and Sweden.

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£24.5m* 

2011: £22.4m 

*Excluding exceptional item

Group EEV net of tax result* 
£31.3m 
2011: £(29.8)m loss

*Excluding modelling adjustments

Insurance Group Directive 
Solvency 244% 
2011: 198%

Financial
First and foremost I am extremely pleased with the levels  
of earnings on both the IFRS and EEV bases. The UK IFRS 
result underpins cash generation and cash transfers to the 
Chesnara parent company. 

As was the case in 2011,  
the level of cash generation 
in the UK is more than 
(cid:86)(cid:88)(cid:73)(cid:192)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
continuation of our 
attractive dividend strategy. 

In addition, Movestic has required no further capital support 
during the year following a capital injection of £5.3m in 2011. 
The total cumulative cash generated at Chesnara Group 
level for 2011 and 2012 of £72.4m is equivalent to 188% 
of total dividends during the same period.

41.0

21.5

19.5

31.4

12.4

19.0

  Excess cash
  Dividend payable

2012

2011

Net cash generation (£m)
The surplus cash generation will have a positive effect 
in terms of ensuring we are able to sustain our 
dividend strategy through any potential short-term 
reductions in IFRS earnings.

18

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

UK

Operational performance 
levels for the UK business 
remain strong with all 
administration and asset 
management partners out-
performing their respective 
targets and benchmarks. 
This positive performance 
has contributed towards a 
modest increase in total UK 
funds under management 
during the year.

The revised outsource contract with HCL, who provide 
administration, ﬁnance and actuarial services for the S&P and 
CA books remains unsigned. Whilst this creates a degree of 
uncertainty which is not ideal, it is important to recognise that 
the level of inherent risk to the business model is considered 
to be relatively low. In the short-term, HCL retain contractual 
responsibility for servicing the CA book for a further 2 years 
and the existing S&P arrangement is on a rolling 2 years basis. 
In addition, in the medium to long-term, several realistic 
alternatives exist, all of which are not considered to have any 
detrimental impact on either operational effectiveness or 
the cost base.

Sweden
The performance issues in Movestic, namely the deterioration 
in service levels which resulted in a loss of IFA support, 
have been well documented in previous reports. 

In light of the challenges 
(cid:73)(cid:68)(cid:70)(cid:72)(cid:71)(cid:15)(cid:3)(cid:44)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:74)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:192)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)
attention to the Movestic 
business during the year.  
I am encouraged by the 
immediate positive impact 
the new Movestic Chief 
Executive, Lars Norstrand, 
has had on both the 
operational effectiveness 
and on the recovery of 
support from the IFA 
community. 

Lars has overseen a process re-engineering programme that 
has successfully mitigated the service level deﬁciencies 
experienced during 2011 and into 2012. The positive impact 
of this will be further embedded through improvements to 
the operating structure, whereby certain processes critical to 
IFAs are being centralised into Stockholm, where they will 
beneﬁt from the positive management environment. Despite 
the signiﬁcant recent improvements, Movestic has more to 
do to fully recover and consolidate its market position. The 
business foundations are signiﬁcantly stronger than last year 
and from this improved base I am conﬁdent that Movestic 
can begin to deliver longer-term ﬁnancial beneﬁts to the 
Chesnara Group.

Outlook
The Group continues to investigate further acquisition 
opportunities and we will progress these where we see value 
and a clear strategic fit. We remain open-minded as to 
location in the UK and Western Europe and, as ever, we will 
continue to apply our strict ﬁnancial and risk criteria when 
we assess them. Whilst growth through acquisition remains 
a key strategic objective, projections do indicate that the 
Group remains able to deliver its core objectives, in the 
medium term, without any further acquisitions.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

19

SECTION B
PERFORMANCE

CHIEF EXECUTIVE’S REVIEW

UK BUSINESS REVIEW

Key performance indicators 

IFRS proﬁt before tax, excluding exceptional item

 £33.1m 

2011: £33.2m 

Cash transfer to Chesnara Parent Company

 £40mNote 1

2011: £44m Note 2

Good operational 
performance together  
with a positive investment 
market impact, result in 
(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3) 
in terms of IFRS and EEV 
earnings, cash transfers to 
Chesnara and CA solvency.

Note 1 – includes £7m arising on the de-authorisation 
of the S&P regulated entities.

HIGHLIGHTS

Note 2 – includes the effect of distributions from 
surplus funds arising on the acquisition of S&P in 2010.

– Pre-tax IFRS proﬁt of £33.1m (2011: £33.2m) excluding 

exceptional item.

– £35.4m increase in EEV, excluding impact of  

dividend payments.

–  £41.6m cash generation (2011: £38.8m).

– Increase in CA solvency ratio to 199% (2011:  183%).

–   Core product-based deductions remain resilient  

to book run-off.

–  Successful de-authorisation of the S&P regulated entities, 

thereby releasing £7.0m of capital. 

–  Full operational integration of S&P into the Chesnara  

Group has enabled the closure of the S&P London ofﬁce 
with signiﬁcant operational cost savings.

–  Good regulatory compliance record continues.

Review of the year
This year has been focused on four areas – management  
of investment assets, regulatory compliance, ﬁnalising the 
integration of S&P into the UK business and ensuring we 
continue to provide a high quality service to policyholders in 
terms of administration service levels and investment return.

Management of assets
The acquisition of S&P, as signalled at the time of the 
acquisition, results in an increased level of earnings volatility 
for the UK business. S&P has a sizeable proportion of its 
product base that provides guaranteed returns. The probability 
of guarantees being of value to policyholders increases 
when the value of assets held to match the policy liabilities 
falls. To mitigate this risk, assets held by shareholders to 
provide security for these guarantees are invested in cash and 
long bonds. Consequently , our results are vulnerable to  
(a) falls in equity and property values, which impact assets 
backing policyholder liabilities; and (b) falls in bond yields, 
which impact the cost of providing guarantees.

EEV result net of tax Note 3

 £22.8m (cid:84)(cid:86)(cid:83)(cid:189)(cid:88) 

2011: £(10.9)m loss 

Note 3 – excluding impact of modelling adjustments.

Annual policy attrition rate
There is no suggestion of a sustained worsening trend 
and the 2012 attrition rates align closely with the 2010 
ﬁgures. The rate of run-off is inﬂuenced by maturities 
which can vary from year to year based on the original 
policy inception year. The increase in attrition rate 
corresponds to an absolute increase in policy exits  
of c4,000 policies.

8.2%

7.3%

6.7%

5.8%

7.4%

6.5%

2
1
0
2

1
1
0
2

2
1
0
2

1
1
0
2

2
1
0
2

1
1
0
2

CA

S&P

Total UK

Fund performance
Relative outperformance in the unit-linked funds helps 
promote policy retention and, when positive, increases 
the embedded value of the Group as future management 
charges received will be of a higher magnitude. 

10.9%

11.4%

11.5%

9.9%

2011

2012

-3.7%

-5.6%

-5.5%

-5.0%

  CA Pension Managed
  CWA Balanced Managed Pension 
  S&P Managed Pension
  Benchmark – ABI mixed inv 40% - 85% shares

20

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

Integration of S&P
As a ﬁnal stage of the integration of S&P, the two S&P 
companies were de-authorised resulting in an additional cash 
generation of £7m. The full operational integration of the 
S&P processes and procedures has been completed during 
the year which has enabled the closure of the S&P London 
ofﬁce. This has resulted in annualised cost savings of c£0.4m.

Treating Customers Fairly (TCF)

–  We have continued to monitor performance against, and to 

continue the development of, our TCF measures. The results 
are discussed, where relevant, with our outsourcing partners 
and are reviewed by senior management and reported to the 
CA Board. No issues of signiﬁcance have arisen.

Policyholder service and investment return
Our administration and asset management outsource partners 
have all performed well in the year and exceeded service 
level arrangements and relevant benchmarks. Two initiatives 
with our outsourcing partners are worthy of mention. Firstly,  
in the ﬁrst quarter of 2012 we completed, with HCL, the 
ﬁnal phase of the offshoring project. To date, the quality of 
service and speed of turnaround have exceeded expectations. 
Secondly, building on our experience with HCL we initiated, 
with Capita, a retention program, whereby we offer information 
to customers intending to discontinue their policies, which 
has provided a signiﬁcant return on our investment whilst 
providing policyholders with an improved service.

Regulation and legal
As ever in this highly regulated industry there have been  
a number of new and ongoing initiatives that have led to 
various levels of attention and challenge. We are pleased  
to report that none of these has given rise to signiﬁcant 
issues and below I set out a list of the key activities and  
a little background.

Solvency II

–  A signiﬁcant and increasing amount of work means that  

our progress remained in line with our plans. We were able 
to ascertain that, based on QIS 5 calculations together  
with further Pillar I analysis, no increase in solvency capital 
is likely to be required. It has become increasingly clear  
that the original implementation date of 1 January 2014 has 
been postponed. However, in the expectation that interim 
measures will be introduced, we are continuing to develop 
the key aspects of the prospective regulations as they stand. 
Further information on our Solvency II project is provided  
on page 45.

FSA

–  We received the formal feedback from the FSA’s ARROW 
visit, which took place in the ﬁnal quarter of 2011, in April of 
2012. The Risk Mitigation Plan contained a handful of issues 
which have been attended to. In addition we maintain our 
commitment to maintaining a compliant operating model and 
a good relationship with our regulator.

ABI retirement code

– The ABI issued a code which changes the way in which 

policyholders who are vesting their pensions are advised of 
their options with particular regard given to the notiﬁcation 
of the availability of better-value annuities from other providers. 
We have successfully introduced all the measures the  
code requires.

Gender neutral rates

–  We considered in some detail whether we should implement 
gender neutral rates or limit policyholder ﬂexibility such  
that gender neutral rates would not be required. In the event 
we decided on the latter route in the knowledge that we 
would remove some of the discretionary policy changes we 
had previously allowed. This decision has led to the closure 
of the small in-house sales and retention team which will 
lead to annual savings of c£0.2m. The retention capability  
of the former sales team work has been transferred to our 
outsourcing partner.

Complaints

– On the underlying business, complaints have remained  
at reasonable levels with no discernible change in the 
number of complaints referred to the Financial Ombudsman 
or the percentage of such referred complaints being 
successful. However, the absolute number of complaints has 
risen primarily due to Complaints Management companies 
submitting complaints to us alleging that we missold 
Payment Protection Insurance (PPI). Although we have never 
sold PPI policies and, therefore, cannot have any possible 
liability, we are still required to open a complaint ﬁle and 
formally respond.

New life tax regime 

–  A new regime pertaining to the taxation of Life Assurance 

companies came into effect at the end of the year. We have 
thoroughly planned for its implementation and developed 
appropriate models to calculate current and future liabilities. 
These show no signiﬁcant changes to current levels of 
taxation. There is, however, a signiﬁcant beneﬁt on the IFRS 
basis of £6.1m relating to the recognition of brought forward 
pension losses.

Retail Distribution Review (RDR)

–  Although signiﬁcant in the wider market this regulation, which 
essentially moves IFA’s to a fee-charging model by banning 
commission by providers, has little effect on our closed 
books of business. Some minor system and correspondence 
changes were necessary which were completed within 
required timescales.

Policyholder investment funds

– Through the auspices of the CA Investment Committee we 
have continued our oversight of policyholder funds through 
regular meetings with the investment managers. There have 
been a number of reviews and developments during the 
year in order to ensure the underlying investment mix is the 
most appropriate for policyholders. Measures undertaken 
include reviewing the investment mandates for the ex-S&P 
With-proﬁt Funds, higher indexation for the ex-CWA Managed 
Funds and agreeing a programme to move the ex-S&P 
Pension Property Fund from direct investment to collective 
funds over an eighteen-month period to avoid any potential 
liquidity issues that could arise due to the natural decline in 
the size of the fund.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

21

SECTION B
PERFORMANCE

CHIEF EXECUTIVE’S REVIEW

UK BUSINESS REVIEW (CONTINUED)

Cash generation
Cash generation remains strong. This is due in the main  
to core product-based surpluses remaining resilient. 

(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:9)(cid:51)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:68)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:192)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)
contribution of £26.6m to cash 
generation in 2012. This is consistent  
with the fact that the S&P surplus  
is sensitive to investment market 
performance which was generally 
favourable during 2012.

2012 cash generation includes a £7m exceptional item relating 
to the de-authorisation of S&P residual companies. Whilst 
this level of S&P cash generation is welcomed, it is recognised 
that cash releases from S&P may be volatile. We do not see 
this as a particular issue, as S&P was acquired as a medium 
to long-term underpin to the stronger, shorter-term cash 
generation from CA and CWA.

Unit-linked funds under management 
The continuing level of unit-linked funds under management 
is an indicator of the ongoing level of proﬁtability of the  
UK businesses as fund-related charges are an important 
component of proﬁt.

The movement in the value of unit-linked funds under 
management is driven by:

i) 

 performance of the funds across UK equities, international 
equities, property and ﬁxed interest securities;

ii)  received and invested premiums; and

iii) policies closed, due to surrender, transfer or claim. 

The combined impact of 
these three drivers has 
resulted in an increase in 
Unit-linked Funds under 
Management from £2,190m 
at the end of 2011 to 
£2,221m at the end of 2012.

Unit costs
A key area of focus for the UK business is the management 
of expenses incurred in servicing the in-force life and pensions 
policy base. In particular we seek, through outsourcing 
arrangements, to maximise the proportion of costs which vary 
with policy volume. Renewal costs, excluding the impact of 
the expected revisions to the HCL contract, have reduced  
by £1.2m (6%) compared with 2011. The impact of higher 
expected HCL charges in accordance with the proposed new 
arrangements has, however, resulted in a £1.5m increase  
in the cost base. The net cost increase, together with a 7% 
reduction in total policy count, results in an increase in unit 
cost to £47.40 per policy compared with £39.41 per policy  
in 2011. Management remain mindful of the risk of increasing 
unit costs in a closed-book business and continuing actions 
will be taken to manage the issue as effectively as possible. 
Recent examples include the closure of our internal sales 
team and the closure of our London ofﬁce towards the end of 
2012. The positive impact of these actions will be reﬂected 
in the 2013 results.

22

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

CHIEF EXECUTIVE’S REVIEW

SWEDISH BUSINESS REVIEW

Key performance indicators 

IFRS pre-tax proﬁt* 

 £1.4m 

2011: £0.4m 

* Excluding amortisation of intangibles

EEV result net of tax*

 £12.7m (cid:84)(cid:86)(cid:83)(cid:189)(cid:88)

2011: £17m loss 

* Excluding modelling adjustments

Funds under management

 £1,361m

2011: £1,220m
The value of funds under management is a key 
reference point for establishing the ongoing proﬁt-
earning capacity of the business, as fees are received 
based on those values. Funds under management 
increased despite the operational difﬁculties and their 
impact on new business volumes and policy attrition.

SECTION B
PERFORMANCE

During the year the recent servicing 
problems have been addressed and 
there are encouraging signs of a return 
of IFA support. 

HIGHLIGHTS

–  Increase in IFRS pre-tax proﬁt to £1.4m (2011: £0.4m)  

before amortisation of intangibles.

–  Funds under management and solvency ratio resilient  

to operational difﬁculties.

–  Positive EEV development, despite a strengthening  

of lapse assumptions.

– Process re-engineering programme has successfully 

mitigated the servicing problems experienced in 2011  
and into 2012.

– Appointment of new Chief Executive with previous 

knowledge of the Movestic business and strong reputation 
within the IFA community.

–  Lapse rates and new business levels show demonstrable 

signs of recovery during the ﬁnal quarter of 2012 following  
a relatively poor performance earlier in the year.

–  Gradual recovery in new business market share throughout 

the year.

  Premiums (£m)

223

194

261

232

Review of the year

38

38

Risk & health

Total

Pensions & 
savings

  2012 

  2011 

Premium income, in the form of new business and 
continuing premiums into existing contracts, is key to 
the success of Movestic. Policy attrition combined with 
a reduction in new business volumes during the year 
has resulted in the reduction in total premiums earned.

KPIs continue on page 25.

Financial results
While the Swedish business has been through a difﬁcult 
period it is encouraging to see that the core ﬁnancial dynamics 
of the business have proved resilient. In particular, given  
that the revenue model is largely dependent on the level of 
unit-linked funds under management it is pleasing to report 
that these have increased by 12% during 2012. Further, the 
solvency position is strong and cash generation is positive, 
resulting in Movestic requiring no additional capital support 
from Chesnara during the year (2011: £5.3m). 

Earnings on both an IFRS and EEV basis have improved 
compared with 2011. Having moved into proﬁt for the ﬁrst 
time in 2011, the IFRS result has improved further in 2012 
with £1.4m pre-tax proﬁt for the year (2011: £0.4m). 2012 EEV 
net-of-tax earnings of £12.7m compare favourably with a 
predominantly investment market driven loss of £17m in 2011.

Business review
The priority during 2012 has been to address the servicing 
problems that emerged during 2011 as a result of a system 
migration. Signiﬁcant progress has been made, and our current 
assessment is that the servicing proposition is now “ﬁt for 
purpose”. Work continues to ensure we continue to improve 
the service offering such that, again, it becomes a positive 
differentiator alongside our investment proposition.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

23

SECTION B
PERFORMANCE

CHIEF EXECUTIVE’S REVIEW

SWEDISH BUSINESS REVIEW (CONTINUED)

New business
New business volumes have fallen by 20% compared with 
2011. From our contact with the IFA community we fully 
understand the reasons for this decline. The current sentiment 
is that IFAs recognise that Movestic has addressed its 
servicing problems and there has been a recovery in levels 
of support and conﬁdence. This is evident in the recovery  
of new business volumes during the ﬁnal quarter of 2012.

New business premium income (£m) 2012

10.8

10.0

9.9

7.2

Q1

Q2

Q3

Q4

The improvement during the ﬁnal quarter partly reﬂects  
the seasonality of the business (Q3 is traditionally a low sales 
period) but the level of shortfall of 10% against the ﬁnal 
quarter of 2011 is signiﬁcantly less marked than for the ﬁrst 
three quarters. Clearly, we require new business volumes to 
recover to levels at least comparable with those experienced 
prior to the operational issues, but even at the reduced  
new business levels during 2012, Movestic has generated  
a modest EEV new business proﬁt of £2.6m (including the 
value of increments to existing policies).

Policy attrition
Policy attrition has been higher than expected during the 
year. Again, as with the New Business results, the reasons 
are well understood and positive management action has 
been taken. Quarterly analysis illustrates the positive impact 
of this on the most signiﬁcant attrition measures:

Paid-up and transfer rates 2012

24%

20%

5%

5%

14%

12%

7%

4%

Q1

Q2

Q3

Q4

  Lapses/paid-ups (pensions and endowments)
  Transfers (pensions) 

The pension transfer rates during the ﬁnal quarter of 2012 
represent the lowest levels since Q1 2010.

Fund performance 
The relative fund performance measure adopted within the 
KPI’s on the following page focuses on the number of funds 
under or over performing their relevant indices. An alternative 
and well established fund performance measure, produced 
by a respected industry magazine, compares the value of 
savers’ average fund holdings. This measure best reﬂects the 
investment performance from a policyholder perspective. 
Movestic’s fund range had the best performance over the 
period 2005 to 2010 and the second best performance  
for the period 2006 to 2011. The results for periods ended  
31 December 2012 are not published until later in 2013.

Outlook
We believe that the Swedish business has substantially 
overcome its operating difﬁculties and has proved relatively 
resilient. The management team has remained focused and 
positive throughout and organisational changes initiated by the 
new Chief Executive further promote a positive outlook.

Movestic has seen a gradual recovery in its market share of 
the company-paid pension market during the second half of 
2012, which supports the observation of a gradual recovery 
in IFA conﬁdence, as a result of service level improvements 
and the focus of the senior management team. 

Share of unit-linked pensions market 2012

7.8%

8.7%

5.1%

5.6%

H1

H2

  Total business
  Company-paid business 

With a motivated workforce and signiﬁcantly improved 
servicing processes, we are conﬁdent that these initial signs 
of a recovery in IFA support will continue throughout 2013.

Economic conditions in Sweden have remained sound and  
it has proved to be relatively immune to economic pressures 
experienced across the rest of Europe. However, there 
remains a general sense of uncertainty that has resulted in 
consumer preference for more traditional investment products 
than for equity-based unit-linked investments. Movestic 
remains committed to the unit-linked market and believes that, 
in time, as equity market conﬁdence recovers and that as 
the traditional investment offerings become less sustainable 
for providers, there will be a general shift back towards 
unit-linked investments. 

24

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

Movestic KPIs (continued)

New business premium income
New business markets have remained difﬁcult. In 
particular, the unit-linked market has been less strong 
than the market for more traditional investment products 
which have a lower risk proﬁle and continue to offer 
guarantees, which we believe to be unsustainable. This 
external factor, when combined with the reduction in 
average market share, is reﬂected in the reduction in total 
new business premium income in 2012.

New business premium income (£m)

47.3

37.9

2012

2011

Fund performance 
The increase in the number of funds out-performing 
their indices is a testament to our investment and fund 
selection strategy.

One of Movestic’s key differentiators is its approach  
to selecting the funds available to investors. Rather than 
adopt mainstream funds, which, in Sweden, are those 
predominantly managed by subsidiaries of banks which 
also have life assurance subsidiaries, we select a limited 
number of funds from a wide range of independent  
fund managers.

The funds selected are, in general, actively managed 
funds with a value approach. The performance of all 
funds is closely monitored and regular contact is made 
with managers to ensure that the underlying reason for 
fund performance, whether positive or negative, is  
fully understood. Funds that do not perform favourably 
compared to the relevant index are wholly replaced if 
there are no acceptable strategies for improvement. During 
the year further funds were added to ﬁll perceived gaps  
in the range.

Relative fund performance

2012 

2011

  Under-performed against the relevant index

  Outperformed against the relevant index

  No relevant index

New business market share
Movestic’s primary target market is unit-linked  
pensions business and, within that, company-paid 
contribution business. The servicing issues during  
2011 which continued into 2012 have resulted in a loss 
of average market share compared with 2011.

This performance should be seen in the context of some 
of the traditional product providers having undertaken 
campaigns to move customers to ‘new’ unit-linked policies 
to address the challenges inherent in traditional 
guaranteed return products.

Total unit-linked pension business market share
(excluding ‘tick the box’ market)

5.3%

6.0%

2012

2011

Annual policy attrition rate
The longer that insurance and investment contracts 
remain in force, the more proﬁt accrues to the business. 
Different policy product types will be subject to surrender, 
transfer or lapse to varying extents. 

We have continued with relatively high rates of attrition 
throughout much of 2012, although quarterly analysis 
does show a marked improvement in the most dominant 
category (pension transfers) during the second half of 
the year. Although the endowment surrender rate is 
relatively high this only affects a small proportion of the 
in-force book.

Annual policy attrition rate.
Twelve months ended 31 December

19.6%

14.7%

17.6%

16.2%

5.4%

5.3%

Surrenders 
(Endowments)

Transfers 
(Pensions)

Lapses/paid-ups
(Pensions and 
endowments) 

  2012 

  2011

The percentages for surrenders and transfers are based 
on the capital amount surrendered or transferred, 
divided by the amount of capital potentially transferable. 
For lapses, they are the annual premium of lapsed 
policies, divided by the total annual premium in force  
at the start of the year.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

25

SECTION B
PERFORMANCE

FINANCIAL REVIEW

(cid:55)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:183)(cid:86)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3) 
at 31 December 2012 and for the year ended on that 
(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
strength of the Group as a whole. A summary of these 
is shown below and further analysis is provided in the 
following sections:

(cid:45)(cid:42)(cid:54)(cid:55)(cid:3)(cid:84)(cid:86)(cid:73)(cid:17)(cid:88)(cid:69)(cid:92) 
(cid:84)(cid:86)(cid:83)(cid:189)(cid:88)(cid:16)(cid:3)(cid:73)(cid:92)(cid:71)(cid:80)(cid:89)(cid:72)(cid:77)(cid:82)(cid:75)(cid:3)
(cid:73)(cid:92)(cid:71)(cid:73)(cid:84)(cid:88)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:3) 
(cid:77)(cid:88)(cid:73)(cid:81)(cid:3)(cid:134)24.5m 

2011: £22.4m

The presentation of the results in accordance 
with International Finance Reporting Standards 
(IFRS) aims to smooth the recognition of  
proﬁt arising from written business over the  
life of insurance and investment contracts.  
For businesses in run-off the reported proﬁt  
is closely aligned with, and a strong indicator  
of, the emergence of surpluses arising within the 
long-term insurance funds of those businesses.

Highlights 

– IFRS pre-tax proﬁt of £24.5m, shows a 9.4% 

improvement from the prior year of £22.4m, excluding 
exceptional item.

–   Pre-tax proﬁt from the core CA closed book remain 

signiﬁcant albeit at a reduced level compared with 2011 
(2012: £18.5m; 2011: £25.7m). The reduction is 
predominately due to some speciﬁc investment market 
movements, with the core underlying product-based 
surplus remaining resilient to book run off.

–   The 2012 result includes a £14.6m pre-tax proﬁt arising 
in the S&P business. This compares favourably  
with the 2011 pre-tax proﬁt of £7.5m which beneﬁted 
from the Part VII Transfer, including the recognition 
of a £12.4m proﬁt, arising from the alignment of 
actuarial assumptions. 

–   There was a £1.0m improvement in the  

Movestic pre-tax result.

(cid:39)(cid:69)(cid:87)(cid:76)(cid:3)(cid:75)(cid:73)(cid:82)(cid:73)(cid:86)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:3)
£41m 

2011: £31.4m

Cash generation is a key measure, because it  
is the net cash ﬂows to the Chesnara parent 
company from its Life and Pensions businesses 
which support Chesnara’s dividend capacity. 
The dominating aspect of cash generation is the 
change in amounts freely transferable from the 
operating businesses, taking into account target 
statutory solvency requirements which are 
determined by the boards of the respective 
businesses. It follows that cash generation is not 
only inﬂuenced by the level of surplus arising 
but also by the level of target solvency capital.

Highlights 

– At £15m, cash generation in CA continues to be 

strong (2011: £23.0m).

–   S&P has generated £19.6m cash in 2012 from the 

underlying business compared with £3.4m in 2011.

–   In addition, there is an exceptional cash release  

of £7m arising from the de-authorisation of the S&P 
regulated entities. This adds to the favourable 
synergistic effects of £12.4m arising from the Part VII 
Transfer during 2011.

–   Movestic has required no capital support during  

2012 (2011: £5.3m).

26

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

(cid:41)(cid:41)(cid:58)(cid:3)(cid:73)(cid:69)(cid:86)(cid:82)(cid:77)(cid:82)(cid:75)(cid:87)(cid:16)(cid:3) 
(cid:82)(cid:73)(cid:88)(cid:3)(cid:83)(cid:74)(cid:3)(cid:88)(cid:69)(cid:92)*  
£31(cid:18)(cid:22)(cid:81)(cid:3)(cid:84)(cid:86)(cid:83)(cid:189)(cid:88)

2011: £(29.8)m loss
 *Excluding modelling adjustments of £3.6m 
in 2012 (2011: £(10.3)m)

EEV £311.1m

2011: £294.5m 

In recognition of the longer-term nature of  
the Group’s insurance and investment contracts, 
supplementary information is presented in 
accordance with European Embedded Value ‘EEV’ 
principles. By recognising the net present value 
of expected future cash ﬂows arising from the 
contracts (in-force value), a different perspective 
is provided in the performance of the Group and 
on the valuation of the business.

The principal underlying components 
of the EEV result are:

i) 

 The expected return from existing business 
(being the effect of the unwind of the rates used 
to discount the value in force);

ii)   Value added by the writing of new business;

iii)   Variations in actual experience from that assumed 

As it takes into account expected future earnings 
streams on a discounted basis, EEV is an 
important reference point by which to assess 
Chesnara’s market capitalisation. A life and 
pensions group may typically be characterised 
as trading at a discount or premium to its 
embedded value. Analysis of EEV, distinguishing 
value in force by segment and by product type, 
provides additional insight into the development 
of the business over time.

Highlights 

–  £36.1m increase in EEV before recognition of 

dividend payments.

–  Modelling adjustments generate a £3.6m increase  

in EEV (2011: £(10.3)m reduction).

–   Good balance of EEV across the operating segments.

in the opening valuation; and

–   Good product diversiﬁcation within the value in-force.

iv)  The impact of restating assumptions underlying 

the determination of expected cash ﬂows.

Highlights 

–  Signiﬁcant economic proﬁt of £21.5m (2011:  

£(49.4)m loss).

–   Increase in operating proﬁt to £19.1m (2011: £15.3m).

–   Movestic has generated a £12.7m EEV proﬁt despite 

a signiﬁcant strengthening of lapse assumptions.

–   Notwithstanding a reduction in new business volumes, 
the Movestic new business operation continues to a 
make a positive contribution to earnings.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

27

SECTION B
PERFORMANCE

FINANCIAL REVIEW

 (cid:45)(cid:42)(cid:54)(cid:55)(cid:3)(cid:84)(cid:86)(cid:73)(cid:17)(cid:88)(cid:69)(cid:92)(cid:3)(cid:84)(cid:86)(cid:83)(cid:189)(cid:88)(cid:16)(cid:3) 
(cid:73)(cid:92)(cid:71)(cid:80)(cid:89)(cid:72)(cid:77)(cid:82)(cid:75)(cid:3)(cid:73)(cid:92)(cid:71)(cid:73)(cid:84)(cid:88)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:3)(cid:77)(cid:88)(cid:73)(cid:81)
 £24.5m 2011: £22.4m

Executive summary
The IFRS results by business segment reﬂect the natural 
dynamics of each line of business. In summary the current 
ﬁnancial model has three major components which can  
be characterised as: the “stable core”, the “variable element”, 
and the “growth operation”. The results and ﬁnancial dynamics 
of each segment are analysed further as follows:

Stable core
At the heart of surplus, and hence cash generation, is the 
CA non-proﬁt business which is in run off. The requirement 
of this book is to provide a predictable and stable platform  
for the ﬁnancial model and dividend strategy. As a closed book, 
the key is to sustain this income source as effectively as 
possible. The IFRS results during 2012 support this objective, 
with product-based deductions of £26.3m continuing to 
emerge in a predictable fashion and at a level that compares 
favourably against the prior-year equivalent of £25.8m. This 
level of product-based deductions has underpinned CA’s 
ability to generate a signiﬁcant level of IFRS pre-tax proﬁt  
at £18.5m. 

Variable element
S&P has introduced an element of IFRS earnings volatility  
to the Group, as illustrated by the cost of policy guarantees, 
which are sensitive to movements in investment markets 
and lapse rates. Investment market conditions during 2012 
have had a net favourable impact of £2.5m: this has, however, 
been offset by the £3.3m adverse impact of lower lapse 
experience, as a greater number of policies are estimated to 
rank for guarantee payments. Investment returns of £6.3m 
on shareholder assets within the with-proﬁts funds 
compensated for this increased cost, giving rise to an overall 
net favourable with-proﬁts result of £3.6m. This compares 
with a loss of £3.3m in 2011, excluding the effect of a change 
in the valuation interest rate.

Growth operation
Although, at its current scale, Movestic has posted a small 
and increased IFRS proﬁt, the long-term ﬁnancial model  
is based on growth. Levels of new business are targeted to 
more than offset the impact of policy attrition, leading to  
a general increase in assets under management and, hence 
management fee income. Despite the difﬁcult operating 
conditions referred to in the Swedish Business Review 
section, the 2012 results show a 12% increase in funds 
under management.

Year ended 31 December 

2012  
£m  

2011  
£m  

Note

CA 
S&P 
Movestic 
Chesnara 
Consolidation adjustments 

Total proﬁt before tax and  
exceptional item 
Exceptional item 

Total proﬁt before tax 
Tax 

18.5  
14.6  
1.4  
(5.8 ) 
(4.2 ) 

24.5  
(4.8 ) 

19.7  
8.2  

25.7  
7.5  
0.4  
(5.5 ) 
(5.7 ) 

22.4  
–  

22.4  
3.3  

Total proﬁt after tax 

27.9  

25.7  

1

1 & 2

Note 1 – As explained in Note 7 to the IFRS ﬁnancial 
statements, an exceptional item of £4.8m relating  
to the reclassiﬁcation of policyholder tax liabilities 
within the S&P segment has been charged to IFRS 
proﬁts. There is a corresponding deferred tax release 
to income tax of £4.8m included in the tax item 
above. The net of tax impact of these adjustments, 
which were made to align the treatment within  
the S&P segment with that within the CA segment, 
is accordingly £nil.

Note 2 – As explained in Note 18 to the IFRS ﬁnancial 
statements the changes in the Life and Pensions  
tax regime has resulted in a deferred tax credit during 
2012 of £6.1m.

The adjustments arising on consolidation are analysed below:

Year ended 31 December 

CA – Amortisation of AVIF 
S&P – Amortisation of AVIF 
Movestic

Amortisation of AVIF 
Write back of DAC 
Total 

2012  
£m  

2011
£m

(2.8 ) 
(0.8 ) 

(4.0 ) 
3.4  
(0.6 ) 

(3.6 )
(1.0 )

(4.4 )
3.3
(1.1 )

Total 

(4.2 ) 

(5.7 )

28

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
SECTION B
PERFORMANCE

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

The key components of the 2012 IFRS result are summarised 
as follows:

CA
Despite a slight increase in product-based deductions, the 
core source of IFRS earnings, the overall CA IFRS result has 
declined compared with 2011. There are a number of complex 
aspects to the IFRS result but the primary drivers of the 
decline in proﬁt from 2011 to 2012 are illustrated as follows:

Proﬁt before tax movement  
Year ended 31 December 2011 to 2012 (£m)

2.1

1.9

25.7

2.4

5.0

18.5

2012

2011

Expense 
assumption 
changes 
(Note 1)

Other

Complaint 
costs  
(Note 2)

Effects due 
to invest-
ment market 
movements 
(Note 3)

  2011 
  Negative movements 

  Positive movements 
  2012

Note 1 – During 2011 we agreed, in principle, 
commercial terms for extending the outsourcing 
contract with HCL with the new terms resulting  
in an increase in expense assumptions recognised  
in 2011. This adjustment does not replicate in 2012.

Note 2 – The level of complaints costs incurred  
has remained relatively constant year on year at 
c£0.8m. During 2011 there was a general reduction 
in complaints reserves over and above the impact  
of claims paid. During 2012 further review of potential 
future Mortgage Endowment mis-selling costs was 
undertaken, due to higher complaints volumes arising 
from an increase in claims management company 
activity, which resulted in a small £1.3m increase  
in the reserves.

Note 3 – The impact of investment market conditions 
is relatively muted for the CA book. However, during 
2012, the cumulative impact of a number of different 
investment-related items was adverse as compared 
with 2011 when the impact, dominated by mismatch 
proﬁts, was positive.

Pre-tax IFRS proﬁt 

2012  
£m  

2011  
£m  

Note

Product-based deductions 
Gains and interest on  
retained surplus 
Administration expenses 
Other effects due to 
investment market movements 
Expense assumption 
changes (HCL) 
Complaint costs 
Other 

26.3  

25.8  

5.4  
(9.1 ) 

6.2  
(8.6 ) 

(1.7 ) 

3.3  

–  
(2.3 ) 
(0.1 ) 

(2.1 ) 
0.1  
1.0  

Total 

18.5  

25.7 

1

1
1

2

3

Note 1 – Product-based deductions and returns on 
retained surplus remain signiﬁcantly in excess of 
recurring administration expenses. The total level of 
product-based deductions has increased despite the 
run-off of the book, reﬂecting an increase in mortality 
surplus and the positive impact of investment capital 
growth on funds under management, on which fees 
are based.

Note 2 – The impact of investment market conditions 
is generally relatively muted for the CA book 
compared with the value of the other key components. 
However, during 2012, the cumulative impact of a 
number of different investment-related items was 
slightly adverse compared with 2011 when the impact, 
dominated by mismatch proﬁts, was positive. As a 
general observation, the investment market-driven 
result, although less signiﬁcant, tends to hedge against 
investment market impacts in S&P.

Note 3 – 2012 complaints costs include the impact 
of strengthening the mortgage endowment misselling 
complaints reserve and ,as such, is not expected  
to recur at this level.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

29

 
SECTION B
PERFORMANCE

FINANCIAL REVIEW

IFRS PRE-TAX EARNINGS,
EXCLUDING EXCEPTIONAL ITEM (CONTINUED)

S&P
The S&P pre-tax proﬁt has increased signiﬁcantly compared with 2011:

Proﬁt before tax movement 
2011 to 2012 (£m)

3.1

2.5

1.0

12.4

3.8

9.1

7.5

2011

Change in 
sterling  
and expense 
reserves 
(Note 5)

Income  
on with-
proﬁt  
shareholder 
funds  
(Note 2)

Change in 
cost of  
guarantees 
in with  
proﬁts-
funds 
(Note 3)

Other

Product-
based 
deductions
(Note 1)

Change in 
valuation 
interest  
rate 
(Note 4)

14.6

2012

  2011 
  Negative movement 

  Positive movement
  2012

S&P posted a pre-tax IFRS proﬁt of £14.6m for 2012, the key components  
of the result being:

Pre-tax IFRS proﬁt 

2012 

2011

£m  

£m  

£m  

£m  

Note

Product-based deductions 
Administration expenses 
Income on with-proﬁts 
shareholder funds 
Change in cost of guarantees  
in with-proﬁt funds 
Investment market movements 
Change in yield curve 
Lapse experience 
Change in valuation interest rate 
Other 

Total 
Change in sterling and  
expense reserves 
Other 

16.9  
(11.0 ) 

6.3  

15.9  
(11.7 ) 

2.5  

9.0  
(6.5 ) 
(3.3 ) 
–  
(1.9 ) 

5.1  
(10.3 ) 
–  
12.4  
(0.6 ) 

(2.7 ) 

3.9  
1.2  

6.6  

(5.2 ) 
(0.6 )

Total proﬁt before exceptional  
item and tax 

14.6  

7.5

1
1

2

3

4

5

Note 1 – Product deductions have held up well as 
the book runs off, aided to some extent by the impact 
of capital growth on funds under management. 
Product deductions exceed administration expenses 
by £5.9m and £4.2m in 2012 and 2011 respectively.

Note 2 – The income on with-proﬁts shareholder 
funds is driven by investment market performance 
which has been signiﬁcantly more favourable in 2012.

Note 3 – During 2012 there was a £2.7m increase  
in the cost of guarantees compared with a £5.8m 
increase in 2011, excluding the impact of £12.4m 
relating to an alignment in actuarial assumptions (see 
Note 4 below). The 2012 movement includes a £5.2m 
increase due to non-investment market items, 
principally reﬂecting a change in lapse assumptions. 
The investment market-related component during 
2012 gave rise to a net reduction in cost of guarantees, 
of £2.5m. The corresponding investment market 
component in 2011 gave rise to an increase in the cost 
of guarantees of £5.2m, thereby illustrating the 
underlying sensitivity to investment markets.

Note 4 – A change in actuarial assumptions, to align 
them with those adopted for CA fund, as a result  
of the Part VII Transfer, resulted in the recognition  
of proﬁt of £12.4m in 2011. The pre-existing S&P 
methodology was to reduce valuation interest rates 
to a level which eliminated the need for a resilience 
capital reserve.

Note 5 – Sterling and expense reserves are sensitive 
to both the expense base and to investment market 
movements. As investment markets improve, the level 
of sterling reserves (which provide against situations 
where future policy-based revenue does not cover 
future administration costs) reduces. The proﬁt of 
£3.9m in 2012 is predominantly driven by investment 
market movements, whereas the loss of £5.2m in 
2011 principally reﬂects the impact of a change in 
expense assumptions, resulting from the agreement 
in principle, of higher expense levels, following  
the prospective extension of the outsourcing contract 
with HCL.

30

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION B
PERFORMANCE

Movestic

Pre-tax IFRS proﬁt 

Pensions and savings 
Risk and health 
Other 

2012  
£m  

2011  
£m  

Note

(0.3 ) 
0.9  
0.8  

(1.5 ) 
2.3  
(0.4 ) 

1
2
3

Total proﬁt before tax 

1.4  

0.4  

Note 1 – The Pensions and Savings business model 
is directly dependent upon fees and rebates earned 
on funds under management (FUM). Total FUM 
average has increased slightly during the year resulting 
in a £1.8m (9%) increase in fee and rebate income. 
This is partly offset by a £0.6m (6%) increase in 
internal costs. 

Note 2 – The Risk and Health business, although  
not the core target growth operation, is signiﬁcant  
to the Movestic ﬁnancial and operating model. Unlike 
the longer-term Pension and Savings business the 
Risk and Health business tends to be cash generative 
in the short-term, thereby providing a source of 
internal funding. Further, the Risk and Health business 
is operationally signiﬁcant due to the size of the 
book, there being 404,000 short-term policies in force 
as at 31 December 2012, which generated £36m  
of gross annual premiums. The reduction in pre-tax 
proﬁt compared with 2011 is principally due to a 
15% (£0.8m) increase in claims net of reinsurance 
and an 11% (£0.6m) increase in brokerage costs.

Note 3 – The “Other” component includes the results 
of the associate, Modernac, Movestic investment 
income and the impact of fair value adjustments to the 
Financial Reinsurance liability. The Modernac and 
Movestic investment income results have improved 
by £1.3m and £0.4m respectively year on year, 
while the ﬁnancial reinsurance fair value adjustment 
has reduced by £0.4m. All of these movements are 
predominately a consequence of investment  
market conditions.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

31

 
SECTION B
PERFORMANCE

FINANCIAL REVIEW

 (cid:39)(cid:69)(cid:87)(cid:76)(cid:3)(cid:75)(cid:73)(cid:82)(cid:73)(cid:86)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)
 £41.0m 2011: £31.4m

(cid:55)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:183)(cid:86)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
principally from the interest earned on 
capital, the release of excess capital  
as the life funds run down, policyholder 
charges and management fees earned 
on funds under management.

Net cash generation within the Group continues to be robust. 
Key aspects underpinning the outcome are:

HIGHLIGHTS

–  Net cash generation in the UK run-off businesses, 

supporting a £40m dividend to the parent company, has 
increased by some £8m year on year, driven by more 
favourable investment markets.

–  A further signiﬁcant beneﬁt of £7m has arisen from the  
Part VII Transfer , following the de-authorisation of the  
S&P companies.

–  There has been a pause in the Movestic funding 

requirements, although these are anticipated to resume  
at a modest level in 2013.

The following identiﬁes the source of internal net cash 
generation within the Group, representing the net change  
in funds available to service debt (interest and loan principal 
repayment) and equity (dividends):

Year ended 31 December 
Cash generated from/(utilised by): 

2012  
£m  

2011
£m

CA
Surplus and proﬁts arising in the year 
Change in target capital requirement 

13.3  
1.7  

21.8
1.2

S&P
Surplus and proﬁts arising in the year 
Change in target capital requirement 
 (Decrease)/increase in policyholder funds  
cover for target capital requirement 

14.5  
5.4  

14.5
(11.8 )

(0.3 ) 

0.7

Synergistic effects of Part VII transfer 

7.0  

12.4

Movestic
Additional capital contributions 

Chesnara
Cash utilised by operations 

–  

(5.3 )

(0.6 ) 

(2.1 )

Net cash generation 

41.0  

31.4

The Group’s closed life funds provide predictable fund 
maturity and liability proﬁles, creating stable long-term cash 
ﬂows for distribution to shareholders and for repayment of 
outstanding debt. Cash ﬂow generation will naturally decline 
over time as the UK business run off.

Although investment returns are less predictable, a signiﬁcant 
portion of the investment risk is borne by policyholders. 
However, the acquisition of S&P, while extending the longevity 
of cash generation within the Group, has introduced an 
element of volatility over shorter periods. This arises from the 
impact of investment market movements on the cost to 
shareholders of guarantees within the S&P with proﬁts-funds. 
Although the short-term measure of this cost follows the 
fortunes of investment markets, we proactively manage the 
risk taking a longer-term perspective. 

32

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

FINANCIAL REVIEW

 EEV (cid:73)(cid:69)(cid:86)(cid:82)(cid:77)(cid:82)(cid:75)(cid:87), (cid:73)(cid:92)(cid:71)(cid:80)(cid:89)(cid:72)(cid:77)(cid:82)(cid:75)(cid:3)(cid:73)(cid:92)(cid:71)(cid:73)(cid:84)(cid:88)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:3)(cid:77)(cid:88)(cid:73)(cid:81) 
 £31.(cid:22)(cid:81)(cid:3)(cid:84)(cid:86)(cid:83)(cid:189)(cid:88) 2011: £(29.8)(cid:81)(cid:3)(cid:80)(cid:83)(cid:87)(cid:87)

SECTION B
PERFORMANCE

EEV result

Analysis of the EEV result in the year by earnings source

Summary
The headline EEV result for the year has improved signiﬁcantly 
over 2011. The majority of the improvement relates directly  
to investment market conditions. In 2011 investment markets 
generally performed worse than assumed, resulting in a 
signiﬁcant EEV loss, whereas in 2012, a recovery in equity 
markets and a modest reduction in bond yields have 
resulted in a signiﬁcant corresponding proﬁt.

The operating result, upon which management has the  
most direct and immediate inﬂuence, represents a signiﬁcant 
proportion of the total earnings during 2012. Total operating 
proﬁt has improved by £3.8m from £15.3m in 2011 to £19.1m. 
A signiﬁcant proportion of this is the return on shareholder 
net worth, which at £7.9m has also beneﬁted from favourable 
investment market conditions. 

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

Proﬁt after tax movement. 
2011 to 2012 (£m)

30.3

(2.6)

(12.0)

31.2

39.0

(29.8)

6.3

2011

CA

S&P

Movestic Chesnara

Tax

2012

  2011 
  Negative movement 

  Positive movement
  2012

Analysis of the EEV result in the year by  
business segment

CA 
S&P 
Movestic 
Chesnara 

Total pre-tax proﬁt/(loss) 
Tax 

2012  
£m  

2011
£m

13.1  
15.7  
13.0  
(5.7 ) 

6.8
(23.3 )
(17.3 )
(3.1 )

36.1  
(4.9 ) 

(36.9 )
7.1

Proﬁt/(loss) after tax 

31.2  

(29.8 )

New business contribution 
Return from in-force business

Expected return 
Experience variances 
Operating assumption changes 
Return on shareholder net worth 

2012  
£m  

2011
£m

2.9  

4.4

5.8  
0.4  
2.0  
7.9  

10.2
(0.8 )
(2.6 )
4.1

Operating proﬁt of covered business 
Variation from longer term  
investment return 
Effect of economic assumption changes 

19.0  

15.3

28.0  
(6.5 ) 

(16.9 )
(32.5 )

Proﬁt/(loss) on covered business  
before tax 
Tax 

Proﬁt/(loss) on covered business  
after tax 
Uncovered business and other  
Group activities 
Tax on uncovered business 

40.6  
(6.0 ) 

(34.1 )
5.6

34.5  

(28.5 )

(4.4 ) 
1.1  

(2.8 )
1.5

Proﬁt/(loss) after tax 

31.2  

(29.8 )

Economic conditions
As indicated above, the EEV result is sensitive to economic 
conditions. Economic experience and assumption changes 
contributed a proﬁt of £21.5m in 2012 compared with a loss 
of £49.4m in 2011. During 2011 there was a general decline  
in equity markets and bond yields and the result is sensitive 
to both these factors (further sensitivity analysis is provided 
in Note 7 of EEV Supplementary Information). Although bond 
yields continued to decline during 2012, the level of reduction 
was signiﬁcantly less than in 2011 and this was more than 
offset by a relatively strong recovery in equity markets. The 
impact of these effects on each operating segment is 
illustrated below:

Economic expense and 
assumption changes 

CA 
S&P 
Movestic 

Total 

2012  
£m  

2011
£m

4.7  
8.3  
8.5  

(5.7 )
(25.5 )
(18.2 )

21.5  

(49.4 )

The S&P proﬁt in 2012 includes an experience proﬁt of £11m 
offset in part by a £2.7m assumption loss. The experience 
proﬁt largely arises from equity and bond capital growth of 
£7.2m and £3.3m respectively. The assumption loss is 
primarily due to the £3.3m impact of a reduction in our 
assumed level of the risk-free rate of return. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

33

 
 
 
 
SECTION B
PERFORMANCE

FINANCIAL REVIEW

EEV EARNINGS (CONTINUED)

The Movestic business is sensitive to movements in equity 
markets (predominantly Swedish) due to its core income 
stream being dependent upon management charges levied 
on funds under management, which are primarily equity-
based. The S&P result is sensitive to equity and bond market 
movements, principally through the impact on the cost of 
guarantees. Whereas in 2011 there was a signiﬁcant  
decline in both equity values and ﬁxed-interest investment 
returns, there has been a modest equity market recovery  
in 2012, offset by a continuing downward drift in bond yields. 
The CA result is relatively less sensitive to investment 
market movements.

New business contribution
The new business contribution relates primarily to the 
Movestic Pensions and Savings business. Movestic also writes 
Risk and Health policies but due to its more short-term 
nature the Risk and Health business is reported as uncovered 
business and hence does not contribute to the new business 
result. The Movestic contribution is £2.6m, of which £2.4m 
relates to the value of premium increments received on 
existing policies. Proﬁts on “new contract” business of £0.2m, 
has declined signiﬁcantly compared with the 2011 equivalent 
of £3.1m. The reduction is due to a 20% reduction in new 
business volumes following from the servicing issues arising 
during a 2011 systems migration (see Swedish Business 
Review on page 23).

Experience variances 

CA 
S&P 
Movestic 

Total 

2012  
£m  

2011
£m

5.2  
3.1  
(7.9 ) 

5.2 
(0.2 )
(5.8 )

0.4  

(0.8 )

The CA favourable variances relate to policy persistency and 
mortality experience being better than assumed. The S&P 
favourable variances in 2012 relate principally to policyholder 
tax deductions of £1.9m and better than assumed expense 
and lapse experience of £1m and £1.1m respectively.

The Movestic loss of £7.9m is primarily due to adverse  
lapse experience during the year, as was the case in 2011.  
In recognition of the level of continuing level of adverse 
experience, lapse assumptions have been strengthened, the 
impact of which is included in the operating assumption 
changes in the analysis below:

Operating assumption changes 

CA 
S&P 
Movestic 

Total 

2012  
£m  

2011
£m

(0.3 ) 
(2.9 ) 
5.2  

1.7
(0.9 )
(3.4 )

2.0  

(2.6 )

The S&P result reﬂects a loss of £3.7m following a change 
in lapse assumptions. Policies are expected to run-off at a 
slower rate than previously assumed and for a book carrying 
guarantees this has a negative impact as more policies are 
anticipated to rank for guarantee payments. This is partially 
offset by a proﬁt resulting from a reduction in future 
expenses assumptions.

Adverse Movestic lapse experience has continued through 
2012 and the long-term assumptions have been strengthened 
accordingly, with a total adverse impact of £7.9m. This is 
more than offset by positive assumption changes relating  
to broker and fund manager rebates totalling some £13m.  
In 2011 no corresponding lapse assumption changes were 
considered appropriate at that time due to the introduction  
of new retention initiatives. 

Tax
During 2012 the EEV tax model has been updated to  
fully reﬂect proposed changes in the UK Life and Pension 
tax regime. 

The 2011 tax credit of £7.1m includes the positive impact of 
tax synergies arising on the Part VII transfer of S&P into CA.

Uncovered business and other group activities.

Uncovered business and other 
group activities 

2012  
£m  

2011
£m

Chesnara 
Movestic 

Total 

(5.7 ) 
1.3  

(3.1 )
0.3

(4.4 ) 

(2.8 )

The result includes Chesnara parent company costs relating 
to corporate governance and business development, not 
attributable to the covered business. The year-on-year increase 
is primarily due to a £2.5m increase in a provision to cover 
future contractual property costs associated with the Group 
Head Ofﬁce. 

The Movestic result is impacted by: 

i)   Risk and Health results; This business is less long-term 

in nature and hence is not modelled as covered business. 
Proﬁt has reduced by £1.3m compared with 2011, primarily 
due to a 15% (£0.8m) increase in claims net of reinsurance 
and a 11% (£0.6m) increase in brokerage costs.

ii)   Proﬁt from the Modernac associate, which has increased 

by £1.4m compared with 2011.

iii)  Valuation adjustments for the Movestic ﬁnancial 

reinsurance arrangements. The 2012 adjustment is £0.3m 
compared with a negative adjustment of £1.9m in  
2011, largely reﬂecting investment market movements.

34

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
FINANCIAL REVIEW

 (cid:41)(cid:89)(cid:86)(cid:83)(cid:84)(cid:73)(cid:69)(cid:82)(cid:3)(cid:41)(cid:81)(cid:70)(cid:73)(cid:72)(cid:72)(cid:73)(cid:72)(cid:3)(cid:58)(cid:69)(cid:80)(cid:89)(cid:73)(cid:3)(EEV)
 £311.1m 2011: £294.5m

SECTION B
PERFORMANCE

EEV movement 2011 to 2012 (£m)

31.2

3.6

1.3

19.5

294.5

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

311.1

Effect of modelling adjustments
Modelling adjustments during the year ended 31 December 
2012 give rise to a net increase in EEV of £3.6m, comprising:

EEV  
2011

Net of tax 
proﬁt arising 
in the year

Effect of 
modelling 
adjustments

Foreign 
exchange 
reserve 
movement

Dividends 
paid

EEV  
2012

  EEV 2011 
  Negative movement 

  Positive movement 
  EEV 2012

EEV movement 2010 to 2011 (£m)

354.6

29.8

10.3

1.0

19.0

294.5

EEV 
2010

Net of tax 
loss arising 
in the year

Effect of 
modelling 
adjustments

Foreign 
exchange 
reserve 
movement

Dividends 
paid

EEV  
2011

  EEV 2010 
  Negative movement 

  Positive movement 
  EEV 2011

Movestic
During 2012, there has been a continued focus on ensuring 
that the Movestic EEV model is robust. The process, which 
has included independent review, has identiﬁed the following:

i)   levels of commission claw-back within the future cash 

ﬂow projections were overstated by £7.9m; and

ii)   several enhancements to policy fee cash ﬂow estimates 
and data input routines have been identiﬁed with a total 
net adverse impact of £1.1m.

UK
The CA and CWA EEV models previously assumed a  
single average rate of investment return for all durations as 
opposed to the use of a full yield curve. This approximation 
was reported in the EEV assumptions section 4(a) of the 
Supplementary Information within the 2011 Report and 
Accounts. As at 31 December 2012 the models have been 
enhanced to recognise differing rates of return across the 
different durations of the yield curve resulting in a net of tax 
increase of £12.6m.

Modelling adjustment during the year ended 31 December 
2011 gave rise to a reduction of EEV of £(10.3)m comprising:

Movestic
i)   an improvement was introduced into the Movestic 

modelling system in respect of projected fee income from 
investment contracts where the fee is premium based, 
such contracts hitherto not being differentiated and this 
resulted in an increase in embedded value of £2.7m; and

ii)   modelling errors were detected relating to certain 

parameters and discounting periods speciﬁed at inception 
of a new model and the correction of these gave rise  
to a reduction in embedded value of £12.4m.

UK 
S&P model enhancements gave rise to a further £0.6m 
reduction in EEV.

Foreign exchange reserve movements
The £1.3m foreign exchange reserve movement in 2012 is the 
impact of a 1% strengthening of the Swedish Krona against 
Sterling during the year, following its depreciation of 1% 
during 2011.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

35

SECTION B
PERFORMANCE

FINANCIAL REVIEW

EUROPEAN EMBEDDED VALUE (CONTINUED)

EEV – Value in force (VIF) and adjusted shareholder net worth (SNW)
(£m at year end)

354.6

265.4

294.5

311.1

199.6

210.0

89.2

94.9

101.1

2010

2011

2012

  Total EEV 

  VIF 

  SNW

HIGHLIGHTS

–  There is a good balance in EEV across the core business 
segments although the UK businesses represent the 
majority (59%) of the total EEV. Conversely the value in-force 
component is dominated by the Swedish business which 
represents 59% of the total Group VIF.

– There is a signiﬁcant level of product diversiﬁcation within 
the VIF. When adjusted to recognise the impact of the S&P 
cost of guarantees which are predominantly pension contract 
related, 60% of the total product level value in-force relates  
to pension contracts, 19% to protection business and 17% 
to endowments.

Analysis of 2012 VIF – £210.0m

124.5

67.0

18.5

Movestic

CA

S&P

36

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

The tables below set out the value of in-force business by major product line at each period end. Analysis of the  
composition of the VIF by business and major product category provides a useful insight into the commercial dynamics 
underpinning the value of Chesnara.

Number of policies 

CA  
000’s  

S&P   Movestic  
000’s  
000’s  

Total  
000’s  

CA  
000’s  

S&P   Movestic  
000’s  
000’s  

Total
000’s

31 December 2012 

31 December 2011

Endowment 
Protection 
Annuities 
Pensions 
Other 

Total 

39  
43  
6  
46  
3  

5  
5  
–  
128  
12  

137  

150  

12  
–  
–  
78  
–  

90  

56  
48  
6  
252  
15  

44  
48  
6  
49  
4  

6  
6  
–  
136  
14  

377  

151  

162  

14  
–  
–  
77  
–  

91  

Value of in-force business 

Endowment 
Protection 
Annuities 
Pensions 
Other 

Total at product level 
Holding company expenses 
Other 
Cost of capital/frictional costs 

Value in-force pre-tax 
Taxation 

31 December 2012 

31 December 2011

CA  
£m  

27.7  
49.2  
7.8  
33.6  
3.2  

121.5  
(7.0 ) 
(28.6 ) 
(1.1 ) 

84.8  
(17.8 ) 

S&P   Movestic  
£m  

£m  

3.8  
3.7  
0.9  
55.0  
3.3  

66.7  
(3.9 ) 
(41.8 ) 
(2.4 ) 

18.6  
–  

8.1  
–  
–  
124.2  
–  

132.3  
(7.7 ) 
–  
(0.1 ) 

124.5  
–  

Total  
£m  

39.6  
52.9  
8.7  
212.8  
6.5  

320.5  
(18.6 ) 
(70.4 ) 
(3.6 ) 

227.9  
(17.8 ) 

CA  
£m  

29.7  
46.2  
(0.8 ) 
30.7  
2.2  

108.0  
(5.4 ) 
(27.8 ) 
(1.2 ) 

73.6  
(12.9 ) 

S&P   Movestic  
£m  

£m  

4.3  
3.9  
1.0  
52.4  
4.1  

65.7  
(3.3 ) 
(41.7 ) 
(3.2 ) 

17.5  
–  

9.7  
–  
–  
118.2  
–  

127.9  
(6.4 ) 
–  
(0.1 ) 

121.4  
–  

64 
54 
6
262 
18 

404  

Total
£m

43.7
50.1
0.2
201.3
6.3

301.6
(15.1 )
(69.5 )
(4.5 )

212.5
(12.9 )

Value in force post-tax 

67.0  

18.6  

124.5  

210.1  

60.7  

17.5  

121.4  

199.6

The value-in-force represents the discounted value of the 
future surpluses arising from the insurance and investment 
contracts in force at each respective period end. The future 
surpluses are calculated by using realistic assumptions for 
each component of the cash ﬂows.

Holding company expenses are apportioned across the 
segments pro-rata to the total product-based VIF. The total 
holding company expense adjustment was, prior to 2012, 
allocated to the CA segment. The 2011 comparatives have 
been re-presented in accordance with the new allocation 
methodology. The total increase in the value of holding 
company expenses reﬂects an enhancement to the proﬁle 
assumed for how the costs run-off into the future. 

 ’Other’ valuation adjustments in CA principally comprise 
expenses for managing policies which are not attributed at 
product level. In S&P they represent the estimated cost of 
guarantees to with-proﬁts policyholders.

From 31 December 2011, following the Part VII Transfer, 
taxation in the value in force is modelled on a combined CA 
and S&P basis and, in the analysis above, is attributed wholly 
to the CA segment.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

37

 
 
 
 
SECTION B
PERFORMANCE

FINANCIAL MANAGEMENT

OBJECTIVES

(cid:55)(cid:75)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:183)(cid:86)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
framework is designed to provide 
security for all stakeholders, while 
meeting the expectations of 
policyholders and shareholders. 
Accordingly it:

i) 

 safeguards policyholders’ interests by meeting 
regulatory requirements established by the 
regulators of the insurance markets in which the 
Group’s regulated companies operate, while  
not retaining unnecessary excess capital;

ii)   seeks to meet the dividend expectations of 

shareholders and to optimise the gearing ratio  
to ensure an efﬁcient capital base;

iii)  ensures there is sufﬁcient liquidity to meet 

obligations to policyholders, debt ﬁnanciers and 
creditors as they fall due; and

iv)  maintains the Group as a going concern so  

that it continues to provide returns and to meet 
obligations to shareholders.

CAPITAL STRUCTURE AND CASH FLOWS

The Group’s UK operations are ordinarily ﬁnanced 
through retained earnings and through the current 
emergence of surplus in the UK life businesses. 

Movestic is ﬁnanced by a combination of external 
ﬁnancial reinsurance arrangements and capital 
contributions from Chesnara.

With respect to acquisitions the Group seeks to 
finance these through a suitable mix of debt and 
equity, within the constraints imposed by the 
operation of regulatory rules over the level of debt 
ﬁnance which may be borne by Insurance Groups 
without breaching solvency requirements. 

The acquisition of S&P in December 2010 for £63.5m 
was accomplished by way of debt: equity ﬁnancing 
broadly in a ratio of 2:1. This introduced a modest level 
of gearing to the structure of Group ﬁnancing.

Other factors which may place a demand on capital resources 
in the future include the costs of unavoidable large scale 
systems developments such as those which may be involved 
with changing regulatory requirements. To the extent that 
ongoing administration of the UK life businesses is performed 
within the terms of its third-party outsourcing agreements, 
the Group is sheltered, to a degree, from these development 
costs as they are likely to be on a shared basis.

The Group’s longer-term cash ﬂow cycle continues to be 
characterised by the strong inﬂow to shareholders’ funds of 
transfers from the long-term insurance funds of CA, which 
is supported by the emergence of surplus within those funds. 

These ﬂows are used: 

i) 

 to repay our debt obligations as set out in Note 35 of the 
IFRS of these ﬁnancial statements; 

ii)  to support dividend distributions to shareholders; and  

iii)  to support the medium-term requirements of Movestic 
to meet regulatory solvency capital requirements as  
it expands.

METHODS

In order to meet our obligations we employ  
and undertake a number of methods. These are 
centred on:

i) 

 regulatory solvency capital resource and capital 
requirements analysis, where the relevant  
Boards set minimum targets for solvency capital 
resources; 

ii)   longer-term projections of key ﬁnancial variables, 

including the regulatory solvency calculations set 
out in (i); and

iii)  the setting of policies and investment manager 

guidelines for the investment of policyholder and 
shareholder funds.

Regulatory solvency capital resources and requirements
The operation of the UK, Swedish and EU regulatory regimes 
with respect to solvency capital requirements at the individual 
regulated company and Group level together with details of 
minimum target solvency ratios are set out in Note 31 of the 
IFRS ﬁnancial statements (‘Capital Management’). Targets 
are established at a level which aims to balance policyholder 
and shareholder interests. A higher target affords a greater 
degree of protection to policyholders, but constrains the level 
of cash generated and transferable by the UK businesses, 
which are in run-off, and absorbed by Movestic which is in  
a development phase. In respect of the UK businesses 
statutory regulations require:

i) 

 a Pillar 1 calculation, which compares regulatory capital 
resource requirements, based on the characteristics of 
the in-force life business, with an associated measure of 
capital as prescribed by regulation; and

ii)   a Pillar 2 calculation which compares a risk-based 
assessment of solvency capital with an associated 
measure of capital based on a realistic assessment  
of insurance liabilities; and

iii)  the amount of required regulatory solvency capital is then 
determined by the method which gives rise to the lower 
excess of regulatory capital over requirements.

These calculations are monitored continuously.

38

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

Longer-term projections
On a six monthly basis, longer-term projections are 
prepared on a Group basis embracing:

i) 

 Segmental earnings and surplus arising in the  
long-term insurance funds;

ii)   Chesnara company cash ﬂows;

iii)  Regulatory solvency and capital resources and 

requirements on a regulated individual entity basis  
and on a consolidated Group basis; and

iv)   European embedded value.

The projections are prepared for a base case and  
for various sensitivities; the base case follows  
the latest assumptions approved by the respective  
boards, regarding:

i) 

 the calculation of actuarial liabilities for longer-term 
insurance contracts; and 

ii)   cash ﬂows within the embedded value calculation. 

The sensitivities which are prepared include the  
impact of movements in:

i) 

 equity, property and bond markets;

ii)   variations in anticipated new business volumes in the 

Swedish business; and 

iii)  adverse movements in the Sterling: Swedish Krona 

exchange rate. 

In addition:

–  Financial condition reports are prepared on an annual basis 
which include assessments of the ability of the business  
to withstand key adverse events, including increased rates 
of policy lapse, expense overruns and unfavourable  
market conditions.

–  Reverse stress testing techniques are employed which 

assess events and circumstances which would cause the 
combined CA and S&P business to become unviable.  
In this context, unviable is deﬁned as the point at which the 
market loses conﬁdence in the ﬁrm being able to carry out 
its normal business activities.

Investment management
An element of meeting policyholders’ expectations and 
thereby, promoting customer retention is the pursuit of good 
relative investment performance in the policyholder funds.

The CA funds are primarily managed by Schroder Investment 
Management Limited while the CWA funds continue to be 
managed by Irish Life Investment Managers Limited and the 
S&P funds continue to be managed by JPMorgan Asset 
Management (UK) Ltd. 

We meet formally with fund managers on a quarterly basis 
to assess past performance and future strategy. Investment 
guidelines for investment fund managers are established for 
each fund having regard to the nature of the fund and to 
contractual obligations to policyholders. For the with-proﬁts 
funds these are also in accordance with the published 
Principles and Practices of Financial Management.

Movestic funds are managed by a carefully selected range 
of fund managers who have strong performance records  
in the relevant sector. Performance is monitored very closely 
and regular meetings are held with fund managers. Should 
under performance continue then an alternative manager is 
sourced and appointed to manage the relevant assets. Where 
a new market niche or speciﬁc opportunity is identiﬁed  
new funds may also be added.

The CA Board continues to have a conservative approach  
to the investment of shareholders’ funds in the UK life 
businesses, which underpins our strong solvency position. 
For the UK businesses, where the greater part of shareholders’ 
funds subsist, this approach targets the investment of  
100% of available funds in cash and ﬁxed interest securities. 
In the light of recent volatility in ﬁnancial markets, particular 
attention is given to the mix and spread of these investments 
to ensure that we are not unduly exposed to particular sectors 
and that our counterparty limits are strictly adhered to. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

39

SECTION B
PERFORMANCE

FINANCIAL MANAGEMENT (CONTINUED)

OUTCOMES

Key outcomes from our ﬁnancial management process,  
in terms of meeting our objectives are set out below: 

Solvency and regulatory capital
For the whole of the periods presented below the Pillar 1 
calculation for the UK business, as described above, gave rise 
to the lower measure of excess capital. The statutory 
solvency position of the individual businesses may accordingly 
be summarised as:

CA 

Pre proposed dividend to Chesnara 
Post proposed dividend to Chesnara 

S&P 
Movestic 
Group (Consolidated EU Insurance Groups Directive basis  
post proposed dividend) 

i) 

 The positions as at 31 December 2011 and 31 December 
2012 reﬂect the impact of the Part VII Transfer, as a 
result of which CA includes the transfer of all the long-term 
business funds and certain of the shareholder funds  
of S&P. 

ii)   The amounts reported as S&P as at 31 December 2011 
accordingly represent residual S&P shareholder funds 
which were retained to cover the minimum EU regulatory 
capital resource requirements for regulated entities. The 
S&P companies were de-authorised during 2012 thereby 
removing the need for them to maintain regulatory 
capital resources.

iii)  Excess capital is determined by the minimum regulatory 
capital resource targets set by the respective boards, 
except for the Group solvency ratio for which no target  
is set above the regulatory minimum of 100%. Reliance  
is placed instead on the efﬁcacy of targets set at the 
subsidiary level.

iv)   The Movestic Board has set a minimum target of 150% 

of the regulatory capital requirement. Swedish solvency 
regulation requires that a certain proportion of assets,  
to be fully admissible, is to be held in the form of cash. 
The operation of this requirement may, from time to 
time, act as the operative constraint in determining the 
level of additional funding requirements, thereby causing 
Movestic’s solvency ratio to rise above what it would 
otherwise have been, had the form of assets matching 
capital resources not been a constraint.

31 December 2012 

31 December 2011

   Solvency  
ratio  
%  

Excess   Solvency  
ratio  
capital  
%  
£m  

Excess
capital
£m

279  
199  
n/a  
280  

64.6  
24.6  
n/a  
15.1  

259  
183  
115  
245  

67.0
23.0
0.9 
11.4

244  

90.4  

198  

75.4 

The information provided in respect of CA  
and the Group illustrates:

–  robust protection for policyholders; and

– a favourable position from which Chesnara, which 

relies on dividend distributions from CA, continues to 
service its loan commitments and to pursue and 
attractive dividend policy.

The information in respect of Movestic also illustrates 
robust policyholder protection and provides the 
context in which Chesnara makes further capital 
contributions as the business expands.

40

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
  
  
  
 
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION B
PERFORMANCE

Returns to shareholders

The Board’s primary aim  
is to continue to provide  
an attractive dividend  
(cid:193)(cid:82)(cid:90)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) 
within the context of the 
emergence of surplus in  
the UK businesses.

Returns to shareholders are underpinned by the emergence 
of surpluses in, and transfer of surpluses from, long-term 
insurance funds to shareholder funds and by the return on 
shareholder net assets representing shareholder net equity. 

These realisations are utilised in the ﬁrst instance for the 
repayment and servicing of debt. The surpluses arise from the 
realisation of in-force value of UK businesses, which are in 
run-off. The return on shareholder net assets is determined 
by the Group’s investment policy. Shareholder funds bear 
central corporate governance costs which cannot be fairly 
attributed to the long-term insurance funds and which  
arise largely in connection with Chesnara’s obligations as  
a listed company.

Following the announcement of the acquisition of S&P on 
20 December 2010 up to mid-March 2011, the share price 
steadily strengthened so that it was consistently trading within 
a range of 240p to 260p per share. Based on total proposed 
dividends for 2010 of 16.4p per share, this implied a yield of 
between 6.3% and 6.8%, with the shares trading at a discount 
of between 13% to 19% to the latest published embedded 
value of £354.6m at 31 December 2010.

Over the period from mid-March 2011 to mid-November 2011 
the share price declined steadily from a high in the range of 
255p to 260p per share to a low in the range of 160p to 165p 
per share. This fall was largely driven by the decline in global 
investment markets and followed the fortunes of the life 
insurance sector as a whole. However, the share price from 
mid-November 2011 to mid-March 2012, ﬂuctuated within  
a range of 165p to 186p and did not reﬂect the upturn in the 
sector as a whole. Based on total proposed dividends for 
2011 of 16.85p per share this implied a yield of between 9.1% 
and 10.2% with the shares trading at a discount of between 
29% and 36% to EEV as at 31 December 2011.

Over the period from mid-March to mid-July 2012 the share 
price showed no consistent sustained movement although it 
did dip to a two year low of 155p in April. From mid-July 2012 
to late-March 2013 the share price has steadily strengthened 
reaching a high of 233p. From mid-February through to 
late-March 2013 the price has stabilised within a range of 217p 
to 233p per share. Based on the total proposed dividends 
for 2012 of 17.35p per share this implies a yield of between 
8.0% and 7.5% with the shares trading at a discount of 
between 19.8% and 13.9% to EEV as at 31 December 2012.

Returns to policyholders
Key aspects of policyholder fund performance in respect  
of the UK Business are set out on page 20 and in respect  
of the Swedish Business on page 23.

Liquidity
The current proﬁle and mix of investment asset holdings 
between ﬁxed-interest securities and cash deposits is such 
that realisations to meet obligations to third parties and to 
support dividend distributions can be made in an orderly and 
efﬁcient way.

Going concern
The Group’s cash ﬂow position described on page 32, 
together with the return on ﬁnancial assets in the parent 
company, supports the ability to trade in the short-term. 
Accordingly, the underlying solvency position of the UK life 
business and their ongoing ability to generate surpluses 
which support cash transfers to shareholders’ funds is critical 
to the ongoing ability of the Group to continue trading and  
to meet its obligations as they fall due. 

The information set out in ‘Solvency and Regulatory Capital’ 
above indicates a strong solvency position as at 31 December 
2012 as measured at both the individual regulated life 
company levels in both the UK and Sweden and at the Group 
level. In addition, in respect of the UK business, the ﬁnancial 
condition report and reverse stress testing assessments 
indicate that it is able to withstand the impact of adverse 
scenarios, including the effect of signiﬁcant investment market 
falls, while the business’s outsourcing arrangements protect  
it from signiﬁcant expense overruns.

Notwithstanding that the Group is well capitalised, the current 
ﬁnancial and economic environment continues to present 
speciﬁc threats to its short-term cash ﬂow position and it  
is appropriate to assess other relevant factors. In the ﬁrst 
instance, the Group does not rely on the renewal or extension 
of bank facilities to continue trading – indeed, as indicated, 
its normal operations are cash generative. The Group does, 
however, rely on cash ﬂow from the maturity or sale of  
ﬁxed interest securities which match certain obligations to 
policyholders: in the current economic environment there 
remains a continuing risk of bond default, particularly in respect 
of ﬁnancial institutions. In order to manage this risk we 
ensure that our bond portfolio is actively monitored and well 
diversiﬁed. Other signiﬁcant counterparty default risk relates 
to our principal reassurers. We monitor their ﬁnancial position 
and are satisﬁed that any associated credit default risk is 
low. It is noteworthy that we have negligible exposure to 
Euro-denominated sovereign debt.

Our expectation is that, notwithstanding the risks set out 
above, the Group will continue to generate surplus in its UK 
long-term businesses sufﬁcient to meet its debt obligations  
as they fall due, to continue to pursue an attractive dividend 
policy and to meet the short-term ﬁnancing requirements 
of Movestic.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

41

SECTION B
PERFORMANCE

RISK MANAGEMENT

Risk management processes
Overlaying all the day-to-day and development activity we 
undertake is a focused risk management culture and regime. 

In both the UK and Swedish businesses we maintain 
processes for identifying, evaluating and managing the 
signiﬁcant risks faced by the Group, which are regularly 
reviewed by the Group Audit & Risk Committee. Our risk 
processes have regard to the signiﬁcance of risks, the 
likelihood of their occurrence and take account of existing 
controls and the cost of mitigating them. The processes are 
designed to manage rather than eliminate risk and, as such, 
provide reasonable, but not absolute, assurance against loss.

At the subsidiary level in the UK businesses we maintain,  
in accordance with the regulatory requirements of the FSA, 
a risk and responsibility regime. Accordingly, the identiﬁcation, 
assessment and control of risk are ﬁrmly embedded within 
the organisation and the procedures for the monitoring and 
updating of risk are robust. As part of this we established  
a Risk Committee in CA, which comprises solely of 
Non-executive Directors. This committee receives quarterly 
updates of the key risk registers, as maintained by the senior 
management, for review and challenge. The committee 
reports directly to the CA Board which also reviews reports 
from the compliance and internal audit functions. CA risks 
are summarised and reviewed by the Chesnara Audit & Risk 
Committee on a quarterly basis. The key risk registers have 
been designed to complement the production of Individual 
Capital Assessments, which we are required to submit  
to the FSA on request and maintain on an ongoing basis. We 
categorise all risks against the following relevant categories – 
insurance, market, credit, liquidity, operational and group – and 
identify potential exposures and the necessary capital 
requirements accordingly.

In the Swedish business, at the subsidiary Movestic level, 
there is full compliance with the regulatory requirement  
in that its Board and Managing Director have responsibility 
for ensuring that the management of the organisation is 
characterised by sound internal control, which is responsive 
to internal and external risks and changes in them. The Board 
has responsibility for ensuring that there is an internal control 
risk function, which is charged with (i) ensuring that there  
is information which provides a comprehensive and objective 
representation of the risks within the organisation and  
(ii) proposing changes in processes and documentation 
regarding risk management. These obligations are evidenced 
by regular compliance, internal audit, general risk and 
ﬁnancial risk reports to the Movestic Board. The latter is 
supplemented by quarterly returns to the Swedish regulator, 
Finansinspektionen, which set out estimated capital 
requirements in respect of insurance, market, credit, liquidity, 
currency and operational risks.

Risk management processes are enhanced by stress and 
scenario testing, which evaluates the impact on the Group of 
certain adverse events occurring separately or in combination. 
There is a strong correlation between these adverse events 
and the risks identiﬁed in ‘principal risks and uncertainties’ 
below. The outcome of this testing provides context against 
which the Group can assess whether any changes to its risk 
management processes are required.

Group and subsidiary auditors regularly report to management 
on identiﬁed control weaknesses together with suggested 
improvements.

In accordance with the need to comply with the requirements 
of Solvency II on an EU-wide basis, we are currently reviewing 
and upgrading our risk management processes, so that 
Group-wide they will be enhanced in a uniform and consistent 
manner, embracing:

–  articulation of risk appetite statements, following from 

documented strategic objectives;

–  formulation and monitoring of associated risk metrics;

–  risk identiﬁcation and assessment;

–  calculation of risk-based capital; and

–  the embedding of risk management processes so that  

they are at the forefront of, and underpin, strategic and 
operating decisions.

These developments continued through 2012 and are planned 
to be completed during 2014.

Principal risks and uncertainties
Risk and uncertainties are assessed by reference 
to the extent to which they threaten, or potentially 
threaten, the ability of the Group to meet its 
core strategic objectives. These currently centre 
on the intention of the Group to maintain an 
attractive dividend policy.

The speciﬁc principal risks and uncertainties subsisting 
within the Group are determined by the fact that:

i) 

 the Group’s core operations centre on the run-off 
of closed life and pensions businesses in the UK;

ii)   notwithstanding this, the Group has a material 
segment, which comprises an open life  
and pensions business operating in a foreign 
jurisdiction; and

iii)  these businesses are subject to local regulation, 

which signiﬁcantly inﬂuences the amount of capital 
which they are required to retain and which  
may otherwise constrain the conduct of business.

42

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:192)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3) 
a description of their actual or potential impact and of the way in which the 
(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:86)(cid:72)(cid:72)(cid:78)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:192)(cid:70)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3) 
(cid:86)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:24)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:25)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:41)(cid:53)(cid:54)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3)
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:16)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:192)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:192)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:17)(cid:3)

PRINCIPAL RISKS AND UNCERTAINTIES

Risk

Impact

Control

Adverse mortality/
morbidity/longevity 
experience

To the extent that actual mortality or 
morbidity rates vary from the assumptions 
underlying product pricing, so more or less 
proﬁt will accrue to the Group.

Adverse persistency 
experience

Persistency rates signiﬁcantly lower than 
those assumed will lead to reduced Group 
proﬁtability in the medium to long-term.

Expense overruns  
and unsustainable 
unit cost growth

Signiﬁcant and 
prolonged equity and 
property market falls

For the closed UK life and pensions 
businesses, the Group is exposed to the 
impact of ﬁxed and semi-ﬁxed expenses,  
in conjunction with a diminishing policy base, 
on proﬁtability. For the Swedish open life 
and pensions business, the Group is exposed 
to the impact of expense levels varying 
adversely from those assumed in  
product pricing.

A signiﬁcant part of the Group’s income 
and, therefore, overall proﬁtability derives 
from fees received in respect of the 
management of policyholder and investor 
funds. Fee levels are generally related to  
the value of funds under management and, 
as the managed investment funds overall 
comprise a signiﬁcant equity and property 
content, the Group is particularly exposed  
to the impact of signiﬁcant and prolonged 
equity market falls, which may lead to 
policyholders switching to lower-margin, 
ﬁxed-interest funds.

–   Effective underwriting techniques and 

reinsurance programmes.

–   Option on certain contracts to vary premium 

rates in the light of actual experience.

–  Partial risk diversiﬁcation in that the Group 
has a portfolio of annuity contracts where 
the beneﬁts cease on death.

–  In closed life and pensions books, 

persistency rates tend to improve over time 
due to policyholder/investor inertia.

–  Active investment management to ensure 
competitive policyholder investment funds. 

–   Outsourcer service levels ensure strong 

customer service standards.

–   Proactive customer retention processes.

–   For the UK businesses, the Group pursues  
a strategy of outsourcing functions with 
charging structures such that the cost is 
sensitive to book run off to the fullest  
extent possible.

–   The Swedish operations assume growth 

through new business such that the general 
unit cost trend is positive.

–   For both the UK and Swedish businesses, 
the Group maintains a strict regime of 
budgetary control.

–  Individual fund mandates may give rise to  
a degree of diversiﬁcation of risk and within 
those funds, hedging techniques are used 
where appropriate.

–   Investment management costs fall in line with 
market falls and hence cost savings partially 
hedge the impact on income.

–   There is a wide range of investment funds 

and managers so that there is no signiﬁcant 
concentration of risk.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

43

SECTION B
PERFORMANCE

Risk

Impact

Control

Adverse movements 
in yields on ﬁxed 
interest securities

Adverse Sterling: 
Swedish Krona 
exchange rate 
movements

Counterparty failure

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.

Exposure to adverse Sterling/Swedish Krona 
exchange rate movements arises from actual 
planned cash ﬂows between the Swedish 
subsidiary and its UK parent company and 
from the impact on reported IFRS and EEV 
results which are expressed in sterling.

–   The Group maintains rigorous matching programmes  

to ensure that exposure to mismatching is minimised.

–   Active investment management such that, where 

appropriate, asset mixes will be changed to mitigate the 
potential adverse impact on declines in bond yields.

–   The Group monitors exchange rate movements and  
the cost of hedging the currency risk on cash ﬂows  
when appropriate.

The Group carries signiﬁcant inherent  
risk of counterparty failure in respect of:

–   its ﬁxed interest security portfolio;
–   cash deposits; and
–   amounts due from reinsurers.

–   Operation of guidelines which limit the level of exposure to 
any one counterparty and which impose limits on exposure 
to credit ratings.

–  In respect of exposure to one major reinsurer, Guardian 
Assurance Limited (‘Guardian’), the Group has a ﬂoating 
charge over the reinsurer’s related investment assets, which 
ranks the Group equally with Guardian’s policyholders.

Failure of outsourced 
service providers to 
fulﬁll contractual 
obligations

The Group’s UK life and pensions businesses 
are heavily dependent on outsourced service 
providers to fulﬁll a signiﬁcant number of 
their core functions. In the event of failure by 
either or both service providers to fulﬁll their 
contractual obligations, in whole or in part, 
to the requisite standards speciﬁed in the 
contracts, the Group may suffer loss as its 
functions degrade.

–   Rigorous service level measures and management 

information ﬂows under its contractual arrangements. 

–   Continuing and close oversight of the performance of  

both service providers. 

–   The supplier relationship management approach is conducive 
to ensuring the outsource arrangements deliver obligations.
–   Under the terms of the contractual arrangements the Group 
may impose penalties and/or exercise step-in rights in the 
event of speciﬁed adverse circumstances.

Key man dependency

Adverse regulatory 
and legal changes

The nature of the Group is such that, for 
both its Group-level functions and for its UK 
life and pensions operations, it relies on a 
small, professional team. There is, therefore, 
inevitably a concentration of experience  
and know how within particular key individuals 
and the Group is, accordingly, exposed  
to the sudden loss of the services of  
these individuals.

–   The Group promotes the sharing of know how and expertise 

to the fullest extent possible. 

–   It periodically reviews and assesses stafﬁng levels, and, 

where the circumstances of the Group justify and permit, 
will enhance resource to ensure that know how and 
expertise is more widely embedded. 

–   The Group maintains succession plans and remuneration 

structures which comprise a retention element. 
–   The Group complements its internal expertise with 

established relationships with external specialist partners.

The Group operates in jurisdictions which are 
currently subject to signiﬁcant change arising 
from regulatory and legal requirements. 
These may either be of a local nature, or of 
a wider nature, following from EU-based 
regulation and law. Signiﬁcant issues which 
have arisen and where there is currently 
uncertainty as to their full impact on the 
Group include: 

i)   the implementation of Solvency II 

requirements; and 

The current opinion is that the implementation of Solvency II 
will strengthen the long-term risk management environment 
of Chesnara (as is its intention).

The Solvency II programme is covered in more detail on  
the following page. The key risks are mitigated as follows:

–   Proposed appointment of external specialist  

Quality Assurance partner;

–   Dedicated internal resource; and
–   Robust programme governance framework.

  Management continually reviews the potential impact of any 

ii)  potential change in the regulatory 

prospective regulatory changes.

environment in Sweden.

44

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION B
PERFORMANCE

FOCUS ON SOLVENCY 11

Solvency II is a fundamental 
review of the capital adequacy 
regime for the European 
insurance industry. It aims to 
establish a revised set of 
EU-wide capital requirements 
and risk management 
standards that will replace 
the current solvency 
requirements.

Solvency II’s primary objective is to strengthen policyholder 
protection by aligning capital requirements more closely with 
the risk proﬁle of the company. The regime has a three pillar 
structure, with each pillar governing a different aspect of the 
Solvency II requirements and approach. As well as requiring 
ﬁrms to disclose their capital and risk frameworks, the 
Directive also asks ﬁrms to demonstrate how and where the 
requirements are embedded in their wider activities. The 
planned implementation date of 1 January 2014 is now widely 
accepted as not being achievable, with 1 January 2016 
anticipated to be the likely new date, though this has yet to 
be formalised. However, it is expected that, during 2013, 
guidelines for interim measures will be issued, which will 
require ﬁrms to develop and implement various aspects of 
Solvency II in the lead up to the revised implementation date. 

Chesnara’s approach

Pillar one
Pillar 1 considers the quantitative requirements  
of the system, including the calculation of technical 
provisions and the rules relating to the calculation  
of the Minimum Capital Requirement (MCR) and the 
Solvency Capital Requirement (SCR). Under 
Solvency II there are two prescribed methods for 
assessing an insurer’s SCR; either a Standard Formula 
set by the regulator or an Internal Model speciﬁc to 
that insurer and which is subject to regulatory approval. 
Chesnara has opted for the Standard Formula 
approach for both CA and Movestic on the grounds 
that it is a good ﬁt and appropriate for its businesses 
at the current time. However, we will continue to 
monitor our position on the choice of approach as our 
businesses evolve.

Progress update
The majority of the Pillar 1 development is now 
complete and the work to produce the Pillar 1 results 
for the CA and Movestic businesses will be undertaken 
during Q1 2013 and reported to the respective  
boards in Q1 and Q2 2013. We also expect to produce 
consolidated Pillar 1 results for the Group during  
Q2 2013. A decision will be taken in Q2 2013 as to 
whether any further Pillar 1 development is required.

Pillar two
Pillar 2 deals with two main areas: ﬁrstly, that our 
businesses have in place effective strategies and 
controls to assess and manage the risks it is exposed 
to and to assess and maintain its solvency capital 
based on its own risk proﬁle and, secondly, that its 
strategies, controls and assessment of its solvency 
capital are subject to supervisory review. This pillar 
requires us to produce either, an Own Risk and 
Solvency Assessment (ORSA) for each subsidiary 
and one for the Group or a single Group-wide ORSA. 
We will be producing an ORSA for each subsidiary 
and the Group ORSA. Each ORSA is subject to 
review and scrutiny by the relevant regulator who will 
have the power to impose a higher capital 
requirement should it ﬁnd any inadequacies in the 
approach to calculating the SCR or in the risk and 
governance controls in operation. 

Progress update
Work is ongoing to enhance our Solvency II-compliant 
approach to risk management, business planning, 
projections, stress testing and solvency assessment. 
Work has also continued on drafting the various 
policies required under Solvency II and these are at 
various stages of development. We await clarity  
on the revised timetable and interim requirements 
before ﬁrming up on future plans.

Pillar three
Pillar 3 seeks to enhance market discipline on regulated 
ﬁrms by requiring them to disclose publicly key 
information that is relevant to market participants.  
As such, in choosing which information should be 
selected for disclosure under Pillar 3, supervisors will 
be guided by the actual needs of market participants 
rather than by their own information needs. The  
key reporting requirements are a Solvency & Financial 
Condition Report (SFCR) and a Regular Supervisory 
Report (RSR). The SFCR is for public disclosure and 
will follow a prescribed format. The RSR is not public 
and is only communicated to the relevant supervisor 
and, again, will largely follow a prescriptive format. 

Progress update
To date, the main focus of Pillar 3 development has 
been on the analysis of the Quantitative Reporting 
Templates (QRTs). This work will identify the source 
of the data required for populating the QRTs and 
estimate the development work required to deliver 
the completed QRTs. The analysis is due to be 
completed at the end of Q1 2013. We await clarity  
on the revised timetable and interim requirements 
before ﬁrming up on future plans.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

45

46

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION C

GOVERNANCE

IN THIS SECTION

Governance Overview from the Chairman 
Board of Directors 
Board Proﬁle 

48 
49 
50 
51—55  Corporate Governance Report 
56—60  Directors’ Remuneration Report 
61—62  Audit & Risk Committee Report 
63 
64—65  Directors’ Report

Corporate and Social Responsibility Statement 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

47

SECTION C
GOVERNANCE

GOVERNANCE OVERVIEW FROM THE CHAIRMAN

This section of the Annual Report  
and Accounts provides me with the 
opportunity to comment on aspects  
of the management of the Company 
through 2012, with particular focus  
on how we are developing, or  
propose to develop, our Corporate 
Governance framework.

Pages 6 to 13 provide an overview of the Company’s 
strategic objectives and of the risks to fulﬁlment of those 
objectives. Our Business Model is outlined on page 14.  
We employ various techniques in promoting fulﬁlment of our 
strategic objectives and in providing a suitable context for 
operational decision-making, including longer-term proﬁt, cash 
ﬂow and solvency projections for base case assumptions 
and for various stress scenarios. These lie at the heart of our 
management of the Company and are underpinned by sound 
Corporate Governance practices.

We judge the effectiveness of our Corporate Governance 
practices and procedures, and assess the need for speciﬁc 
enhancement, according to the extent to which they provide 
assurance as to our ability to meet our strategic objectives 
and to manage operational challenges. The Board makes 
decisions on whether changes to current practice are required 
based on guidance, best practice in the industry and the 
particular circumstances of the Company. In forming our 
judgements we consider the intention behind recommended 
practices. Although Chesnara is not a FTSE 350 Company, 
we also explicitly consider the requirements for FTSE 350 
Companies, such as annual re-election of directors.

We noted the publication of the revised UK Corporate 
Governance Code by the FRC in September 2012 and 
reviewed the revisions against our existing practices, noting 
where changes would be required for the 2013 reporting year.

The speciﬁc areas of development of our Corporate 
Governance practices and procedures during 2012 were:

Board diversity

–  As planned, a formal policy has been developed with regard 
to Board diversity. Consideration of this policy formed part  
of the selection process for the new Non-executive Directors.

Board effectiveness

– A questionnaire approach was followed in 2012. Given  

the planned and agreed changes to Board composition we  
have decided to review the effectiveness of our current 
methodology and the value of its ﬁndings with that which 
may be provided by external evaluation.

Annual re-election of Directors

–  This is not a formal requirement for the Company in view  

of its size. As mentioned previously, consideration was given 
to providing for the annual re-election of Non-executive 
Directors with effect from 2013. However, the signiﬁcant 
changes to the Board membership have resulted in the 
majority of Non-executive Directors being subject to election 
in 2013 so we plan to introduce annual re-election of 
Non-executive Directors with effect from 2014. We do not 
plan to extend this requirement to Executive Directors.

UK stewardship code

–  We believe that this code issued by the Financial Reporting 

Council, together with subsequent clarifying changes are an 
important aspect of governance and we regularly discuss, 
with our fund managers, their approach to active management 
with the companies in which our portfolios are invested.

The following sections set out in more detail our Corporate 
Governance arrangements and the extent of our compliance 
with the provisions of the UK Corporate Governance Code. 
An overview of the activities of the Remuneration Committee 
is set out on page 56 and of the Audit & Risk Committee  
on page 61.

Peter Mason
Chairman
27 March 2013

48

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION C
GOVERNANCE

BOARD OF DIRECTORS

Peter Mason was appointed as Chairman of Chesnara plc and 
Chairman of the Nomination Committee on 1 January 2009. 
He was re-appointed as a member of the Remuneration and 
Audit & Risk Committees with effect from 22 December 2009 
and was appointed as Chairman of Movestic Livförsäkring AB 
with effect from 23 July 2009. He is currently the Investment 
Director and Actuary of Neville James Group, an investment 
management company. He was admitted as a Fellow of the 
Institute of Actuaries in 1979.

Graham Kettleborough is the Chief Executive of Chesnara 
plc. He joined Countrywide Assured plc in July 2000 with 
responsibility for marketing and business development and 
was appointed as Managing Director and to the Board in 
July 2002. He was appointed as a Non-executive Director of 
Movestic Livförsäkring AB and as Chairman of Movestic 
Kapitalförvaltning AB with effect from 23 July 2009. Prior to 
joining Countrywide Assured plc, he was Head of Servicing 
and a Director of the Pension Trustee Company at Scottish 
Provident. He has lifetime experience in the ﬁnancial services 
industry, primarily in customer service, marketing, product 
and business development, gained with Scottish Provident, 
Proliﬁc Life, City of Westminster Assurance and Target Life. 

Ken Romney is the Finance Director of Chesnara plc. He 
joined Countrywide Assured plc in 1989 and became a member 
of the Board in 1997. He has worked in the life assurance 
industry for the last 28 years. He was Chief Accountant at 
Laurentian Life (formerly Imperial Trident) up to 1987 and was 
Financial Controller at Sentinel Life between 1987 and 1989. 
He worked for Price Waterhouse in their audit division until 
1983 in both the UK and South Africa. He is a Fellow of the 
Institute of Chartered Accountants in England and Wales. 

Frank Hughes is the Business Services Director of Chesnara 
plc. He joined Countrywide Assured plc in November 1992 
as an IT Project Manager and was appointed to the Board as 
IT Director in May 2002. He has 26 years’ experience in the 
life assurance industry gained with Royal Life, Norwich Union 
and CMG.

Mike Gordon is an Independent Non-executive Director of 
Chesnara plc and is Chairman of the Remuneration Committee. 
He was appointed as Senior Independent Non-executive 
Director of Chesnara plc on 1 January 2009. He also serves 
on the Audit & Risk Committee and the Nomination 
Committee and was appointed as a Non-executive Director 
of Movestic Livförsäkring AB with effect from 23 July 2009. 
He spent 12 years as Group Sales Director of Skandia Life 
Assurance Holdings. 

Terry Marris is an Independent Non-executive Director of 
Chesnara plc and serves on the Audit & Risk Committee, the 
Remuneration Committee and the Nomination Committee. 
He joined Countrywide Assured Group plc in 1992 and was 
Managing Director of Countrywide Assured plc until July 
2002. Previous roles included senior management positions 
at Lloyds Bank and General Accident.

Peter Wright is an Independent Non-executive Director who 
was appointed to the Chesnara plc Board on 1 January 2009. 
At the same date he was appointed as Chairman of the Audit 
& Risk Committee and as a member of the Remuneration 
Committee. He was appointed as a member of the Nomination 

Committee with effect from 9 July 2009. He retired as a 
Principal of Towers Perrin on 1 January 2008 and is a former 
Vice President of the Institute of Actuaries, having been 
admitted as a Fellow in 1979. He is Chairman of the Risk 
Committee and of the With-proﬁts Committee of 
Countrywide Assured plc.

Veronica France is an Independent Non-executive Director 
who was appointed to the Chesnara plc Board on 16 January 
2013. She serves on the Nomination, Remuneration and 
Audit & Risk Committees and will chair the Remuneration 
Committee when Mike Gordon steps down on 17 May 2013. 
She also serves on the Countrywide Assured Risk Committee 
and With-proﬁts Committee. She is currently a Non-executive 
Director of Family Assurance where she sits on their Risk 
and Audit and Nominations Committees and chairs their 
Remuneration Committee. Since 1992 Veronica has run her 
own ﬁnancial services consultancy business advising on 
strategy, business development, product development and 
related activities. Veronica was Chairman of the trade body, 
the Investment and Life Assurance Group in 2002/3 and 
served on its Management Committee for over ten years 
before stepping down in 2010.

David Brand is an Independent Non-executive Director who 
was appointed to the Chesnara plc Board and the Board of 
Movestic Livförsäkring AB with effect from 16 January 2013. 
He serves on the Nomination, Remuneration Committee 
and Audit & Risk Committees. He is a qualiﬁed actuary who, 
prior to his retirement in June 2012, had worked for the 
Hannover Re Group in the UK, acting as the Managing Director 
of the UK life reinsurance subsidiary since 2003. David had 
been with the company since 1988, and a Director since 1990. 
During his career David has also held various roles with the 
Institute of Actuaries, including being a member of Council 
and he also served on the ABI Health Committee from  
2006 to 2012.

Mike Evans is an Independent Non-executive Director who 
was appointed to the Chesnara plc Board on 4 March 2013. 
He serves on the Audit & Risk, Nomination and Remuneration 
Committees . Mike will become Senior Independent Director 
on the retirement of Mike Gordon on 17 May 2013. He is 
currently Non-executive Chairman of Hargreaves Lansdown 
plc, a FTSE 100 listed company, a position he has held since 
2009. He originally joined the Hargreaves Lansdown Board  
as a Non-executive Director in 2006 and has served on their 
Nominations, Remuneration and Audit Committees. Mike is 
also a Non-executive Director of CBRE Global Investors Group 
(UK) and a member of the advisory board of Spectrum 
Corporate Finance. Mike is a qualiﬁed actuary and served  
in a number of director-level positions within Skandia UK 
between 1991 and 2006.

David Rimmington is to replace Ken Romney as Group 
Finance Director with effect from 17 May 2013, subject to 
approval at the AGM. He trained as a chartered accountant 
with KPMG, has more than 17 years’ experience in ﬁnancial 
management within the life assurance and banking sectors 
and has had a signiﬁcant role in a number of major acquisitions 
and business integrations. Prior to joining Chesnara plc in 2011 
as Associate Finance Director David held a number of ﬁnancial 
management positions within the Royal London Group 
including 6 years as Head of Group Management Reporting.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

49

SECTION C
GOVERNANCE

BOARD PROFILE

In its assessment of the effectiveness  
of the Board Chesnara includes 
consideration of the core competencies 
required to govern the Group and 
deliver strategic objectives. 

This part of the assessment focuses on ensuring the 
appropriate breadth and depth of competencies and 
experience.

A competency matrix is deﬁned for the Board which is aligned 
to the strategic objectives set out on pages 10 to 13. Each 
Board member is assessed and scored against the core 
competencies and cumulative scores provide a competency 
proﬁle for the Board as a whole, as set out below.

The proﬁle is used to ensure that the Board as a whole 
possesses an appropriate skills and experience base for 
effective governance of the Group. The chart below compares 
the position as at 31 December 2011 with the expected 
Board composition following the changes in Non-executive 
Directors and the change in Group Finance Director which  
are subject to approval at the AGM on 17 May 2013.

Highlights of the current proﬁle and including 
changes compared with 2011 are:

– In general the proposed Board changes tend to have a 

positive impact on the lower-ranking competency measures 
at the expense of a slight adverse impact on the very high 
ranking measures, thereby creating a general improvement 
in the balance of the overall Board competency proﬁle. 

–  In particular, the fact that members with a long established 
involvement with Chesnara plc are to be replaced, will have 
an inevitable temporary adverse impact on the Chesnara 
Company knowledge measure. This is more than 
compensated for by the general improvement in the level  
of Investment Management, Operational Management  
and other competencies.

–  The changes result in a short-term reduction in the overall 
level of knowledge of the Swedish business. Induction 
programmes and ongoing familiarisation are expected to 
have a positive impact such that any deterioration will be  
of a transitional nature. Notwithstanding this, the level of 
knowledge of the Swedish Insurance market is adequate  
to enable effective Board oversight of the Swedish business 
for which the deeper specialist knowledge is devolved to 
the local Board and executive management team. 

  A 

B 

C 

D 

E 

F 

G 

H 

I 

J 

K

 2011 

   2012 

A  Chesnara Company Knowledge
B  Industry Knowledge – UK
C  Industry Knowledge – Sweden
D  Governance – Actuarial

E  Governance – Financial
F  Audit & Risk Management
G  Investment Management
H  M&A and Business Development

 I  Commercial Management
J  Operational Change Management
K  Operational Management

50

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION C
GOVERNANCE

CORPORATE GOVERNANCE REPORT

The Directors are committed 
to achieving a high standard 
of corporate governance 
including compliance with 
the principles and practices 
of the UK Corporate 
Governance Code (the 
 ‘Code’), as published by the 
Financial Reporting Council 
in June 2010 and updated  
in September 2012.

The following statement, together with the Directors’ 
Remuneration Report on pages 56 to 60 and the Audit & Risk 
Committee Report on pages 61 to 62 describes how the 
principles set out in the Code have been applied by the 
Company and details the Company’s compliance with the 
Code’s provisions for the year ended 31 December 2012. 

During the year under review the UK life and pensions 
businesses of the Group subsisted in one UK subsidiary 
company being Countrywide Assured plc.

Compliance with the Code
The Company has complied throughout the year with all of the 
relevant provisions of the Code.

The Board
For the year ended 31 December 2012, the Board comprised 
a Non-executive Chairman, three other Non-executive 
Directors and three Executive Directors, each of whom 
served throughout the period under review. 

Since the end of the year, there have been changes to the 
Board membership with more changes planned with effect 
from the Annual General Meeting on 17 May 2013. 

Two new Non-executive Directors, Veronica France and 
David Brand, were appointed to the Board with effect from 
16 January 2013. A further Non-executive Director,  
Mike Evans was appointed to the Board on 4 March 2013. 
Two of the existing Non-executive Directors, Mike Gordon 
and Terry Marris have announced their intention to step down 
from the Board with effect from 17 May 2013, the date of 
the Annual General Meeting. Mike Gordon is currently 
chairman of the Remuneration Committee and that role will 
be assumed by Veronica France from 17 May 2013. Mike 
Evans will assume the role of Senior Independent Director 
when Mike Gordon steps down on 17 May 2013.

In addition, it has been announced that Ken Romney will 
step down from the Board and will leave the Company  
on 17 May 2013, with David Rimmington to be appointed 
to the Board as Finance Director from that date.

Biographical details of all current and proposed Directors  
are given on page 49 and a Board Proﬁle, which assesses  
the core competencies required to meet strategic objectives, 
is provided on page 50. The Board, which plans to meet 
eight times during the year, has a schedule, which it reviews 
annually, of matters reserved for its consideration and 
approval. These matters include: 

–  setting corporate strategy; 

–  approving the annual budget and medium-term projections; 

–  reviewing operational and ﬁnancial performance;

–  approving acquisitions, investments and capital expenditure; 

–  reviewing the Group’s system of ﬁnancial and business 
controls and risk management and setting risk appetite 
parameters;

–  approving appointments to the Board and to its Committees; 

–  appointment of the Company Secretary; and

–  approval of policies relating to Directors’ remuneration. 

In addition:
i) 

 the Directors of the Company are also the Directors of 
Countrywide Assured plc (‘CA’), in which the UK-based 
life and pensions business of the Group subsists. Under 
FSA Prudential Regulation the Directors of CA have 
responsibility for maintenance and projections of solvency 
and for assessment of capital requirements, based on 
risk assessments, and for establishing the level of 
long-term business provisions, including the adoption  
of appropriate assumptions; 

ii)   three Directors of the Company, being Messrs Mason, 

Kettleborough and Brand, are also Directors of Movestic 
Livförsäkring AB (‘Movestic’), the principal subsidiary 
company in which the Swedish-based life and pensions 
business of the Group subsists. Under regulation by 
Finansinspektionen, the Directors of Movestic have 
responsibility for ensuring that Movestic complies with 
regulatory solvency requirements. Mike Gordon will  
step down from the Movestic Board when he leaves the 
Chesnara Board on 17 May 2013.

The responsibilities that the Board has delegated to the 
respective Executive Management teams, of the UK and 
Swedish businesses include: the implementation of the 
strategies and policies of the Group as determined by the 
Board; monitoring of operational and ﬁnancial results  
against plans and budget; prioritising the allocation of capital, 
technical and human resources and developing and 
managing risk management systems.

The roles of the Chairman and Chief Executive
The division of responsibilities between the Chairman of  
the Board, Peter Mason, and the Chief Executive, Graham 
Kettleborough, is clearly deﬁned and has been approved by 
the Board. The Chairman leads the Board in the determination 
of its strategy and in the achievement of its objectives and is 
responsible for organising the business of the Board, ensuring 
its effectiveness and setting its agenda. The Chairman has 
no day-to-day involvement in the management of the Group. 
The Chief Executive has direct charge of the Group on a 
day-to-day basis and is accountable to the Board for the 
ﬁnancial and operational performance of the Group.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

51

SECTION C
GOVERNANCE

CORPORATE GOVERNANCE REPORT (CONTINUED)

Senior Independent Director
The Board has designated Mike Gordon as Senior Independent 
Director. He is available to meet shareholders on request 
and to ensure that the Board is aware of shareholder concerns 
not resolved through the existing mechanisms for shareholder 
communication. Mike will be stepping down from the Board 
on 17 May 2013 and, with effect from that date, Mike Evans 
will assume the role of Senior Independent Director. 

Directors and Directors’ independence 
The Board considers that Peter Mason was independent on 
his appointment as Chairman on 1 January 2009. In making 
this determination, the Board has carefully considered the 
fact that he is also a Non-executive Director of Countrywide 
Assured plc, a position which he has held since 1 October 
1990, and a Non-executive Director of Countrywide Assured 
Life Holdings Limited (‘CALHL’), the parent company of 
Countrywide Assured plc, a position he has held since  
18 November 1991.

The Board considers that all Non-executive Directors are 
independent. In making this determination, the Board has 
carefully considered the following speciﬁc matters:

i)   Terry Marris had, within ﬁve years of his appointment, been 
an employee of a subsidiary company within the Group, 
which was acquired by the Company on 24 May 2004. He 
also held the position of Managing Director of Countrywide 
Assured plc, the principal operating life assurance subsidiary 
of the group prior to the acquisition of CA by the Company. 
He resigned these positions in July 2002; and

ii)  Peter Wright had, within the last three years prior to his 

appointment, held regulatory actuarial roles at Countrywide 
Assured plc and had otherwise provided actuarially-based 
consultancy advice, all such services being provided under 
an agreement with his employer at the time, Tillinghast 
Towers Perrin.

There were no comparable matters to consider in respect of 
Mike Gordon, Veronica France, David Brand or Mike Evans.

With regard to Peter Mason and Terry Marris, the Board 
considers that the characteristics, aims and mode of operation 
of the relevant activities of the Company are sufﬁciently 
different from those prevailing when they held the relevant 
positions, that the judgement and independence of mind 
exercised on behalf of the Company are not adversely 
affected or circumscribed. The Board is of the view that their 
considerable speciﬁc experience and knowledge in the 
business of the Group outweighs any residual risk in the 
historical relationships described above. With regard to 
Peter Wright, the nature of the services he provided, being 
subject either to FSA regulation or to professional standards 
and guidance prescribed or issued variously by the Institute 
of Actuaries or by the Financial Reporting Council Board of 
Actuarial Standards, was such that he was required to 
maintain a vigorous independence of mind and to prepare 
recommendations in accordance with the highest 
professional standards.

The Board is satisﬁed that the overall balance of the Board 
continues to provide signiﬁcant independence of mind  
and judgement and further considers that, taking the Board

as a whole, the Independent Directors are of sufﬁcient 
calibre and number that their views carry signiﬁcant weight 
in the Company’s decision making. The changes in Board 
membership are seen as a further enhancement of the Board’s 
skills, diversity and experience and formal induction and 
training have been provided to new Non-executive Directors 
to ensure the Board continues to operate effectively.

The Directors are given access to independent professional 
advice, at the Company’s expense, when the Directors deem  
it necessary, in order for them to carry out their responsibilities.

Details of the Chairman’s professional commitments are 
included in his biography on page 49. The Board is satisﬁed 
that these are not such as to interfere with his performance, 
which is based around a commitment of between ﬁfty and 
sixty hours in any three-month period.

Professional development
The Directors were advised, on their appointment, of their 
legal and other duties and obligations as Directors of a listed 
Company. This has been supplemented by the adoption  
and circulation to each Director of a written Code of Conduct, 
covering all aspects of the speciﬁc operation of Corporate 
Governance standards and of policies and procedures within 
the Group. Throughout their period in ofﬁce, the Directors 
have, through the conduct of business at scheduled Board 
meetings, been continually updated on the Group’s business 
and on the competitive and regulatory environment in which 
it operates. Through their membership of the CA Board all of 
the Directors who served during the period under review 
have considerable knowledge and experience of the 
UK-based businesses of the Chesnara plc Group. Similarly, 
Messrs Mason, Kettleborough, Brand and Gordon, through 
their membership of the Movestic Board, have considerable 
knowledge and experience of the Swedish-based business  
of the Group.

Information
Regular reports and information are circulated to the 
Directors in a timely manner in preparation for Board and 
Committee meetings. 

As stated above, the Company’s Directors are also variously 
members of the Boards of CA and Movestic. These Boards 
hold scheduled quarterly meetings, which are serviced by 
detailed regular reports and information, which cover all of the 
key areas relevant to the direction and operation of that 
subsidiary including:

For CA:

–  Earnings report;

–  Report from the Actuarial Function Holder  

and With-proﬁts Actuary;

–  Compliance report;

–  Investment report; and

–  Outsourcing reports.

CA monitors risk management procedures, including the 
identiﬁcation, measurement and control of risk through the 
ofﬁces of a Risk Committee. This committee is accountable 
to and reports to its Board on a quarterly basis. 

52

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION C
GOVERNANCE

In addition, annual reports are produced which cover an 
assessment of the capital requirements of the life assurance 
subsidiary, its ﬁnancial condition and a review of risk 
management and internal control systems. 

comparisons. Individual Director assessments were 
supplemented by discussions between the Chairman and 
each Director on a one-to-one basis.

For Movestic:
–  Earnings report;

–  Operating reports, including sales and fund performance;

–  Financial risk report;

–  General risk report, including an estimate of risk-based 

capital, in accordance with Swedish regulatory requirements;

–  Compliance report; and

–  Report on subsidiaries and the associated company.

In addition, Movestic is required to submit to the Chesnara 
Audit & Risk Committee a quarterly risk report, an annual 
report on risk management and internal control systems and 
all internal audit reports.

On a monthly basis, the Directors receive summary high level 
information, relating to total Group operations, prepared by 
the Group Chief Executive, which enables them to maintain 
continuing oversight of the Group’s and management’s 
performance against objectives.

In addition to these structured processes, the papers are 
supplemented by information which the Directors require 
from time to time in connection with major events and 
developments, where critical views and judgements are 
required of Board members outside the normal reporting cycle.

Performance evaluation
During the period under review the Chairman undertook a 
formal performance evaluation of the Board, of individual 
Directors and of the Audit & Risk, Remuneration and 
Nomination Committees. To that end he devised a series  
of questionnaires to provide a framework for the evaluation 
process and to provide a means of making year-on-year 

In addition, and using similar methods to those described 
above, the Non-executive Directors, led by the Senior 
Independent Director, met to conduct a performance 
evaluation of the Chairman.

The Company Secretariat facilitated the process to ensure 
that the performance evaluations were conducted in a timely 
and objective manner while the Head of Internal Audit, 
reporting to the Chairman of the Group Audit & Risk 
Committee, monitors the assessment and follow through  
of the issues arising in the evaluation process. As stated 
previously the Board will be reviewing its approach to the 
evaluation of Board effectiveness during 2013.

Company Secretary 
The Company Secretary is responsible for advising the 
Board, through the Chairman, on all governance matters. For 
the period under review, Mary Fishwick held the position of 
Company Secretary. The Directors have access to the advice 
and services of the Company Secretary.

Board committees
The Board has established the committees set out below to 
assist in the execution of its duties. Each of these committees 
operates according to written terms of reference and the 
Chairman of each committee reports to the Board. The 
constitution and terms of reference of each committee are 
reviewed at least annually to ensure that the committees  
are operating effectively and that any changes considered 
necessary are recommended to the Board for approval. 
During the year the terms of reference of all the committees 
were reviewed and changes made, where required, to reﬂect 
updated guidance on corporate governance. The terms of 
reference of each committee are available on the Company’s 
website at www.chesnara.co.uk or, upon request, from 
the Company Secretary.

The attendance record of each of the Directors at scheduled Board and Committee meetings for the period under review is:

Peter Mason – Non-executive Chairman 
Terry Marris – Non-executive Director 
Mike Gordon – Non-executive Director 
Peter Wright – Non-executive Director 
Graham Kettleborough – Executive Director 
Ken Romney – Executive Director 
Frank Hughes – Executive Director 
Veronica France – Non-executive Director  
(appointed 16/1/13) 
David Brand – Non-executive Director  
(appointed 16/1/13) 

Scheduled  
Board  

Nomination  
Committee  

Remuneration  
Committee  

Audit & Risk
Committee

8 (8 ) 
8 (8 ) 
6 (8 ) 
8 (8 ) 
8 (8 ) 
8 (8 ) 
8 (8 ) 

1(1 ) 

1(1 ) 

2 (2 ) 
2 (2 ) 
2 (2 ) 
2 (2 ) 
n/a  
n/a  
n/a  

0(0 ) 

0(0 ) 

2 (2 ) 
2 (2 ) 
2 (2 ) 
2 (2 ) 
n/a  
n/a  
n/a  

0(0 ) 

0(0 ) 

6 (6 )
6 (6 )
5 (6 )
6 (6 )
n/a
n/a
n/a

1(1 )

1(1 )

The ﬁgures in brackets indicate the maximum number of meetings in the period during which the individual was a Board or Committee 
member. The information above relates to the period from 1 February 2012 to 31 January 2013 and, therefore, excludes Mike Evans who was 
appointed on 4 March 2013.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

53

 
 
SECTION C
GOVERNANCE

CORPORATE GOVERNANCE REPORT (CONTINUED)

Nomination Committee
During the whole of the period under review, the Nomination 
Committee comprised Peter Mason who also served as 
Chairman of the Committee, Terry Marris, Mike Gordon and 
Peter Wright. David Brand and Veronica France joined the 
Committee on 16 January 2013 and Mike Evans joined the 
Committee on 4 March 2013.

The Committee considers the mix  
of skills and experience that the Board 
requires and seeks the appointment  
of Directors to ensure that the Board  
is effective in discharging its 
responsibilities.

During the period, the Committee met four times. The two 
scheduled meetings considered the continuing mix of  
skills and experience of the Directors, whilst the two extra 
meetings considered proposed changes to the Directorate.

Remuneration Committee
Full details of the composition and work of the Remuneration 
Committee are provided in the Directors’ Remuneration 
Report on pages 56 to 60. 

Audit & Risk Committee
Full details of the composition and work of the Audit & Risk 
Committee are provided in the Audit & Risk Committee 
Report on pages 61 to 62.

Auditor independence and objectivity
The external Auditor, Deloitte LLP and its associates, provide 
some non-audit services primarily in the provision of taxation 
and regulatory advice and in relation to corporate transactions 
that may arise from time to time. In order to ensure that 
auditor objectivity and independence are safeguarded, the 
following procedures have been put in place:

Audit-related services
These relate to formalities such as shareholder and other 
circulars, regulatory reports and work on acquisitions. This is 
work that the external Auditor performs in its capacity as 
Auditor, where the nature of the work is closely allied to that 
on the audit of the annual ﬁnancial statements. Accordingly, 
this work will be undertaken by the external Auditor unless 
unusual circumstances apply.

Tax advice
The external Auditor will be used when particularly relevant 
and all other signiﬁcant tax advice will be put out to tender.

General advice
The external Auditor will be invited to tender, provided that 
both parties are satisﬁed that the nature of the contract  
will not present a threat to the independence of the Auditor.

These safeguards have been approved by the Audit & Risk 
Committee and it is intended that they will be reviewed when 
required in the light of internal developments or of changes  
in the external circumstances of the Company. The Auditor 
reports to both the Directors and the Audit & Risk Committee 
with regard to compliance with professional and regulatory 
requirements and best practice.

Details of the fees paid to the external Auditor, and its 
associates, for both audit and non-audit services during the 
year are provided in Note 15 to the ﬁnancial statements.

Relations with shareholders
The Chief Executive, Graham Kettleborough, and the Finance 
Director, Ken Romney, meet with institutional shareholders  
on a regular basis and are available for additional meetings 
when required. Should they consider it appropriate, 
institutional shareholders are able to meet with the Chairman, 
the Senior Independent Director and any other Director.  
The Chairman is responsible for ensuring that appropriate 
channels of communication are established between the 
Chief Executive and the Finance Director on the one part and 
the shareholders on the other and is responsible for ensuring 
that the views of shareholders are known to the Board.  
This includes twice yearly feedback prepared by the Group’s 
brokers on meetings the Executive Directors have held with 
institutional shareholders.

Annual and interim reports are distributed to other parties 
who may have an interest in the Group’s performance and 
those reports, together with a wide range of information  
of interest to existing and potential shareholders, are made 
available on the Company’s website, www.chesnara.co.uk

54

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION C
GOVERNANCE

Regular meetings are also 
held with industry analysts 
and commentators so that 
they are better informed in 
formulating opinions and 
making judgements on the 
Group’s performance.

–  the Movestic Board and Chief Executive have responsibility 
for ensuring that the organisation and management of the 
operation are characterised by sound internal control, which 
is responsive to internal and external risks and to changes  
in them;

–  the Movestic Board has responsibility for the satisfactory 

management and control of risks through the speciﬁcation 
of internal procedures; and

– there is an explicit risk control function, which is supported 

by compliance and internal control functions.

Private investors are encouraged to attend the Annual General 
Meeting (‘AGM’) at which the opportunity is provided to ask 
questions on each proposed resolution. The Chairmen of the 
Board Committees will be available to answer such questions 
as appropriate. Details of the resolutions to be proposed at 
the AGM on 17 May 2013 can be found in the notice of the 
meeting on pages 174 to 177.

Internal control
The Board is ultimately responsible for the Group’s system 
of internal control and for reviewing its effectiveness. In 
establishing the system of internal control, the Directors have 
regard to the signiﬁcance of relevant risks, the likelihood of 
risks occurring and the costs of mitigating risks. It is, therefore, 
designed to manage rather than eliminate the risks which 
might prevent the Company meeting its objectives and, 
accordingly, only provides reasonable, but not absolute, 
assurance against the risk of material misstatement or loss.

In accordance with ‘Internal Control: Guidance for Directors 
on the Combined Code’ (The ‘Turnbull Guidance’) the  
Board conﬁrms that there is an ongoing process for identifying, 
evaluating and managing the signiﬁcant risks faced by the 
Group, that this process has been in place for the year under 
review and up to the date of approval of the Annual Report 
and Accounts, and that the process is regularly reviewed by 
the Board and accords with the guidance.

In accordance with the regulatory requirements of the FSA, 
CA has established and maintained a risk and responsibility 
regime. This ensures that the identiﬁcation, assessment  
and control of risk are ﬁrmly embedded within the organisation 
and that there are procedures for monitoring and update  
of the same. The CA Risk Management function reviews  
and reports quarterly on this regime to the CA Board.  
The Group also maintains a Key Risk Register which ensures  
that there is identiﬁcation, assessment and control of the 
signiﬁcant risks subsisting within the Company, CA and 
Movestic. The maintenance of the key risk registers is the 
responsibility of executive management, who respectively 
report on them quarterly to the CA Risk Committee and  
to each Chesnara Audit & Risk Committee meeting. In 
accordance with the requirements of the Swedish regulator, 
the Finansinspektionen, Movestic has also established and 
maintained a risk and responsibility regime, which requires 
inter alia that:

As an integral part of this regime Movestic also maintains a 
detailed risk register, which identiﬁes, monitors and assesses 
risk by appropriate classiﬁcation of risk.

As stated above, all of the Chesnara Directors are also 
members of the CA Board and the Company thereby has 
effective oversight of the maintenance and effectiveness  
of controls subsisting within CA. Regarding Movestic, such 
oversight is exercised by way of the membership of at  
least three of the Chesnara Directors of the Movestic Board, 
together with quarterly reporting by Movestic to the Chesnara 
Audit & Risk Committee.

In addition, the Chesnara Board conﬁrms that it has 
undertaken a formal annual review of the effectiveness of the 
system of internal control for the year ended 31 December 
2012, and that it has taken account of material developments 
between that date and the date of approval of the Annual 
Report and Accounts. The Board conﬁrms that these reviews 
took account of reports by the internal audit functions on 
the operation of controls, internal ﬁnancial controls, and 
management assurance on the maintenance of controls and 
reports from the external Auditor on matters identiﬁed in 
the course of statutory audit work. 

The Board also conﬁrms the continuing appropriateness of 
the maintenance of a Group Internal Audit Function, which 
reports to the Chairman of the Audit & Risk Committee.

Going concern
The Directors’ Statement on Going Concern is included in the 
Directors’ Report on page 65.

Directors
The present Directors of the Company and their biographical 
details are set out on page 49. 

The Directors beneﬁted from qualifying third party indemnity 
provisions in place during the years ended 31 December 
2011 and 31 December 2012 and the period to 27 March 2013.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

55

SECTION C
GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

The Remuneration Committee
The Remuneration Committee (the ‘Committee’) 
determines the overall pay policy and the remuneration 
packages and service contracts of the Executive Directors 
of the Company, including the operation of bonus 
schemes. It also monitors the remuneration of other 
senior employees within the Chesnara Group.

During the period under review the Committee comprised 
of the Non-executive Directors: Mike Gordon (who  
also acted as Chairman), Peter Wright, Terry Marris and  
Peter Mason, who is Chairman of the Group. The 
Company Secretary, Mary Fishwick, acts as Secretary  
to the Committee, and provides advice on legal and 
regulatory issues relating to remuneration policy. At the 
request of the Committee, Graham Kettleborough, the 
Chief Executive, also attends and makes recommendations 
to the Committee regarding changes to the remuneration 
packages of individual Directors (excluding himself) or  
to policy generally. Such recommendations are discussed 

by the Committee and adopted or amended as it sees  
ﬁt. No Executive Director is present at any part of the 
Committee meeting at which his own remuneration or 
contractual terms are being discussed. The membership 
and terms of reference of the Committee are reviewed  
at least annually and the terms of reference are available 
on the Company’s website at www.chesnara.co.uk  
or, upon request, from the Company Secretary. Details 
of the number of meetings held and the attendance  
can be found in the Corporate Governance Report on  
page 53.

Veronica France and David Brand joined the Committee 
on their appointment as Directors of the Group on 16 
January 2013. Mike Evans joined the Committee on his 
appointment as a Director of the Group on 4 March 
2013. Mike Gordon and Terry Marris will be leaving the 
Group, and the Committee, on 17 May 2013 at which 
time Veronica France will become Chairman of the 
Remuneration Committee.

The Committee also receives updates on pay and 
employment conditions applying to other Group employees: 
these are taken into consideration when setting Executive 
Directors’ remuneration, consistent with the Group’s general 
aim of seeking to reward all employees fairly according to 
the nature of their role, their performance and market forces.

The Company has in place the Annual Bonus Scheme and 
the 2012 Long-Term Incentive Plan, which are designed to 
incentivise and retain the Executive Directors. These bonus 
schemes, which are cash-based, reward the achievement  
of corporate targets and are therefore aligned with the delivery 
of value to shareholders. Neither the beneﬁts under the 
Annual Bonus Scheme nor those under the 2012 Long-Term 
Incentive Plan are pensionable. The Committee may award 
other discretionary bonuses to the Executive Directors where 
it considers extraordinary value has been created or 
signiﬁcant achievement has occurred.

In addition, the Company has established frameworks for 
approved and unapproved discretionary Share Option Plans, 
neither of which have been utilised to date. A Sharesave 
Plan was launched to all UK employees of the Group, including 
Executive Directors, in October 2011.

The Committee has made no changes to the terms of  
the Annual Bonus Scheme or the Long-Term Incentive Plan. 
Details of these are provided on the following pages.

Remuneration policy
The Committee aims to set remuneration at an appropriate 
level to attract, retain and motivate executives of the 
necessary calibre.

An annual review of remuneration  
is undertaken to ensure reward  
levels are appropriate to the duties  
and responsibilities of the roles with  
(cid:68)(cid:3)(cid:86)(cid:88)(cid:76)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:192)(cid:91)(cid:72)(cid:71)(cid:3) 
and variable elements of overall 
reward. In determining salary levels 
due regard is given to external  
(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
services sector companies and listed  
companies of similar size.

During the period under review the Committee benchmarked 
the Chief Executive’s beneﬁts package against industry 
peers and listed companies with a similar market capitalisation 
with the assistance of New Bridge Street, a leading beneﬁts 
consultancy. The review led, from 1 January 2013, to an 
increase of £30,000 per annum to the Chief Executive’s salary 
and, in order to retain relativity, an increase in the Business 
Services Director’s salary of £20,000 per annum. Pension 
contributions and other associated beneﬁts increased in line 
with the adjustment to basic salary. The Committee is satisﬁed 
that these revised levels of beneﬁt are deserved and suitably 
rewarding whilst noting that they remain below the average 
when compared to both industry and market peers.

56

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION C
GOVERNANCE

Bonus Schemes

Annual Bonus Scheme
The Annual Bonus Scheme is designed to incentivise the 
Executive Directors. The overall maximum award is limited 
to 100% of basic salary in the year to which the reward 
relates. Furthermore there is an overall cap which applies  
to reward under this scheme and beneﬁt derived from the 
Long-Term Incentive Plan where, together, the total reward 
is subject to the same cap of 100% of basic salary.

The Annual Bonus Scheme is based on Group performance 
and was designed to ensure that Executive Directors’ awards 
were closely aligned to shareholders’ interests on this 
element of the scheme. It was, therefore, based upon the 
level of achievement of budgeted IFRS pre-tax proﬁt.

These arrangements can be summarised as follows:

Element

Award

Group performance
IFRS pre-tax proﬁt:

Less than 75% of budget

Nil (increasing on a straight-
line basis up to 100%)

2012 Long-Term Incentive Plan
The 2012 Long-Term Incentive Plan was designed as a 
long-term cash-based incentive for Executive Directors.

As the business is predominantly a run-off proposition the 
Remuneration Committee remains of the opinion that a 
cash-based scheme is the most appropriate form of reward. 

The 2012 Long-Term Incentive Plan for Executive Directors 
was designed to align Executive Director reward with 
shareholder value and dividend experience. The scheme:

i) 

 is based on achievement of Group Embedded Value target 
at the end of 2014;

ii)   reﬂects the share price performance, as related to the 

Group Embedded Value, during the three year period after 
allowing for dividend payments; 

iii)  rewards on a sliding scale from 0% of basic annual salary 
on achievement of 75% of target to 21.05% of basic 
annual salary on achievement of target, continuing on  
a straight-line basis if target is exceeded; and

iv)   together with the annual bonus, generated in respect  

of 2012, would normally be capped, on award, at 100% 
of 2012 basic salary.

At 100% of budget

15.79% of basic salary 

At or greater than 100%  
of budget

Increases on a straight- 
line basis

The table below summarises potential long-term incentive 
plan awards made to Executive Directors for each of the 
relevant plans covered by this report.

Potential
award under
the 2012
Scheme

£71,292
£nil
£43,698

Graham Kettleborough 
Ken Romney 
Frank Hughes 

The 2011 LTIP scheme resulted in no awards.

The table below sets out the details of the awards made  
to the Executive Directors under the scheme in 2012.

Annual Bonus Scheme – awards made in respect  
of year ended 31 December 2012
The target for awards is based on IFRS pre-tax proﬁt with 
certain adjustments. The target proﬁt on this basis was set 
out at £16.407m. The result, on an equivalent adjusted basis, 
was £29.532m. This represents an achievement of 178.89% 
of the target. Consequently the awards are:

Graham Kettleborough 
Ken Romney 
Frank Hughes 

Total 

£’s

190,419
129,683
116,716

436,818

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

57

 
 
 
 
 
 
  
 
  
 
  
 
  
  
  
  
SECTION C
GOVERNANCE

DIRECTORS’ REMUNERATION REPORT (CONTINUED)

The 2013 Long-Term Incentive Plan
The 2013 Long-Term Incentive Plan for Executive 
Directors follows the format of the 2012 Plan and 
is designed to align Executive Director reward 
with shareholder value and dividend experience. 

It will:
i) 

 be based on achievement of Group Embedded 
Value target at the end of 2015;

ii)   reﬂect the share price performance, as related  
to the Group Embedded Value, during the three 
year period after allowing for dividend payments; 

iii)  reward on a sliding scale from 0% of basic  

annual salary on achievement of 75% of target to 
21.05% of basic annual salary on achievement of 
target, continuing on a straight-line basis if target 
is exceeded; and

iv)   together with the annual bonus, generated in 

respect of 2013, be normally capped, on award,  
at 100% of 2013 basic salary.

Discretionary bonus
The exceptional proﬁt arising from the purchase of Movestic 
in 2009 was excluded from the calculation of bonus under 
both the Annual Bonus Scheme and the Long-term Incentive 
Plan in that year. The Remuneration Committee decided  
that extraordinary value had been created as a result of the 
transaction and awarded discretionary bonuses to the 
Executive Directors. Half of the award was paid at the end of 
2009 and the remaining half, which was accrued for, became 
payable on 31 December 2012 subject to the Embedded 
Value of Movestic being higher on 31 December 2012 than 
on 31 December 2009 after allowing for capital contributions 
made by the Group to Movestic. This condition has been 
satisﬁed and therefore the following bonuses become payable:

Graham Kettleborough 
Ken Romney 
Frank Hughes 

The bonuses are non-pensionable.

£’s

75,000
50,000
25,000

Movestic
A scheme based on the increase in Movestic’s Embedded 
Value (excluding any capital contributions from the Group) 
was implemented for a limited number of senior managers 
within Movestic. Forty per cent of the award is paid at the 
end of the year in which it is earned with the remaining 60% 
being deferred for three years.  

Awards made under this scheme in 2012 were:

Lars Nordstrand  
Anna Schöld 
Per Friman 

SEK

712,000
356,000
178,000

No awards were made under this scheme in respect of 2011.

Share options
The Board has established frameworks for approved and 
unapproved discretionary Share Option Plans which may, at 
the discretion of the Committee, be utilised for granting 
options to Executive Directors and other employees. During 
2012 no such options were granted. The Group made an 
offering under a Sharesave Plan to all UK employees of the 
Group in October 2011 following approval of the scheme 
by shareholders at the 2011 Annual General Meeting.

Service contracts
The Executive Directors, who were all appointed on 1 March 
2004, have service contracts with a rolling twelve-month 
notice period. On appointment to the Finance Director role and 
the Board, David Rimmington will have a service contract with 
a rolling 12 month notice period. Compensation on termination 
of service contracts will be decided on a case-by-case basis 
having regard to the particular circumstances.

Pension policy
The Executive Directors beneﬁt from employer  
contributions to either the Chesnara plc Stakeholder Scheme 
or their personal SIPP arrangements at rates agreed by  
the Remuneration Committee. Employer contributions to 
the respective schemes are detailed on page 60.

Other beneﬁts
Executive Directors’ remuneration also includes non-
pensionable beneﬁts in kind by way of a fully-expensed 
company car, life assurance and private medical insurance.

Non-executive Directors
The remuneration of the Non-executive Directors is 
determined by the Board as a whole in accordance with the 
Articles of Association. Non-executive Directors do not  
have service contracts with the Company, neither are they 
eligible for bonuses, pensions or participation in Company 
share option schemes. The dates of expiry of their terms of 
appointment are:

Date of expiry of term of appointment

Peter Mason  
Mike Gordon 
Terry Marris 
Peter Wright 
Veronica France 
David Brand 
Mike Evans 

31 October 2014
30 April 2014
1 March 2016
31 December 2014
15 January 2016
15 January 2016
3 March 2016

Mike Gordon and Terry Marris are retiring as Non-executive 
Directors on 17 May 2013. Resolutions proposing the 
election of Veronica France, David Brand and Mike Evans 
will be tabled at the forthcoming AGM.

Executive Directors
Ken Romney is retiring as Finance Director and from the Board, 
on 17 May 2013. A resolution proposing the election of 
David Rimmington to the Board will be tabled at the AGM. 
On appointment David will become the Finance Director.

Frank Hughes, an Executive Director, retires by rotation  
at the end of the forthcoming AGM, at which a resolution 
proposing his re-election will be tabled.

58

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
 
 
 
SECTION C
GOVERNANCE

Directorate

The Directors who served during the year were:

Directors’ interests in shares
Directors’ interests in the ordinary shares of Chesnara plc 
were as set out below (number of shares):

Chairman
Peter Mason 

Non-executive Directors
Terry Marris 
Mike Gordon 
Peter Wright 

Executive Directors
Graham Kettleborough 
Ken Romney 
Frank Hughes

After the AGM the proposed Directorate  
will be:

Chairman
Peter Mason 

Non-executive Directors
Mike Evans
Peter Wright
Veronica France
David Brand

Executive Directors
Graham Kettleborough 
David Rimmington
Frank Hughes

Performance graph

31 December 2012 

31 December 2011

Non-
Beneﬁcial   beneﬁcial   Beneﬁcial   beneﬁcial

Non-  

Peter Mason 
Terry Marris 
Mike Gordon 
Peter Wright 
Graham Kettleborough 
Ken Romney 
Frank Hughes 

19,768  
57,615  
–  
70,000  
68,100  
79,476  
5,832  

–  
–  
–  
–  
–  
–  
–  

19,768  
57,708  
–  
70,000  
58,100  
70,476  
5,832  

–
–
–
–
–
–
–

The newly appointed Non-executive Directors namely  
Veronica France, David Brand and Mike Evans have no 
beneﬁcial holdings in the ordinary shares of Chesnara plc  
as at 27 March 2013.

There were no changes in the Directors’ shareholdings in 
Chesnara plc between 31 December 2012 and 27 March 2013.

Directors’ Remuneration
The Auditors are required to report on this and the remaining 
sections of the Remuneration Report. 

Total Directors’ remuneration for the year ended 31 December 
2012 is shown below with comparative ﬁgures for the year 
ended 31 December 2011.

Year ended 31 December 

Aggregate emoluments:
Fees to Non-executive Directors 
Emoluments to Executive Directors 
Company contributions to  
pension schemes 

Total 

2012  
£000  

2011
£000

225  
1,132  

225
745

136  

132

1,493  

1,102

 Chesnara
 FTSE Life Insurance (rebased)

250

200

150

100

50

0

  Jan 08 

Jul 08 

Jan 09 

Jul 09 

Jan 10 

Jul 10 

Jan 11 

Jul 11 

Jan 12 

Jul 12 

Jan 13

The above graph shows a comparison of the Company’s total shareholder return (‘TSR’) performance against the FTSE Life 
Insurance sector index. The Company considers this to be the most appropriate index, given that its activities are centred on life 
insurance. The graph has been prepared in accordance with section 421(2) of the Companies Act 2006. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

59

 
 
  
  
 
 
SECTION C
GOVERNANCE

DIRECTORS’ REMUNERATION REPORT (CONTINUED)

The following table, which has been prepared in accordance with regulatory requirements, sets out the constituents  
of Directors’ emoluments for the year ended 31 December 2012:

Executive Directors 

Graham Kettleborough 
Ken Romney 
Frank Hughes 

Total Executive Directors 

Non-executive Directors 

Peter Mason 
Terry Marris 
Mike Gordon 
Peter Wright 

Total Non-executive Directors 

Salaries  
and fees  
£000  

   Deferred  
bonuses  
£000  

Bonuses  
£000  

Beneﬁts  
£000  

272  
190  
150  

190  
130  
117  

612  

437  

24  
–  
15  

39  

18  
12  
14  

44  

1,132  

Total  
2012  
£000  

504  
332  
296  

Salaries  
and fees  
£000  

   Deferred  
bonuses  
£000  

Bonuses  
£000  

Beneﬁts  
£000  

90  
40  
45  
50  

225  

–  
–  
–  
–  

–  

–  
–  
–  
–  

–  

–  
–  
–  
–  

–  

Total  
2012  
£000  

90  
40  
45  
50  

225  

Total 

837  

437  

39  

44  

1,357  

Total
2011
£000

329
229
187

745

Total
2011
£000

90
40
45
50

225

970

The following table sets out each Executive Director’s 
pension beneﬁts for the years ended 31 December 2012 
and 31 December 2011. 

Company contributions to  
Directors’ pensions arrangements 

2012  
£000  

2011
£000

Graham Kettleborough 
Ken Romney 
Frank Hughes 

Total 

49  
42  
45  

47
41
44

136  

132

A Salary Sacriﬁce scheme, which allows salary to be 
foregone in place of beneﬁts, was introduced in July 2007. 
As a result, contributions formerly made by Executive 
Directors are now made by the Group and deducted from 
Directors’ salaries. 

The pension arrangements for the Executive Directors are 
set out on page 58.

No pension contributions were made by companies within 
the Chesnara plc Group from 1 January 2011 to 31 December 
2012 in respect of any of the Non-executive Directors.

Compensation
Ken Romney will cease to be a director on 17 May 2013.

Subject to the terms of a Compromise Agreement made on 
21 November 2012, on cessation of his employment he will 
receive the sum of £125,233 representing pay in lieu of notice 
(salary and contractual beneﬁts). In addition, the Remuneration 
Committee has agreed a further £75,000 as compensation 
for the early termination of his employment.

The Remuneration Committee has exercised its discretion 
to permit Ken Romney to receive performance-vested Long 
Term Incentive Plan and acquisition-related payments of 
£155,110 as he will have served for the majority of the deferral 
period, which expires at the end of 2013.

Ken Romney was eligible for the annual bonus for 2012 on 
the same terms as the other Executive Directors, but no  
LTIP award was made to him in 2012. He will not be eligible 
to participate in the Company’s Annual Bonus Scheme for 
2013, the Company’s LTIP for 2013 or any other bonus, LTIP,  
share or other incentive scheme for the remainder of his 
employment. A discretionary award of £41,601 has, however, 
been agreed in lieu of a 2012 LTIP award.

Payment of the sums stated in the previous two paragraphs 
is subject to certain transitional personal performance 
obligations being achieved to the satisfaction of the Board.

Directors’ share options
No options were granted in respect of any Chesnara plc 
Share Option Scheme between 1 January 2013 and  
27 March 2013, nor were there any options outstanding as at 
31 December 2011, 31 December 2012 or 27 March 2013. 

Approved by the Board of Directors on 27 March 2013 and 
signed on its behalf by:

Peter Mason 

Graham Kettleborough

60

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

  
 
 
  
 
 
SECTION C
GOVERNANCE

AUDIT & RISK COMMITTEE REPORT

The Audit & Risk Committee continues to bring to  
(cid:69)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:87)(cid:76)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:88)(cid:79)(cid:192)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
and in exercising judgement in critical areas.

Role and composition
During the year ended 31 December 2012 the Audit & Risk 
Committee comprised Peter Wright (Chairman), Mike Gordon 
and Terry Marris, as independent Non-executive Directors 
and Peter Mason (Group Chairman). Veronica France and 
David Brand were appointed as independent Non-executive 
Directors to the Committee on 16 January 2013. Similarly 
Mike Evans was appointed to the Committee on 4 March 
2013. On invitation, the Chief Executive, the Finance Director, 
the Business Services Director (whose role includes risk 
reporting), the Head of UK Internal Audit, the consulting ﬁrm 
which provides internal audit services to Movestic and the 
external Auditor attends meetings to assist the Committee 
in the fulﬁlment of its duties. The Committee met six times 
during the year ended 31 December 2012. 

The role of the Audit & Risk Committee includes assisting 
the Board in discharging its duties and responsibilities for 
ﬁnancial reporting, corporate governance and internal control. 
The scope of its responsibilities also includes focus on risk 
and risk management: accordingly it also assists the Board 
in fulﬁlling its obligations in this regard. The Committee is 
also responsible for making recommendations to the Board 
in relation to the appointment, re-appointment and removal 
of the external Auditor. The Committee’s duties include 
keeping under review the scope and results of the audit work, 
its cost effectiveness and the independence and objectivity 
of the external Auditor.

Activity 
During the period under review, the Audit & Risk 
Committee discharged its responsibilities by:

–  reviewing the Group’s draft Financial Statements 

prior to Board approval and reviewing the external 
Auditor’s detailed reports thereon, in respect of the 
half year ended 30 June 2012 and the year ended  
31 December 2012;

–  reviewing the appropriateness of the Group’s  

accounting policies;

–  reviewing the provision of supplementary reporting 

of ﬁnancial information in accordance with  
European Embedded Value principles, including the 
methodology undertaken and the assumptions 
adopted;

–  reviewing and approving the audit fee estimates and 
reviewing and approving the audit and non-audit  
fees, in conjunction with an assessment of external 
Auditor performance;

–  reviewing the external Auditor plan for the audit of the 

Group’s ﬁnancial statements which included an 
assessment of key risks and conﬁrmation of Auditor 
independence;

–  reviewing and approving internal audit plans for the 

internal audit of the Group’s internal controls, embracing 
operating, ﬁnancial and business controls;

–  reviewing an annual report on the Group’s systems 
of risk management and internal control and their 
effectiveness and reporting to the Board on the results 
of the review;

– reviewing regular reports from the internal  

audit functions;

–  assessing internal audit effectiveness, by way of a 

review performed by independent consultants and  
by consideration of suggestions for improvement 
contained therein;

–  reviewing the internal audit arrangements for, and 

approving the change in external consultants providing 
internal audit services to Movestic;

–  meeting the Head of UK Internal Audit without an 

Executive Director or a member of the Company’s 
senior management being present;

–  reviewing quarterly reports by Executive Management 
on the identiﬁcation, evaluation and management of 
key risks, embracing the Company, CA and Movestic; 

–  meeting the external Auditor without an Executive 
Director or a member of the Company’s senior 
management being present;

–  reviewing the nature and volume of non-audit services 

provided by the external Auditor to ensure that a 
balance is maintained between objectivity and value 
added; and

–  reviewing the Group’s policies and procedures 

relating to fraud, whistle-blowing and employment  
of ex-employees of the external Auditor.

In addition to the above, Committee members have 
detailed knowledge of CA’s risk management 
processes by virtue of their common membership  
of the CA Risk Committee, which reports to the  
CA Board, CA being subject to the FSA Risk and 
Responsibility regime.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

61

SECTION C
GOVERNANCE

Key issues
During the period under review the following issues have 
arisen, which have required careful consideration and exercise 
of judgement by the Committee:

The allowance for persistency in the EEV results
This should be the expected long-term mean level over the 
run-off of the existing portfolios and have regard to current 
experience. In respect of the UK businesses, current 
experience may be unduly favourable as a long-term average, 
because some deterioration may arise from the impact on 
retention of gender-neutral pricing introduced on 21 December 
2012 and because of the possible impact of lower rates of 
investment return, to be adopted in 2014, in connection with 
illustrative projections sent to policyholders. In respect of the 
Swedish business, lapse and transfer rates continued, over 
2012, to exceed the long-term assumptions set at the end of 
2011. The monitoring of the experience was reﬁned over 
2012 and, in addition to making assumptions more responsive 
to duration-in-force, they have generally been strengthened. 
Nevertheless, in some cases the new assumptions remain 
below recent experience, as the view is taken that changes 
in product design and management focus on persistency, 
together with an improvement in IFA sentiment towards 
Movestic, will bring lapse and transfer rates down.

The determination of long-term projections of expenses 
In respect of the UK businesses, some of the outsourcing 
agreements have been subject to renegotiation and the 
prospective impact of this has been anticipated when setting 
the EEV assumptions. There is also an impact on the 
determination of insurance contract provisions reported under 
IFRS and on the determination of actuarial reserving for 
statutory solvency purposes, although both to a lesser degree. 
In respect of the Swedish business, new business is currently 
at a level below that supported by the business infrastructure 
and this has resulted in judgements having to be made 
regarding the allocation of expenses between those related 
to acquisition and those related to ongoing maintenance for 
EEV reporting purposes.

Cost of S&P with-proﬁts guarantees for IFRS  
reporting purposes
The method used to provide for the cost of guarantees to 
S&P with-proﬁts policyholders for IFRS reporting purposes 
has the aim of establishing the liability on a less prudent basis 
than the unrealistic method required for statutory solvency 
assessment, while still being more prudent than the 
market-consistent basis applied to EEV reporting. During 2012 
it was recognised that the method hitherto selected to achieve 
this, while producing, since the date of acquisition of S&P 
on 20 December 2010, a result between the upper and lower 
limits set out above, may not always do so. As a consequence, 
it was decided to adopt a method of establishing the liability 
for IFRS reporting purposes at 110% of the cost of guarantees 
determined for EEV reporting, which closely replicated the 
positions established in previous reporting periods using the 
former method. Subsequently, the former method, had it 
still been used, would have resulted in an IFRS liability lower 
than that recognised for EEV reporting. Further information  
in respect of this item can be found in Note 32 to the IFRS 
ﬁnancial statements, ‘Insurance contract provisions’. 

Classiﬁcation of policyholder surplus in the S&P 
with-proﬁts funds for IFRS reporting purposes
As permitted under IFRS4, the Group classiﬁed the excess 
of policyholder assets over policyholder liabilities with  
the S&P funds as unallocated divisible surplus in the IFRS 
Consolidated Balance Sheet. However, the Committee, in 
recognition of the fact that such surplus is not capable of 
allocation to shareholders funds at any time, has determined 
that such excess is more properly classiﬁed within insurance 
contract provisions. Accordingly, as described in Note 2(d) 
the Group has changed its accounting policy with regard to 
the classiﬁcation of policyholder surplus in the S&P 
with-proﬁt funds.

Classiﬁcation of S&P policyholders liabilities to taxation
Following the transfer, on 31 December 2011, of the whole  
of the business of the S&P operating segment to Countrywide 
Assured plc under the provisions of the Financial Services 
and Markets Act 2000, S&P policyholder liabilities to taxation 
have, with effect from 1 January 2012, been re-classiﬁed 
within the IFRS Consolidated Balance Sheet from deferred tax 
liabilities to insurance contract provisions. It was decided that  
it was appropriate to make this change to more appropriately 
reﬂect the tax-paying position of the combined businesses. 
Further information on this re-classiﬁcation is presented in 
Note 7 to the IFRS ﬁnancial statements, ‘Exceptional item.

Determination of reportable segments
The segments which are reportable in accordance with IFRS 
8 ‘Operating Segments’ were reviewed during the year and  
it was concluded that it was appropriate to continue, for the 
time being, to present, in the IFRS ﬁnancial statements,  
two reportable segments for the UK Business, being CA and 
S&P and that the EEV Supplementary Information should 
also continue to present similar segmentation. This decision 
was heavily inﬂuenced by the existence of a material volume 
of with-proﬁts business within the S&P segment, the 
performance of which is closely monitored by the Board.

Determination of onerous contract provision
The Company has a lease arrangement until mid-2019 in 
respect of its Head Ofﬁce at Harbour House, Preston, of 
which it now occupies only a small proportion. A provision of 
£1.5m was established as at 31 December 2011 in respect 
of the potential net cost of vacant space over the remaining 
term of the lease, based on the excess of the estimated 
future stream of future contractual costs over anticipated 
sub-lease income. Two tenants have now served notice of 
discontinuance of sub-lease arrangements, so that from early 
2013 a signiﬁcantly smaller proportion of the building is 
sub-let. The company has received advice from a local ﬁrm 
of property consultants and, based on careful consideration 
of this, has signiﬁcantly increased the related provision to 
£3.8m as at 31 December 2012, further details of which are 
provided in Note 36 to the IFRS ﬁnancial statements,  
‘Onerous contract provisions’. 

Going concern assumptions
The Committee continues to review the periodic reports 
relating to the continuing appropriateness of preparing 
Group ﬁnancial statements on a going concern basis, and 
gives particular attention to the integrity of the underlying 
assumptions and to the appropriateness of the different stress 
scenarios which test the assumptions.

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CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

CORPORATE AND SOCIAL RESPONSIBILITY STATEMENT

SECTION C
GOVERNANCE

Social, environmental and ethical issues
Chesnara aims to be sensitive to the cultural, social and 
economic needs of our local community and endeavours to 
protect and preserve the environment where it operates.  
To support this we allow each of our UK employees two days 
release on full pay each year where they can support a local 
charity project of their choice.

We seek to be honest and fair in our relationships with our 
customers and provide the standards of products and services 
that have been agreed.

Being primarily ofﬁce-based ﬁnancial services companies, the 
Directors believe that the Group’s activities do not materially 
contribute to pollution or cause material damage to the 
environment. However, the Group takes all practicable steps 
to minimise its effects on the environment and encourages 
its employees to conserve energy, minimise waste and recycle 
work materials.

Chesnara takes its 
responsibilities for social 
and environmental issues 
seriously and recognises the 
importance of developing 
and maintaining high 
standards. 

We do not, however, consider that these aspects are critical 
to the achievement of our strategic aims or that they should 
form any signiﬁcant element of remuneration or reward.

Equal opportunities
Chesnara is committed to a policy of equal opportunity in 
employment and it will continue to select, recruit, train and 
promote the best candidates based on suitability for the  
role and treat all employees and applicants fairly regardless 
of race, age, gender, marital status, ethnic origin, religious 
beliefs, sexual orientation or disability. Chesnara will ensure 
that no employee suffers harassment or intimidation.

Disabled employees
Chesnara will provide employment for disabled persons 
wherever the requirements of the business allow and if 
applications for employment are received from suitable 
applicants. If existing employees become disabled, every 
reasonable effort will be made to achieve continuity  
of employment.

Health, safety and welfare at work
Chesnara places great importance on the health, safety and 
welfare of its employees. Relevant policies, standards and 
procedures are reviewed on a regular basis to ensure that any 
hazards or material risks are removed or reduced to minimise 
or, where possible, exclude the possibility of accident or 
injury to employees or visitors.

The policies, standards and procedures are communicated 
to employees through contracts of employment, the staff 
handbook and employee brieﬁngs and all employees have  
a duty to exercise responsibility and do everything possible  
to prevent injury to themselves and others. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

63

SECTION C
GOVERNANCE

DIRECTORS’ REPORT

Chesnara plc — Company No. 4947166
The Directors present their report and the audited consolidated 
accounts of Chesnara plc (‘Chesnara’) for the year ended  
31 December 2012. The Corporate Governance Report on 
pages 51 to 55 forms part of the Directors’ Report. 

Business review
The information which fulﬁlls the Companies Act requirements 
for a Business Review can be found in the following sections:

Requirements/reference

Strategic aims and how we achieve our strategic aims

The Our Vision and Strategy section on pages 10 to 13.

Principal risks and uncertainties

The Risk Management section on pages 42 to 44.

Performance and development during the year and 
position at the end of the year

Likely future developments

Financial and non-ﬁnancial KPIs

The Chief Executive’s Review on pages 18 to 25, the 
Financial Review on pages 26 to 37 and the Financial 
Management section on pages 38 to 41.

Environmental, employee and social  
community matters

The Corporate and Social Responsibility Statement 
on page 63.

Results and dividends
The Group consolidated statement of comprehensive income 
for the year ended 31 December 2012, prepared in 
accordance with International Financial Reporting Standards 
and set out on page 58, shows:

Proﬁt for year attributable  
to shareholders 

2012  
£000  

2011
£000

27,941  

25,665

An interim dividend of 6.10p per ordinary share was paid by 
Chesnara on 15 October 2012. The Board recommends 
payment of a ﬁnal dividend of 11.25p per ordinary share on 
22 May 2013 to shareholders on the register at the close  
of business on 12 April 2013.

Directors
The present Directors of the Company and their biographical 
details are set out on page 49. Peter Mason, Mike Gordon, 
Terry Marris, Peter Wright, Graham Kettleborough,  
Ken Romney and Frank Hughes all served for the period from 
1 January 2012 to 31 December 2012. Since the end of the 
year, there have been changes to the Board membership with 
further changes planned with effect from the Annual General 
Meeting on 17 May 2013.

Two new Non-executive Directors, Veronica France and 
David Brand, were appointed to the Board with effect  
from 16 January 2013. A further Non-executive Director, 
Mike Evans was appointed to the Board on 4 March 2013. 
Two of the existing Non-executive Directors, Mike Gordon 
and Terry Marris have announced their intention to step 
down from the Board with effect from 17 May 2013, the date 
of the Annual General Meeting. Mike Gordon is currently 
Chairman of the Remuneration Committee and Senior 
Independent Director. From 17 May 2013, the role of Chairman 
of the Remuneration Committee will be assumed by 
Veronica France and the role of Senior Independent Director 
will be assumed by Mike Evans.

Furthermore, Ken Romney, currently Finance Director, will 
also stand down at the Annual General Meeting and  
David Rimmington will be appointed to the Board and will 
assume the role from that date.

The Non-executive Directors who served in 2012 and will 
serve in 2013 as Chairmen and members of the Nominations 
and Audit & Risk Committees of the Board are set out in the 
Corporate Governance Report and Audit & Risk Committee 
reports respectively on pages 51 to 55 and 61 to 62. 
Information in respect of the Chairman and members of the 
Remuneration Committee and in respect of Directors’ 
service contracts is included in the Remuneration Report 
on pages 56 to 60, which also includes details of Directors’ 
interests in shares and share options. 

Pursuant to the Articles of Association, Frank Hughes will 
retire by rotation at the Annual General Meeting and, being 
eligible, offers himself for re-election. His service contract 
with the Company is of no more than one year’s duration. In 
addition, no Director had any material interest in any signiﬁcant 
contract with the Company or with any of the subsidiary 
companies during the year. 

The Directors beneﬁted from qualifying third party indemnity 
provisions in place during the years ended 31 December 2011 
and 31 December 2012 and the period to 27 March 2013.

64

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
SECTION C
GOVERNANCE

Substantial shareholdings
The following substantial interests in the Company’s ordinary share capital at 31 December 2012 have been  
notiﬁed to the Company:

Name of substantial shareholder 

Total number of  
ordinary shares held  

Percentage of the
issued share capital
as at 31 December 2012

Artemis Investment Management LLP 
Amerprise Financial, Inc. (Threadneedle Asset Management) 
Henderson Global Investors Limited 
Standard Life Investments Limited 
Legal and General Group 
Norges Bank 
Hermes Equity Ownership Services 

12,845,608  
12,741,529  
5,730,537  
4,172,345  
4,130,698  
3,434,374  
3,401,096  

11.18
11.09
4.98
3.63
3.60
2.99
2.96

There have been changes to the position since 31 December 2012 and the revised holding is shown below. No other person 
holds a notiﬁable interest in the issued share capital of the Company.

Name of substantial shareholder 

Total number of  
ordinary shares held  

Percentage of the
issued share capital
as at 27 March 2013

Henderson Global Investors Limited 

5,798,306  

5.04

Disclosure of information to Auditor
The Directors who held ofﬁce at the date of approval of  
this Directors’ Report conﬁrm that, so far as they are each 
aware, there is no relevant audit information of which the 
Company’s Auditor is unaware; and each Director has taken 
all the steps that he ought to have taken as a director to 
make themselves aware of any relevant audit information and 
to establish that the Company’s Auditor is aware of that 
information. This information is given and should be interpreted 
in accordance with the provisions of section 418 of the 
Companies Act 2006.

Auditor
A resolution for the re-appointment of Deloitte LLP as Auditor 
of the Company is to be proposed at the forthcoming Annual 
General Meeting.

Approved by the Board on 27 March 2013 and signed on  
its behalf by:

Ken Romney
Director

There were no signiﬁcant contracts with substantial 
shareholders during the year.

Charitable donations and political contributions
Charitable donations made by Group companies during  
the year ended 31 December 2012 were £nil (2011: £nil).  
No political contributions were made during the year ended  
31 December 2012 (2011: £nil).

Employees
The average number of employees during the year was  
148 (2011: 156).

Creditors payment policy
It is Chesnara’s policy to pay creditors in accordance  
with the CBI Better Practice Payment Code (available at  
www.payontime.co.uk) on supplier payments. The number 
of creditor days outstanding at 31 December 2012, based  
on the consolidated ﬁnancial statements, was 11 for  
the Group (31 December 2011: 6) and for the Company  
31 (31 December 2011: 28).

Going concern statement
After making appropriate enquiries, the Directors conﬁrm 
that they are satisﬁed that the Company and the Group have 
adequate resources to continue in business for the 
foreseeable future. Accordingly, they continue to adopt the 
going concern basis in the preparation of the ﬁnancial 
statements as stated in Note 2(c) to the ﬁnancial statements. 
Detailed analysis of relevant risks and other factors is included 
within the Risk Management section on pages 42 to 44, 
within the Financial Management Section on pages 38 to 41 
and within Notes 5 and 6 to the IFRS ﬁnancial statements.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

65

  
 
 
  
 
 
66

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION D

IFRS FINANCIAL 
STATEMENTS

IN THIS SECTION

68 
69 —70 
71 
72 
73 
74 
75 
76 
77 
78—149  Notes to the Consolidated Financial Statements

Directors’ Responsibilities Statement
Independent Auditor’s Report to the Members of Chesnara plc
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

67

SECTION D
IFRS FINANCIAL STATEMENTS

DIRECTORS’ RESPONSIBILITIES STATEMENT

Directors’ responsibilities statement in respect of the Financial Statements

The directors are responsible for preparing the Annual Report and the ﬁnancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare ﬁnancial statements for each ﬁnancial year. Under that law the directors are required to prepare the group ﬁnancial 
statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and 
have also chosen to prepare the parent company ﬁnancial statements under IFRSs as adopted by the EU. Under company law the directors must not approve 
the accounts unless they are satisﬁed that they give a true and fair view of the state of affairs of the company and of the proﬁt or loss of the company for that 
period. In preparing these ﬁnancial statements, International Accounting Standard 1 requires that directors:

  – properly select and apply accounting policies;

  – present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; 

  –  provide additional disclosures when compliance with the speciﬁc requirements in IFRSs are insufﬁcient to enable users to understand the impact of particular 

transactions, other events and conditions on the entity’s ﬁnancial position and ﬁnancial performance; and

  – make an assessment of the company’s ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufﬁcient to show and explain the company’s transactions and disclose with 
reasonable accuracy at any time the ﬁnancial position of the company and enable them to ensure that the ﬁnancial statements comply with the Companies  
Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud 
and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the company’s website. Legislation in the 
United Kingdom governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions.

Responsibility statement 
We conﬁrm that to the best of our knowledge:

  –  the ﬁnancial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, ﬁnancial 

position and proﬁt or loss of the company and the undertakings included in the consolidation taken as a whole; and

  –  the management report, which is incorporated into the directors’ report, includes a fair review of the development and performance of the business  

and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and 
uncertainties that they face.

By order of the Board

Chairman 
Peter Mason 
27 March 2013 

Chief Executive Ofﬁcer
Graham Kettleborough
27 March 2013

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CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION D
IFRS FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE   
MEMBERS OF CHESNARA PLC

We have audited the ﬁnancial statements of Chesnara plc for the year ended 31 December 2012 which comprise the Consolidated Statement of 
Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of Cash Flows, the Consolidated  
and Company Statements of Changes in Equity and the related Notes 1 to 53. The ﬁnancial reporting framework that has been applied in their  
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent  
company ﬁnancial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work  
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for  
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s 
members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the ﬁnancial statements and  
for being satisﬁed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁnancial statements in accordance  
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices  
Board’s Ethical Standards for Auditors.

Scope of the audit of the ﬁnancial statements
An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufﬁcient to give reasonable assurance that the  
ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting  
policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the 
reasonableness of signiﬁcant accounting estimates made by the directors; and the overall presentation of the ﬁnancial statements. In addition, we read  
all the ﬁnancial and non-ﬁnancial information in the annual report to identify material inconsistencies with the audited ﬁnancial statements. If we  
become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on ﬁnancial statements
In our opinion:

  – the ﬁnancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2012  

and of the group’s proﬁt for the year then ended;

  – the group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

  – the parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as  

applied in accordance with the provisions of the Companies Act 2006; and

  – the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group  

ﬁnancial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:

  – the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

  – the information given in the Directors’ Report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with  

the ﬁnancial statements. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

69

SECTION D
IFRS FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE   
MEMBERS OF CHESNARA PLC  (CONTINUED)

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

  – adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited  

by us; or

  – the parent company ﬁnancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and 

returns; or

  – certain disclosures of directors’ remuneration speciﬁed by law are not made; or

  – we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

  – the directors’ statement, contained within the Directors’ Report, in relation to going concern; 

  – the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code speciﬁed 

for our review; and

  – certain elements of the report to shareholders by the Board on directors’ remuneration. 

David Heaton (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor 
Manchester
United Kingdom
27 March 2013

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CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Consolidated Statement of Comprehensive Income for the year ended 31 December 2012

SECTION D
IFRS FINANCIAL STATEMENTS

Year ended 31 December

Insurance premium revenue 
Insurance premium ceded to reinsurers 

Net insurance premium revenue 
Fee and commission income 
Net investment return 

Total revenue net of reinsurance payable 
Other operating income 

Total income net of investment return 

(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)

(cid:38)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
Net (increase)/decrease in insurance contract provisions 
(cid:53)(cid:72)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3)
Change in investment contract liabilities 
Reinsurers’ share of investment contract liabilities 
Net change in investment contract liabilities 
Fees, commission and other acquisition costs 
Administrative expenses 
Other operating expenses

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

Charge for amortisation of acquired value of in-force business    
Charge for amortisation of acquired value of customer relationships 
Other 

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

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Total income less expenses 
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)
Exceptional item 

(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87) 
Financing costs 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86) 
Income tax credit 

Before exceptional item  
Exceptional item  
After exceptional item 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92) 
Foreign exchange translation differences arising on the revaluation of foreign operations 

Total comprehensive income for the year 

(cid:37)(cid:68)(cid:86)(cid:76)(cid:70)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:12)(cid:3)(cid:3)(cid:3)

(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:12)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

Note  

9  
10  

11  

12  
12  
12  
(cid:3)(cid:3)
13  
13  

14  
15  

16  
16  
16  

24  
7  

17  

18  
7  

8  

(cid:23)(cid:27)(cid:3)(cid:3)

(cid:23)(cid:27)(cid:3)(cid:3)

2012  
£000  

115,520  
(35,336 ) 

80,184  
66,658  
332,053  

478,895  
19,645  

2011
£000

121,976
(34,970 )

87,006
67,863
(192,402 )

(37,533 )
21,782

498,540  

(15,751 )

(272,479 ) 
(20,732 ) 
47,865  
(245,346 ) 
(156,663 ) 
2,810  
(153,853 ) 
(17,967 ) 
(37,029 ) 

(7,863 ) 
(391 ) 
(9,205 ) 

(267,691 )
204,864
17,401
(45,426 )
164,166
(1,500 )
162,666
(17,276 )
(38,798 )

(9,032 )
(758 )
(9,664 )

(471,654 ) 

41,712

26,886  
1,244  
(4,778 ) 

23,352  
(3,670 ) 

25,961
(152 )
–

25,809
(3,388 )

19,682  

22,421

3,481  
4,778  
8,259  

27,941  
741  

3,244
– 
3,244 

25,665
(738 )

28,682  

24,927

(cid:21)(cid:23)(cid:17)(cid:22)(cid:22)(cid:3)(cid:83)(cid:3)

(cid:21)(cid:23)(cid:17)(cid:22)(cid:22)(cid:3)(cid:83)(cid:3)

(cid:21)(cid:21)(cid:17)(cid:22)(cid:24)(cid:3)(cid:83)

(cid:21)(cid:21)(cid:17)(cid:22)(cid:24)(cid:3)(cid:83)

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

71

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

Consolidated Balance Sheet at 31 December 2012

31 December

Assets
Intangible assets

Deferred acquisition costs 
Acquired value of in-force business 
Acquired value of customer relationships 
Software assets 

Property and equipment 
Investment in associates 
Investment properties 
Deferred tax assets 
Reinsurers’ share of insurance contract provisions 
Amounts deposited with reinsurers 
Financial assets

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

Equity securities at fair value through income 
Holdings in collective investment schemes at fair value through income 
Debt securities at fair value through income 
Policyholders’ funds held by the Group  
Insurance and other receivables  
Prepayments 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)
Reinsurers’ share of accrued policyholder claims 
Income taxes 
Cash and cash equivalents 

Total assets 

Liabilities
Insurance contract provisions 
Other provisions 
Financial liabilities

Investment contracts at fair value through income 
Liabilities relating to policyholders’ funds held by the Group 
Borrowings 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Deferred tax liabilities 
Reinsurance payables 
Payables related to direct insurance and investment contracts 
Deferred income 
Income taxes 
Other payables 
Bank overdrafts 

(cid:3)(cid:3)
(cid:3)(cid:3)

Total liabilities 

Net assets 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Share capital 
Share premium 
Treasury shares 
Other reserves  
Retained earnings 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) 

2012  

£000  

2011
(*restated)
£000

22,555  
76,118  
1,884  
5,712  
369  
2,902  
100,167  
2,295  
278,692  
30,245  

427,303  
3,009,799  
363,377  
61,171  
24,313  
3,160  
3,095  
(cid:22)(cid:15)(cid:27)(cid:28)(cid:21)(cid:15)(cid:21)(cid:20)(cid:27)(cid:3)(cid:3)
4,489  
4,299  
228,676  

19,720
83,346
2,255
6,744
385
1,613
132,128
–
263,792
28,031

404,431
2,917,935
330,610
49,080
30,799
3,234
10,308
(cid:22)(cid:15)(cid:26)(cid:23)(cid:25)(cid:15)(cid:22)(cid:28)(cid:26)
4,667
6,956
195,920

4,650,621  

4,491,954

2,207,078  
5,161  

2,190,939
2,811

2,022,314  
61,171  
48,324  
286  
(cid:21)(cid:15)(cid:20)(cid:22)(cid:21)(cid:15)(cid:19)(cid:28)(cid:24)(cid:3)(cid:3)
5,894  
16,610  
38,894  
8,884  
–  
17,057  
602  

1,876,463
49,080
54,753
144
(cid:20)(cid:15)(cid:28)(cid:27)(cid:19)(cid:15)(cid:23)(cid:23)(cid:19)
15,390
16,336
40,651
10,000
947
24,417
834

Note  

19  
20  
21  
22  
23  
24  
25  
37  
32  
33  

26  
26  
26  
26  
26/27  
26/27  
26/28  
(cid:3)(cid:3)
39  
29  
30  

32  
36  

33  
34  
35  
28  
(cid:3)(cid:3)
37  
38  
39  
40  
41  
42  
30  

4,432,275  

4,282,765

8  

218,346  

209,189

43  
43  
44  
45  
46  

42,024  
42,523  
(217 ) 
7,719  
126,297  

42,024
42,523
(217 )
6,978
117,881

218,346  

209,189

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

 *See Note 2(d) for an explanation of the restatement of the Consolidated Balance Sheet as at 31 December 2011. 

Approved by the Board of Directors on 27 March 2013 and signed on its behalf by:

Peter Mason 

Graham Kettleborough

72

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
COMPANY BALANCE SHEET

Company Balance Sheet at 31 December 2012

31 December

Assets
Non-current assets
Financial assets
 Investment in subsidiaries 

Current assets
Receivables and prepayments 
Income taxes 
Cash and cash equivalents 

Total current assets 

Total assets 

Current liabilities
Borrowings 
Other provisions 
Other payables 

Total current liabilities 

Non-current liabilities
Borrowings 
Other provisions 

Total non-current liabilities 

Total liabilities 

Net assets 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Share capital 
Share premium 
Treasury shares 
Other reserves 
Retained earnings 

SECTION D
IFRS FINANCIAL STATEMENTS

Note  

2012  
£000  

2011
£000

26  

146,699  

146,699

27  
29  
30  

35  
36  
42  

35  
36  

43  
43  
44  
45  
46  

585  
1,394  
32,412  

296
1,197
15,637

34,391  

17,130

181,090  

163,829

7,844  
399  
2,725  

10,968  

21,818  
3,405  

5,819
176
2,087

8,082

29,667
1,324

25,223  

30,991

36,191  

39,073

144,899  

124,756

5,752  
42,523  
(217 ) 
50  
96,791  

5,752
42,523
(217 )
50
76,648

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:20)(cid:23)(cid:23)(cid:15)(cid:27)(cid:28)(cid:28)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:23)(cid:15)(cid:26)(cid:24)(cid:25)

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

The ﬁnancial statements of Chesnara plc (registered number 4947166) were approved by the Board of Directors on 27 March 2013 and signed on its behalf by:

Peter Mason 

Graham Kettleborough

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

73

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CASH FLOWS

Consolidated Statement of Cash Flows for the year ended 31 December 2012

Year ended 31 December

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85) 
Adjustments for:

Depreciation of property and equipment 
Amortisation of deferred acquisition costs 
Amortisation of acquired value of in-force business 
Amortisation of acquired value of customer relationships 
Amortisation of software assets 
Tax recovery 
Interest receivable 
Dividends receivable 

Interest expense 
Change in fair value of investment properties 
(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:11)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:12)(cid:18)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)
Gain on sale of property and equipment 
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:11)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:12)(cid:18)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
Interest received 
Dividends received  
Increase in intangible assets related to insurance and investment contracts 
Changes in operating assets and liabilities

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:39)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)
(cid:3)(cid:3)
(Increase)/decrease in reinsurers share of insurance contract provisions 
(Increase)/decrease in amounts deposited with reinsurers 
Decrease in insurance and other receivables 
Decrease in prepayments 
Decrease in assets held for sale 
Decrease in liabilities held for sale 
Increase/(decrease) in insurance contract provisions 
Increase/(decrease) in investment contract liabilities 
Increase in provisions  
Increase/(decrease) in reinsurance payables 
(Decrease)/increase in payables related to direct insurance and investment contracts 
(Decrease)/increase in other payables 

Cash generated from operations 
Income tax paid 

Net cash generated from operating activities 

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Development of software 
(Purchases)/disposals of property and equipment 

Net cash utilised by investing activities 

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Repayment of borrowings 
Dividends paid 
Interest paid 

(cid:49)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)

(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Cash and cash equivalents at beginning of period 
Effect of exchange rate changes on cash and cash equivalents 

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

2011
£000

27,941  

25,665

128  
7,657  
7,864  
391  
2,188  
(8,259 ) 
(25,961 ) 
(46,774 ) 
3,670  
5,650  
(254,457 ) 
(2 ) 
(1,244 ) 
26,357  
46,738  
(10,255 ) 

(cid:20)(cid:23)(cid:24)(cid:15)(cid:28)(cid:26)(cid:20)(cid:3)(cid:3)
(14,138 ) 
(2,214 ) 
402  
96  
–  
–  
15,271  
140,360  
2,336  
88  
(1,795 ) 
(3,251 ) 

64,758  
(1,152 ) 

219
7,339
9,032
758
1,968
(3,244 )
(28,632 )
(40,261 )
3,388
(4,233 )
272,517
–
152
27,874
40,350
(12,642 )

(cid:23)(cid:23)(cid:15)(cid:25)(cid:28)(cid:26)
15,442
2,233
2,967
659
380
(380 )
(212,424 )
(115,100 )
989
(5,859 )
4,981
5,719

44,554
(9,119 )

63,606  

35,435

(1,094)  
(109)  

(1,968 )
63

(1,203)  

(1,905 )

(6,406 ) 
(19,525 ) 
(3,949 ) 

(7,510 )
(19,007 )
(3,625 )

(29,880 ) 

(30,142 )

(cid:22)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)
195,086  
465  

(cid:22)(cid:15)(cid:22)(cid:27)(cid:27)
191,980
(282 )

(cid:21)(cid:21)(cid:27)(cid:15)(cid:19)(cid:26)(cid:23)(cid:3)(cid:3)

(cid:20)(cid:28)(cid:24)(cid:15)(cid:19)(cid:27)(cid:25)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

74

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

2011
£000

COMPANY STATEMENT OF CASH FLOWS

Company Statement of Cash Flows for the year ended 31 December 2012

Year ended 31 December

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
Adjustments for:
Tax recovery 
Interest expense 
Dividends received from subsidiary company 

Changes in operating assets and liabilities

Increase in loans and receivables 
Decrease/(increase) in prepayments 
Increase in provisions 
Increase in other payables 

Tax received 

Cash utilised by operations 

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Capital contributions paid to subsidiary 
Dividends received from subsidiary company 

Net cash generated from investing activities 

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Repayment of borrowings 
Dividends paid 
Interest paid 

(cid:49)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)

(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:18)(cid:11)(cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:22)(cid:28)(cid:15)(cid:25)(cid:25)(cid:27)(cid:3)(cid:3)

(cid:21)(cid:20)(cid:15)(cid:25)(cid:22)(cid:23)

(1,420 ) 
1,218  
(44,000 ) 

(310 ) 
21  
2,304  
669  
1,223  

(1,197 )
1,419
(26,002 )

(41 )
(12 )
1,500
87
543

(627 ) 

(2,069 )

–  
44,000  

(5,265 )
26,002

44,000  

20,737

(6,000 ) 
(19,524 ) 
(1,074 ) 

(4,000 )
(19,007 )
(1,222 )

(26,598 ) 

(24,229 )

(cid:20)(cid:25)(cid:15)(cid:26)(cid:26)(cid:24)(cid:3)(cid:3)
(cid:20)(cid:24)(cid:15)(cid:25)(cid:22)(cid:26)(cid:3)(cid:3)

(5,561 )
(cid:21)(cid:20)(cid:15)(cid:20)(cid:28)(cid:27)

(cid:22)(cid:21)(cid:15)(cid:23)(cid:20)(cid:21)(cid:3)(cid:3)

(cid:20)(cid:24)(cid:15)(cid:25)(cid:22)(cid:26)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

75

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Consolidated Statement of Changes in Equity for the year ended 31 December 2012

Year ended 31 December 2012

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:3)
Dividends paid (Note 46) 
Foreign exchange translation differences 

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)

Year ended 31 December 2011

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
Dividends paid (Note 46) 
Foreign exchange translation differences 

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

Share  
capital  
£000  

(cid:23)(cid:21)(cid:15)(cid:19)(cid:21)(cid:23)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
–  

Share  
capital  
£000  

(cid:23)(cid:21)(cid:15)(cid:19)(cid:21)(cid:23)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
–  

Share  
premium  
£000  

Other  
reserves  
£000  

Treasury  
shares  
£000  

Retained  
earnings  
£000  

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
–  

(cid:25)(cid:15)(cid:28)(cid:26)(cid:27)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
741  

117,881  
(cid:21)(cid:26)(cid:15)(cid:28)(cid:23)(cid:20)(cid:3)(cid:3)
(19,525 ) 
–  

(cid:23)(cid:21)(cid:15)(cid:19)(cid:21)(cid:23)(cid:3)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)

(cid:26)(cid:15)(cid:26)(cid:20)(cid:28)(cid:3)(cid:3)

126,297  

218,346

Share  
premium  
£000  

Other  
reserves  
£000  

Treasury  
shares  
£000  

Retained  
earnings  
£000  

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
–  

(cid:26)(cid:15)(cid:26)(cid:20)(cid:25)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
(738 ) 

111,223  
(cid:21)(cid:24)(cid:15)(cid:25)(cid:25)(cid:24)(cid:3)(cid:3)
(19,007 ) 
–  

(cid:23)(cid:21)(cid:15)(cid:19)(cid:21)(cid:23)(cid:3)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)

(cid:25)(cid:15)(cid:28)(cid:26)(cid:27)(cid:3)(cid:3)

117,881  

209,189

Total
£000

209,189
(cid:21)(cid:26)(cid:15)(cid:28)(cid:23)(cid:20)(cid:3)
(19,525 )
741

Total
£000

203,269
(cid:21)(cid:24)(cid:15)(cid:25)(cid:25)(cid:24)
(19,007 )
(738 )

(217 ) 
(cid:178)(cid:3)(cid:3)
–  
–  

(217 ) 

(217 ) 
(cid:178)(cid:3)(cid:3)
–  
–  

(217 ) 

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

76

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
 
  
 
  
  
  
 
  
 
  
 
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

COMPANY STATEMENT OF CHANGES IN EQUITY

Company Statement of Changes in Equity for the year ended 31 December 2012

Year ended 31 December 2012

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3) 
income and expenses 
Dividends paid 

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)

Year ended 31 December 2011

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3) 
income and expenses 
Dividends paid 

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Share  
capital  
£000  

Share  
premium  
£000  

Other  
reserves  
£000  

Treasury  
shares  
£000  

Retained  
earnings  
£000  

Total
£000

(cid:24)(cid:15)(cid:26)(cid:24)(cid:21)(cid:3)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)(cid:3)

–  
–  

–  
–  

(cid:24)(cid:15)(cid:26)(cid:24)(cid:21)(cid:3)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)

(cid:24)(cid:19)(cid:3)(cid:3)

–  
–  

(cid:24)(cid:19)(cid:3)(cid:3)

(217 ) 

76,648  

124,756

–  
–  

39,668  
(19,525 ) 

39,668 
(19,525 )

(217 ) 

96,791  

144,899

Share  
capital  
£000  

Share  
premium  
£000  

Other  
reserves  
£000  

Treasury  
shares  
£000  

Retained  
earnings  
£000  

Total
£000

(cid:24)(cid:15)(cid:26)(cid:24)(cid:21)(cid:3)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)

–  
–  

–  
–  

(cid:24)(cid:15)(cid:26)(cid:24)(cid:21)(cid:3)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:24)(cid:21)(cid:22)(cid:3)(cid:3)

(cid:24)(cid:19)(cid:3)(cid:3)

–  
–  

(cid:24)(cid:19)(cid:3)(cid:3)

(217 ) 

74,021  

122,129

–  
–  

21,634  
(19,007 ) 

21,634
(19,007 )

(217 ) 

76,648  

124,756

The notes and information on pages 78 to 149 form part of these ﬁnancial statements.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

77

 
  
 
  
 
  
  
  
 
  
 
  
 
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  1 General information

Chesnara plc (Registered Number 4947166) (the Company) is a limited liability company incorporated and domiciled in England and Wales and has a primary listing 
on the London Stock Exchange. The address of the registered ofﬁce is Harbour House, Portway, Preston, PR2 2PR, UK.

The Company and its subsidiaries, together forming the Group, comprise UK and Swedish life and pensions businesses.

The UK businesses, which comprise the CA and S&P segments described in Note 8, the activities of which are performed entirely in the UK, underwrite life risks 
such as those associated with death, disability and health and provide a portfolio of investment contracts for the savings and retirement needs of customers 
through asset management. They are substantially closed to new business, such that new insurance contracts are only issued to existing customers, dependent 
on their changing needs. New investment contracts relate to the sale of Guaranteed Growth and Guaranteed Income Bonds by CA.

The Swedish business, which comprises the Movestic segment, described in Note 8, the activities of which are performed predominantly in Sweden, 
underwrites life, accident and health risks and provides a portfolio of investment contracts. It is open to new business, securing distribution of its products 
principally through independent ﬁnancial advisers.

These ﬁnancial statements are presented in pounds sterling, which is the functional currency of the Parent Company. Foreign operations are included in accordance 
with the policies set out in Note 2. The ﬁnancial statements were authorised for issue by the Directors on 27 March 2013.

  2 Signiﬁcant accounting policies 

In the information which follows distinction is made, where necessary, in respect of the applicability of certain policies, or as to their clariﬁcation:

(i)  as between the UK businesses and the Swedish business, which comprises the Movestic segment; and

(ii)  as between the CA and S&P segments of the UK businesses.

  (a) Statement of compliance

The consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (`IFRSs’) as adopted by the European 
Union (‘Adopted IFRSs’) and therefore comply with Article 4 of the EU IAS Regulation. Both the Parent Company ﬁnancial statements and the Group ﬁnancial 
statements have been prepared and approved by the Directors in accordance with Adopted IFRSs.

The Group has applied, for the ﬁrst time, IAS24 (revised) Related Party Disclosures, effective for accounting periods beginning on or after January 1 2011.  
Its application has not led to any changes in Group accounting policies.

At the date of authorisation of these ﬁnancial statements the following Standards and Interpretations, which are applicable to the Group and which have not 
been applied in these ﬁnancial statements, were in issue but not yet effective (and in some cases have not been adopted by the EU):

Title 
Annual Improvements to IFRSs 
IFRS 7 (amended December 2011)  
IFRS 9 
IFRS 10 
IFRS 10, IFRS 12 and IAS 27 (amended October 2012) 
IFRS 11 
IFRS 12 
IFRS 13 
IAS 1 (amended June 2011) 
IAS 12 (amended December 2010) 
IAS 19 (revised June 2011) 
IAS 27 (revised May 2011) 
IAS 28 (revised May 2011) 
IAS 32 (amended December 2011) 

Subject
2009-2011 Cycle
Disclosures – Offsetting Financial Assets and Financial Liabilities
Financial Instruments
Consolidated Financial Statements
Investment Entities
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Presentation of Items of Other Comprehensive Income
Deferred Tax: Recovery of Underlying Assets
Employee Beneﬁts
Separate Financial Statements
Investments in Associates and Joint Ventures
Offsetting Financial Assets and Financial Liabilities

The Directors do not expect that the adoption of the standards listed above will have a material impact on the ﬁnancial statements of the Group in future 
periods, except as follows:

  – IFRS 7 (amended) will increase the disclosure requirements where netting arrangements are in place for ﬁnancial assets and ﬁnancial liabilities;

  – IFRS 9 will impact both the measurement and disclosures of Financial Instruments;

  – IFRS 12 will impact the disclosures of interests Chesnara plc has in other entities; and

  – IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.

In publishing the Parent Company ﬁnancial statements together with the Group ﬁnancial statements the Company has taken advantage of the exemption in s408 
of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved ﬁnancial statements. The 
Parent Company proﬁt for the year has been disclosed in Note 46.

78

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SECTION D
IFRS FINANCIAL STATEMENTS

  (b) Basis of consolidation 

The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and of entities controlled by the Company (its subsidiaries), made up 
to 31 December each year. Control is achieved where the Company has the power to govern the ﬁnancial and operating policies of an investee entity so as to 
obtain beneﬁts from its activities. The Parent Company ﬁnancial statements present information about the Company as a separate entity and not about its group.

Non-controlling interests in the net assets of consolidated subsidiaries are identiﬁed separately from the Group’s equity therein. Non-controlling interests consist 
of the amount of those interests at the date of the original business combination and the non-controlling interest’s share of changes in equity since the date  
of the combination. 

Proﬁt or loss and each component of other comprehensive income are attributed to the Company and to the non-controlling interests. Total comprehensive income 
is attributed to the Company shareholders and to the non-controlling interests even if this results in the non-controlling interests having a deﬁcit balance. 

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date 
of acquisition or up to the effective date of disposal. Where necessary, adjustments are made to the ﬁnancial statements of subsidiaries to bring the accounting 
policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

  (c)  Basis of preparation

The Consolidated and Parent Company ﬁnancial statements have been prepared on a going concern basis. The Directors believe that they have a reasonable 
expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. In making this assessment, the Directors 
have taken into consideration the points as set out in the Financial Management section under the heading ‘Going Concern’.

The ﬁnancial statements are presented in pounds sterling, rounded to the nearest thousand and are prepared on the historical cost basis except that the following 
assets and liabilities are stated at their fair value: derivative ﬁnancial instruments, ﬁnancial instruments at fair value through income, assets and liabilities held 
for sale, investment property and investment contract liabilities at fair value through income.

Assets and liabilities are presented on a current and non-current basis in the notes to the ﬁnancial statements. If assets are expected to be recovered and liabilities 
expected to be settled within a year, they are classiﬁed as current. If they are expected to be recovered or settled in more than one year, they are classiﬁed  
as non-current.

The preparation of ﬁnancial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application 
of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience 
and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about 
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate 
is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. Judgements 
made by management in the process of applying the Group’s accounting policies that have a signiﬁcant effect on the ﬁnancial statements and estimates with 
a signiﬁcant risk of material adjustment in the next year are set out in Note 3. 

The accounting policies set out below, unless otherwise stated, have been applied consistently to all years presented in these consolidated ﬁnancial statements. 

These ﬁnancial statements have also been prepared in accordance with the disclosure provisions of FRS 27 ‘Life Assurance’, which was issued by the UK’s 
Accounting Standards Board (ASB) in December 2004. FRS 27 adds to the requirements of IFRS but does not vary them in any way.

  (d) Change in accounting policy

As at 31 December 2012 the Group has changed its accounting policy with respect to the treatment of any excess of policyholder assets over policyholder liabilities 
within the S&P with-proﬁts funds. Up to that date it had opted, as permitted under IFRS 4, to record such unallocated surplus as a liability within a separate 
unallocated divisible surplus account. However, in recognition of the fact that such surplus has been determined not to be capable of allocation to shareholders 
at any time, the Group has, with effect from that date, opted to classify such surplus as an insurance contract provision. Accordingly, the Consolidated Balance 
Sheet as at 31 December 2011 has been re-stated to reﬂect the re-classiﬁcation of the previously-reported unallocated divisible surplus of £6,254,000 within 
insurance contract provisions. The corresponding re-classiﬁcation being £83,000 as at 31 December 2010 is not material, and therefore further comparatives 
are not presented. No associated re-classiﬁcations or adjustments are required in the Consolidated Statement of Comprehensive Income, the consolidated 
statement of cash ﬂows or the consolidated statement of changes in equity.

The following table highlights the impact of this change in accounting policy on the 2011 comparative information:

31 December 2011

Insurance contract provisions 
Unallocated divisible surplus 
Total liabilities 
Net assets 

   As previously

presented   Adjustment   As restated
£000

£000  

£000  

(2,184,685 ) 
(6,254 ) 
(4,282,765 ) 
209,189  

(6,254 ) 
6,254  
–  
–  

(2,190,939 )
–
(4,282,765 )
209,189

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

79

 
  
  
  
 
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  (e) Business combinations

The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the 
assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Expenses directly attributable to the acquisition are expensed 
as incurred. The acquiree’s identiﬁable assets, liabilities, and contingent liabilities, which meet the conditions for recognition under IFRS 3, are measured initially 
at their fair values at the acquisition date. Gains arising on a bargain purchase, where the net fair value of the identiﬁable assets, liabilities and contingent liabilities 
of the acquiree exceeds the cost of acquisition, is recognised in proﬁt or loss at the acquisition date.

The non-controlling interest in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the assets, liabilities and 
contingent liabilities recognised.

  (f) Investments in associates

An associate is an entity over which the Group is in a position to exercise signiﬁcant inﬂuence, but not control or joint control, through participation in the ﬁnancial 
and operating policy decisions of the investee. Signiﬁcant inﬂuence is the power to participate in the ﬁnancial and operating policy decisions of the investee, 
but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these ﬁnancial statements using the equity method of accounting. Investments in associates 
are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the 
value of individual investments. 

Where a Group company transacts with an associate of the Group, proﬁts and losses are eliminated to the extent of the Group’s interest in the associate. Losses 
may provide evidence of an impairment of assets transferred, in which case appropriate provision is made for impairment. 

  (g) Foreign currencies

The individual ﬁnancial statements of each Group company are presented in the currency of the primary economic environment in which it operates, being its 
functional currency. For the purpose of these consolidated ﬁnancial statements, the results and ﬁnancial position of each Group company are expressed in pounds 
sterling, which is the functional currency of the Parent Company and the presentation currency of the consolidated ﬁnancial statements.

In preparing the ﬁnancial statements of the individual companies, transactions in currencies other than the entity’s functional currency, being foreign currencies, 
are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities which are denominated 
in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value, which are denominated in 
foreign currencies, are translated at the rates prevailing when the fair value was determined. Exchange differences are recognised in proﬁt or loss in the period 
in which they arise, except when they relate to items for which gains and losses are recognised in equity.

For the purpose of presenting consolidated ﬁnancial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates 
prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates ﬂuctuate 
signiﬁcantly during the period, in which case the exchange rates at the dates of transactions are used. Exchange differences arising are classiﬁed as equity 
and are recognised in the Group’s foreign currency translation reserve. Such translation differences are recognised as income or as expense in the period in which 
the operation is disposed of.

Transactions relating to business combinations denominated in foreign currencies are translated into sterling at the exchange rates prevailing on the  
transaction date.

  (h) Product classiﬁcation

The Group’s products are classiﬁed at inception as either insurance or investment contracts for accounting purposes. Insurance contracts are contracts which 
transfer signiﬁcant insurance risk and remain as insurance contracts until all rights and obligations are extinguished or expire. They may also transfer ﬁnancial 
risk. Investment contracts are contracts which carry ﬁnancial risk, with no signiﬁcant insurance risk. Where contracts contain both insurance and investment 
components and the investment components can be measured reliably, the contracts are unbundled and the components are separately accounted for as 
insurance contracts and investment contracts respectively.

In some insurance contracts and investment contracts the ﬁnancial risk is borne by the policyholders. Such contracts are usually unit-linked contracts.

With-proﬁts contracts, which subsist only within the UK businesses, all contain a discretionary participation feature (‘‘DPF’’) which entitles the holder to receive, 
as a supplement to guaranteed beneﬁts, additional beneﬁts or bonuses, which may be a signiﬁcant portion of the total contractual beneﬁts.

In respect of S&P the amount and timing of such contractual beneﬁts are at the discretion of the Group and are contractually based on realised and/or unrealised 
investment returns on a speciﬁed pool of assets held by the Group. The terms and conditions of these contracts, together with UK regulations, set out the 
bases for the determination of the amounts on which the additional discretionary beneﬁts are based and within which the Group may exercise its discretion 
as to the quantum and timing of their payment to contract holders.

In respect of CA all such contracts are wholly reinsured with Guardian Assurance Limited (‘Guardian’), and the amount or timing of the additional payments are 
contractually at the discretion of the reinsurer and are contractually based on:

(i) 

the performance of a speciﬁed pool of contracts or a speciﬁed type of contract;

(ii)  realised and/or unrealised investment returns on a speciﬁed pool of assets held by the reinsurer; or

(iii)  the proﬁt or loss of the reinsurer.

All contracts with discretionary participation features are classiﬁed as insurance contracts.

80

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SECTION D
IFRS FINANCIAL STATEMENTS

  (i) Insurance contracts

There are fundamental differences between the nature of the insurance contracts subsisting in the UK and Swedish businesses, including inter alia contract 
longevity: the related product characteristics are set out for the separate UK and Swedish businesses in Note 5. As a consequence, the alignment of income 
and expense recognition with the underlying assumption of risk leads to the adoption of separate accounting policies appropriate to each business, as follows:

UK businesses
(i)  Premiums

Premiums are accounted for when due, or in the case of unit-linked insurance contracts, when the liability is recognised, and exclude any taxes or duties 
based on premiums. Outward reinsurance premiums are accounted for when due. 

(ii)   Claims and beneﬁts

Claims are accounted for in the accounting period in which they are due or notiﬁed. Surrenders are accounted for in the accounting period in which they are 
paid. Claims include policyholder bonuses allocated in anticipation of a bonus declaration. Reinsurance recoveries are accounted for in the same period as 
the related claim.

(iii)  Acquisition costs

Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. They are initial fees amortised at a rate based on 
the pattern of anticipated margins in respect of the related policies. An explicit deferred acquisition cost asset is established in the balance sheet to the 
extent that acquisition costs exceed initial fees deducted. At 31 December each year, such costs that are deferred to future years are reviewed to ensure 
they do not exceed available future margins. 

Renewal commission and other direct and indirect acquisition costs arising on enhancements to existing contracts are expensed as incurred.

(iv)  Measurement of insurance contract provisions

Insurance contract provisions are measured using accounting policies having regard to the principles laid down in Council Directive 2002/83/EC.

Insurance contract provisions are determined following an annual actuarial investigation of the long-term funds and are calculated initially on a statutory 
solvency basis in order to comply with the reporting requirements of the Prudential Sourcebook for Insurers. This valuation is then adjusted to remove certain 
contingency reserves and to remove excess prudence from other reserves. In accordance with this, the provisions are calculated on the basis of current 
information, using the speciﬁc valuation methods set out below.

Unit-linked provisions are measured by reference to the value of the underlying net asset value of the Group’s unitised investment funds, determined on a bid 
value basis, at the balance sheet date. 

For immediate annuities in payment the provision is calculated as the discounted value of the expected future annuity payments under the policies, allowing 
for mortality, including projected improvements in future mortality, interest rates and expenses. For certain temporary annuities in payment no allowance 
for mortality has been made.

In respect of S&P, for those classes of non-linked business with a discretionary participation feature, a gross premium method has been used to value the 
liability, whereby expected income and costs have been projected, allowing for mortality, interest rates and expenses.

For the other classes of non-linked business the provision is calculated on a net premium basis, being the level of premium consistent with a premium stream, 
the discounted value of which, at the outset of the policy, would be sufﬁcient to cover exactly the discounted value of the original guaranteed beneﬁts at 
maturity, or at death if earlier, on the valuation basis. The provision is then calculated by subtracting the present value of future net premiums from the present 
value of the beneﬁts guaranteed at maturity, or death if earlier, as a result of events up to the balance sheet date. Negative provisions do not arise under 
the net premium method, which makes no allowances for voluntary discontinuances by policyholders, and which only implicitly allows for future policy 
maintenance costs.

In respect of CA for those classes of non-linked and unit-linked business where policyholders participate in proﬁts the liability is wholly reassured to Guardian. 
The liability is calculated on a net premium basis, but is then increased to the realistic liability as a result of the liability adequacy test.

Insurance contract provisions are tested for adequacy by discounting current estimates of all contractual cash ﬂows and comparing this amount to the carrying 
value of the provision and any related assets: this is known as the liability adequacy test. Where a shortfall is identiﬁed, an additional provision is made and 
the Group recognises the deﬁciency in income for the year. 

Insurance contract provisions can never be deﬁnitive as to their timing or the amount of claims and are therefore subject to subsequent reassessment  
on a regular basis.

Swedish business – life
(i)  Premiums

 Premiums are accounted for when received, and exclude any taxes or duties based on premiums. Outward reinsurance premiums are accounted  
for when due.

(ii)   Claims and beneﬁts

 Claims are accounted for in the accounting period in which they are due or notiﬁed. Reinsurance recoveries are accounted for in the same period  
as the related claim.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

81

 
 
 
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

(iii)  Acquisition costs

Acquisition costs comprise expenditure incurred arising from the completion of insurance contracts. They are initial fees amortised at a rate based on the 
pattern of anticipated margins in respect of the related policies. An explicit deferred acquisition cost asset is established in the balance sheet to the extent 
that acquisition costs exceed initial fees deducted. At the end of each year, such costs that are deferred to future years are reviewed to ensure they do not 
exceed available future margins. 

Renewal commission and other direct and indirect acquisition costs arising on enhancements to existing contracts are expensed as incurred. 

(iv)  Measurement of insurance contract provisions

Provision is made at the year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred 
but not yet reported. The estimated cost of claims includes expenses to be incurred in settling claims. Outstanding claim provisions are not discounted other 
than for income protection and waiver of premium beneﬁts, where payments may be made for a considerable period of time. 

All reasonable steps are taken to ensure that there is appropriate information regarding claims exposures. However, given the uncertainty in establishing claims 
provisions, it is likely that the ﬁnal outcome will prove to be different from the original liability established. 

Insurance contract provisions are tested for adequacy by discounting current estimates of all contractual cash ﬂows and comparing this amount to the 
carrying value of the provision and any related assets: this is known as the liability adequacy test. Where a shortfall is identiﬁed, an additional provision is 
made and the deﬁciency in income for the year is recognised. 

Swedish business – non-life
(i)  Premiums

Written premiums for non-life (general) insurance business comprise the premiums on contracts incepting in the ﬁnancial year. Written premiums are 
stated gross of commission payable to intermediaries and exclusive of taxes and duties paid on premiums. 

Unearned premiums are those proportions of the premium which relate to periods of risk after the balance sheet date. Unearned premiums are calculated 
on a straight-line basis according to the duration of the policy underwritten. 

(ii)  Acquisition costs

Acquisition costs, which represent commission payable, incurred in writing written premiums, are deferred and amortised over the period in which the 
related premiums are earned.

(iii)  Claims

Claims incurred
Claims incurred comprise claims and related expenses paid in the year and changes in provisions for outstanding claims, including provisions for claims 
incurred but not yet reported and related expenses, together with any adjustments to claims from previous years. 

Outstanding claims provisions
Provision is made at the year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred 
but not yet reported. The estimated cost of claims includes expenses to be incurred in settling claims. Outstanding claims provisions are not discounted. 
Provisions are calculated gross of any reinsurance recoveries.

All reasonable steps are taken to ensure that there is appropriate information regarding claims exposures. However, given the uncertainty in establishing 
claims provisions, it is likely that the ﬁnal outcome will prove to be different from the original liability established.

The estimation of outstanding claims provisions is described in Note 32.

  (j)  Investment contracts
(i)  Amounts collected

Amounts collected on investment contracts, which primarily involve the transfer of ﬁnancial risk such as long-term savings contracts, are accounted for using 
deposit accounting, under which the amounts collected, less any initial fees deducted, are credited directly to the balance sheet as an adjustment to the 
liability to the investor.

(ii)  Amounts deposited with reinsurers

Amounts deposited with reinsurers under reinsurance arrangements, which primarily involve the transfer of ﬁnancial risk, are entered directly to the balance 
sheet as amounts deposited with reinsurers. These assets are designated on initial recognition as at fair value through income.

(iii)  Beneﬁts

For investment contracts, beneﬁts paid are not included in the income statement but are instead deducted from investment contract liabilities in the accounting 
period in which they are paid.

82

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION D
IFRS FINANCIAL STATEMENTS

(iv)  Acquisition costs

Acquisition costs relating to investment contracts comprise directly attributable incremental acquisition costs, which vary with, and are related to, securing 
new contracts, and are recognised as an asset to the extent that they represent the contractual right to beneﬁt from the provision of investment 
management services. The asset is presented as a deferred acquisition cost asset and is amortised over the expected term of the contract, as the fees 
relating to the provision of the services are recognised. All other costs are recognised as expenses when incurred.

(v)  Liabilities

All investment contract liabilities are designated on initial recognition as held at fair value through income. The Group has designated investment contract 
liabilities at fair value through income as this more closely reﬂects the basis on which the businesses are managed. 

The ﬁnancial liability in respect of unit-linked contracts is measured by reference to the value of the underlying net asset value of the unitised investment 
funds, determined on a bid value, at the balance sheet date. 

For the UK businesses, deferred tax on unrealised capital gains and for the Swedish business a yield tax in respect of an estimate of the investment return 
on the underlying investments in the unitised funds are also reﬂected in the measurement of the respective unit-linked liabilities.

In respect of the UK businesses guaranteed income and guaranteed growth bond liabilities and other investment contract liabilities are managed together 
with related investment assets on a fair value basis as part of the documented risk management strategy.

The fair value of other investment contracts is measured by discounting current estimates of all contractual cash ﬂows that are expected to arise under contracts.

  (k) Reinsurance

The Group cedes reinsurance in the normal course of business for the purpose of avoiding the retention of undue concentration of risk on any one life, policyholder 
or loss event (for example multiple losses under a Group Life contract). Assets, liabilities and income and expense arising from ceded reinsurance contracts  
are presented separately from the related assets, liabilities, income and expenses from the related insurance contracts because the reinsurance arrangements 
do not relieve the Group from its direct obligations to its policyholders.

Only rights under contracts that give rise to a signiﬁcant transfer of insurance risk are accounted for as reinsurance assets, which comprise amounts due from 
insurance companies for paid and unpaid losses and ceded life policy beneﬁts. Rights under contracts that do not transfer signiﬁcant insurance risk are accounted 
for as ﬁnancial instruments and are presented as amounts deposited with reinsurers.

The net premiums payable to a reinsurer may be more or less than the reinsurance assets recognised by the Group in respect of the reinsurance cover purchased. 
Any gain or loss is recognised in the income statement in the period in which the reinsurance premiums are payable. 

Rights under reinsurance contracts comprising the reinsurers’ share of insurance contract provisions and accrued policyholder claims are estimated in a manner 
that is consistent with the measurement of the provisions held in respect of the related insurance contracts and in accordance with the terms of the reinsurance 
contract. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Group may not 
recover all amounts due and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. Impairment losses reduce 
the carrying value of the related reinsurance assets to their recoverable amount and are recognised as an expense in the income statement. 

The Group enters into certain ﬁnancing arrangements, which are established in the form of a reinsurance contract, but which are substantively in the form of  
a ﬁnancial instrument. Such arrangements are classiﬁed and presented as borrowings within ﬁnancial liabilities.

  (l) Fee and commission income

Fees charged for investment management services provided in connection with investment contracts are recognised as revenue as the services are provided. 
Initial fees which exceed the level of recurring fees and relate to the future provision of services are deferred and amortised over the anticipated period in 
which services will be provided.

Initial fees charged for investment management services provided in connection with insurance contracts are recognised as revenue when earned. 

For both insurance and investment contracts, initial fees, annual management charges and contract administration charges are recognised as revenue on an accruals 
basis. Surrender charges are recognised as a reduction to policyholder claims and beneﬁts incurred when the surrender beneﬁts are paid.

Beneﬁt-based fees comprising charges made to unit-linked insurance and investment funds for mortality and morbidity beneﬁts are recognised as revenue  
on an accruals basis.

For insurance and investment contracts, commissions received or receivable which do not require the Group to render further services are recognised as 
revenue by the Group on the effective commencement or renewal dates of the related contract. However, when it is probable that the Group will be required  
to render further services during the life of the contract, the commission, or part thereof, is deferred and recognised as revenue over the period in which 
services are rendered.

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83

SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

 (m) Investment income 

Investment income comprises income from ﬁnancial assets and rental income from investment properties.

Income from ﬁnancial assets comprises dividend and interest income, net fair value gains and losses (both unrealised and realised) in respect of ﬁnancial assets 
classiﬁed as fair value through income, and realised gains on ﬁnancial assets classiﬁed as loans and receivables.

Dividends are accrued on an ex-dividend basis. Interest received and receivable in respect of interest-bearing ﬁnancial assets classiﬁed as at fair value through 
income is included in net fair value gains and losses. For loans and receivables and cash and cash equivalents interest income is calculated using the effective 
interest method.

Rental income from investment properties under operating leases is recognised in the income statement on a straight-line basis over the term of each lease. 
Lease incentives are recognised in the income statement as an integral part of the total lease income.

  (n) Expenses

(i)  Operating lease payments

Leases where a signiﬁcant proportion of the risks and rewards of ownership is retained by the lessor are classiﬁed as operating leases. Payments made 
under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised 
in the income statement as an integral part of the total lease expense.

(ii)  Financing costs

Financing costs comprise interest payable on borrowings and on reinsurance claims deposits included within reinsurance payables, calculated using the 
effective interest rate method.

  (o) Income taxes

Income tax on the proﬁt or loss for the year comprises current and deferred tax and is recognised in the income statement. Tax that relates directly to transactions 
reﬂected within equity is also presented within equity.

(i)  Current tax 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and 
any adjustment to tax payable in respect of previous years.

(ii)  Deferred tax

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for 
ﬁnancial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation 
or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable proﬁts will be available against which the asset can be utilised. 
Deferred tax assets are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised.

(iii)  Policyholders’ fund yield tax

Certain of the Group’s policyholders within the Swedish business are subject to a Swedish yield tax which is calculated based on an estimate of the 
investment return on underlying investments within their unitised funds. The Group is under an obligation to deduct the yield tax from the policyholders’ 
unitised funds and to remit these deductions to the tax authorities. The remittance of this tax payment is included in other operating expenses as it does 
not comprise a tax charge on Group proﬁts.

  (p) Acquired value of in-force business

Acquired in-force insurance and investment contracts arising from business combinations are measured at fair value at the time of acquisition.

The difference between the fair value of insurance contracts and the liability measured in accordance with the Group’s accounting policies for the contracts is 
recorded as acquired present value of in-force business. Present value of in-force business is carried gross of tax and is amortised against income on a time 
proﬁle which, it is intended, will broadly match the proﬁle of the underlying emergence of surplus as anticipated at the time of acquisition. The present value 
of in-force insurance contracts is tested for recoverability/impairment as part of the liability adequacy test.

The present value of in-force investment contracts is stated at cost less accumulated amortisation and impairment losses. The initial cost is deemed to be the fair 
value of the contractual customer relationships acquired. The acquired present value of the in-force investment contracts is carried gross of tax and is amortised 
against income on a time proﬁle which, it is intended, will broadly match the proﬁle of the underlying emergence of proﬁt from the contracts. The recoverable 
amount is estimated at each balance sheet date. If the recoverable amount is less than the carrying amount, an impairment loss is recognised in the income 
statement and the carrying amount is reduced to its recoverable amount.

  (q) Acquired value of customer relationships

The acquired value of customer relationships arising from business combinations is measured at fair value at the time of acquisition. This comprises the 
discounted cash ﬂows relating to new insurance and investment contracts which are expected to arise from existing customer relationships. These are carried 
gross of tax, are amortised in accordance with the expected emergence of proﬁt from the new contracts and are tested periodically for recoverability.

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SECTION D
IFRS FINANCIAL STATEMENTS

  (r) Software assets

An intangible asset in respect of internal development software costs is only recognised if all of the following conditions are met:

(i)   an asset is created that can be identiﬁed;

(ii)   it is probable that the asset created will generate future economic beneﬁts; and

(iii)  the development costs of the asset can be measured reliably.

Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. 
Software assets, including internally developed software, are amortised on a straight-line basis over their estimated useful life, which typically varies between  
3 and 5 years. 

  (s) Property and equipment

Items of property and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful economic lives of the property and equipment on the 
following basis: 

Computers and similar equipment  3 years

Fixtures and other equipment 

5 years

Assets held under ﬁnance leases are depreciated over their useful economic lives on the same basis as owned assets, or where shorter, over the term of the 
relevant lease.

  (t) Investment property

Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. On initial recognition investment properties 
are measured at cost including attributable transaction costs, and are subsequently measured at fair value. Independent external valuers, having an appropriate 
recognised professional qualiﬁcation and recent experience in the location and category of property being valued, value the portfolio every twelve months. 

The fair values reﬂect market values at the balance sheet date, being the estimated amount for which a property could be exchanged on the date of valuation 
between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently 
and without compulsion.

Any gain or loss arising from a change in fair value is recognised in the income statement. Rental income from investment property is accounted for as described 
in accounting policy (m). 

  (u) Financial assets

Investments in subsidiaries are carried in the Company balance sheet at cost less impairment. 

Financial assets are classiﬁed into different categories depending on the type of asset and the purpose for which it is acquired. Currently two different categories 
of ﬁnancial assets are used: ‘ﬁnancial assets at fair value through income’ and ‘loans and receivables’. Financial assets classiﬁed as at fair value through income 
comprise ﬁnancial assets designated as such on initial recognition and derivative ﬁnancial instruments. 

All ﬁnancial assets held for investment purposes other than derivative ﬁnancial instruments are designated as at fair value through income on initial recognition 
since they are managed, and their performance is evaluated, on a fair value basis in accordance with documented investment and risk management strategies. 
This designation is also applied to the Group’s investment contracts, since the investment contract liabilities are managed together with the investment assets 
on a fair value basis as part of the documented risk management strategy.

Purchases and sales of ‘regular way’ ﬁnancial assets are recognised on the trade date, which is when the Group commits to purchase, or sell, the assets.

All ﬁnancial assets are initially measured at fair value plus, in the case of ﬁnancial assets not classiﬁed as at fair value through income, transaction costs that are 
directly attributable to their acquisition.

Subsequent to initial recognition, ﬁnancial assets classiﬁed as at fair value through income are measured at their fair value without any deduction for transaction 
costs that may be incurred on their disposal.

The fair values of ﬁnancial assets quoted in an active market are their bid prices at the balance sheet date.

Financial assets classiﬁed as loans and receivables are stated at amortised cost less impairment losses. A provision for the impairment of loans and receivables 
is established when there is objective evidence that the Group will not be able to collect all the amounts due according to the original contract terms after the 
date of the initial recognition of the asset and when the impact on the estimated cash ﬂows of the ﬁnancial asset can be reliably measured.

Financial assets classiﬁed as prepayments are held at cost and are amortised over the relevant time period.

Financial assets not recognised at fair value through income are regularly reviewed for objective evidence of impairment. In determining whether objective evidence 
exists, the Group considers, among other factors, the ﬁnancial stability of the counterparty, current market conditions and fair value volatility. 

Financial assets are derecognised when contractual rights to receive cash ﬂows from the ﬁnancial assets expire, or where the ﬁnancial assets have been 
transferred together with substantially all the risks and rewards of ownership. 

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85

 
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  (v) Derivative ﬁnancial instruments

Derivative ﬁnancial instruments are recognised at fair value. The gain or loss on re-measurement to fair value is recognised immediately in proﬁt or loss.  
Hedge accounting has not been applied.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into 
account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market 
price at the balance sheet date, being the present value of the quoted forward price. 

The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

Embedded derivatives which are not closely related to their host contracts and which meet the deﬁnition of a derivative are separated and fair valued  
through income.

 (w) Policyholders’ funds held by the group and liabilities relating to policyholders’ funds held by the group

Policyholders’ funds held by the Group and liabilities relating to policyholders’ funds held by the Group are recognised at fair value. 

(i)  Policyholders’ funds held by the Group 

The policyholders’ funds held by the Group represent the assets associated with an Investment product in the Swedish business, where the assets are held 
on behalf of the policyholder and where all the risks and rewards associated with the assets are the policyholders’ not the Group’s.

The policyholders’ funds held by the Group are held for investment purposes on behalf of the policyholders and are designated as at fair value through 
income. The fair values of the policyholders’ funds held by the Group are the accumulation of the bid prices of the underlying assets at the balance sheet 
date. Transactions in these ﬁnancial assets are recognised on the trade date, which is when the Group commits (on behalf of the policyholder) to purchase, 
or sell the assets. 

(ii)  Liabilities relating to policyholders’ funds held by the Group 

The liability relating to policyholders’ funds held by the Group represents the liability that matches the asset policyholders’ funds held by the Group. As 
stated previously, the risk and rewards associated with the investment product (and its underlying assets and matching liability) lie with the policyholders, 
not the Group.

  (x) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments. Highly liquid is deﬁned as having 
a short maturity of three months or less at their acquisition.

  (y) Assets held for sale and liabilities held for sale

Assets and liabilities are classiﬁed as held for sale if their carrying amount is to be recovered principally through a sale transaction that is highly likely to complete 
within one year from the date of classiﬁcation, rather than through continuing use. Such assets are measured at the lower of carrying amount and fair value  
and are classiﬁed separately from other assets in the balance sheet. Assets and liabilities are not netted. In the period where a non-current asset or disposal group 
is recognised for the ﬁrst time, the balance sheet for the comparative prior period is not restated. 

  (z) Impairment

The carrying amounts of the Group’s assets other than reinsurance assets (refer to (k) above) and assets which are carried at fair value are reviewed at each 
balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated in 
order to determine the extent of the impairment loss, if any. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable 
amount and impairment losses are recognised in the income statement. The recoverable amount is the higher of fair value less costs to sell and value in use.  
In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market 
assessments of the time value of money.

Impairment losses are reversed through the income statement if there is a change in the estimates used to determine the recoverable amount. Such losses 
are reversed only to the extent that the assets’ carrying amount does not exceed the carrying amount that would have been determined, net of depreciation  
or amortisation where applicable, if no impairment loss had been recognised.

 (aa) Provisions

Provisions are recognised when the Group has a present, legal or constructive obligation as a result of past events such that it is probable that an outﬂow of 
economic beneﬁts will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the effect of the time 
value of money is material, the amount of the provision is the present value of the expenditures expected to be required to settle the obligation. The Group 
recognises provisions for onerous contracts when the expected beneﬁts to be derived from a contract are less than the unavoidable costs of meeting the 
obligations under the contract. 

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SECTION D
IFRS FINANCIAL STATEMENTS

 (bb) Borrowings

Borrowings are recognised initially at fair value, less transaction costs, and are subsequently measured at amortised cost using the effective interest method, 
with interest expense recognised in the income statement on an effective yield basis. The effective interest method is a method of calculating the amortised 
cost of a ﬁnancial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts future cash 
payments through the expected life of the ﬁnancial liability. 

 (cc) Employee beneﬁts

(i)  Pension obligations
UK businesses
Group companies operate deﬁned contribution pension schemes, which are funded through payments to insurance companies, to which Group companies 
pay ﬁxed contributions. There are no legal or constructive obligations on Group companies to pay further contributions if the fund does not hold sufﬁcient 
assets to pay employee beneﬁts relating to service in current and prior periods. Accordingly, Group companies have no further payment obligations once the 
contributions have been paid. Contributions to deﬁned contribution pension schemes are recognised in the income statement when due. 

Swedish business
The Group participates in a combined deﬁned beneﬁt and deﬁned contribution scheme for the beneﬁt of its employees. However, the scheme is a 
multi-employer scheme, with the associated assets and liabilities maintained on a pooled basis. There is limited information available to the Group to allow 
it to account for the scheme as a deﬁned beneﬁt scheme and, in accordance with IAS19 Employee Beneﬁts, it is, therefore, accounted for as a deﬁned 
contribution scheme. Contributions paid to the scheme are recognised in the income statement when due. 

(ii)  Bonus plans

The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration the proﬁt attributable to the Company’s 
shareholders after certain adjustments. The expense is recognised in the income statement on an accruals basis. 

 (dd) Share capital and shares held in treasury

(i)  Share capital

Shares are classiﬁed as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity 
instruments are shown in equity as a deduction from the proceeds, net of tax. Incremental costs directly attributable to the issue of equity instruments, as 
consideration for the acquisition of a business, are included in the cost of acquisition. 

(ii)  Shares held in treasury

Where the Company purchases its own equity share capital, the consideration paid, including directly attributable costs, is deducted from total shareholders’ 
equity and shown separately as `treasury shares’ until they are cancelled. Where such shares are subsequently sold, any consideration received is credited  
to the share premium account. 

 (ee) Dividends

Dividend distributions to the Company’s shareholders are recognised in the period in which the dividends are paid, and, for the ﬁnal dividend, when approved 
by the Company’s shareholders at the annual general meeting. 

  (ff) Other payables and payables related to direct insurance and investment contracts

Insurance and investment contract payables and other payables are recognised when due and are measured on initial recognition at the fair value of the 
consideration paid. Subsequent to initial recognition, payables are measured at amortised cost using the effective interest rate method.

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87

SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  3 Critical accounting judgements and key sources of estimation and certainty.

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities and also makes critical accounting judgements in applying 
the Group’s accounting policies. Such estimates and judgements are continually evaluated and are based on historical experience and other factors, including 
expectations of future events that are believed to be reasonable. The more critical areas, where accounting estimates and judgements are made, are set out 
below. Each item identiﬁes the business segments, as described in Note 8, to which it is relevant.

  (a) Classiﬁcation of long-term contracts (CA, S&P and Movestic)

The Group has exercised judgement in its classiﬁcation of long-term business as between insurance and investment contracts, which fall to be accounted for 
differently in accordance with the policies set out in Note 2 Signiﬁcant Accounting Policies. Insurance contracts are those where signiﬁcant risk is transferred  
to the Group under the contract and judgement is applied in assessing whether the risk so transferred is signiﬁcant, especially with regard to pensions contracts, 
which are predominantly, but not exclusively, created for investment purposes. 

  (b) Acquired value of in-force business (CA, S&P and Movestic)

The Group applies accounting estimates and judgements in determining the fair value, amortisation and recoverability of acquired in-force business relating to 
insurance and investment contracts. In the initial determination of the acquired value of in-force business, the Group uses actuarial models to determine the 
expected net cash ﬂows (on a discounted basis) of the policies acquired. The key assumptions applied in the models are driven by the expected behaviour of 
policyholders on termination rates, expenses of management and age of individual contract holders as well as global estimates of investment growth, based  
on recent experience at the date of acquisition. The assumptions applied within the models are considered against historical experience of each of the relevant 
factors. No amendments are made for any changes that may arise as a result of changes in operational procedures or customer interaction as a result of 
ownership by Chesnara.

The acquired value of in-force business has been amortised on a basis that reﬂects the expected proﬁt stream arising from the business acquired at the date  
of acquisition. Acquired value of in-force business is tested for recoverability by reference to expected future income and expense levels. Such impairment 
testing requires a degree of estimation and judgement. In particular the value is sensitive to the rate at which future cashﬂows are discounted and to the rates 
of return on invested assets. Analysis shows that no impairment adjustments are required for a realistic range of discount rates ranging from those used in  
the EEV models to a higher and more onerous estimate based on the Weighted Average Cost of Capital (WACC) for Chesnara. The rates used for the purpose 
of the impairment testing were 8%, 10% and 12%.

As at 31 December 2012, the carrying value of acquired in-force business, net of amortisation, was £14.6m in respect of CA (as at 31 December 2011: £17.5m), 
£7.2m in respect of S&P (as at 31 December 2011: £8.1m) and £54.3m in respect of Movestic (as at 31 December 2011: £57.8m).

  (c) Deferred acquisition costs and deferred income – investment contracts (CA and Movestic)

The Group applies judgement in deciding the amount of direct costs that are incurred in acquiring the rights to provide investment management services in 
connection with the issue of investment contracts. Judgement is also applied in establishing the amortisation of the assets representing these contractual rights 
and the recognition of initial fees received in respect of these contracts. The assets are amortised over the expected lifetime of the investment management 
service contracts and deferred income, where applicable, is amortised over the expected period over which it is earned. Estimates are applied in determining 
the lifetime of the investment management service contracts and in determining the recoverability of the contractual rights assets by reference to expected 
future income and expense levels. This test for recoverability is performed using best estimates of future cash ﬂows, using a market consistent estimate of future 
investment returns. 

As at 31 December 2012, the carrying values of deferred acquisition costs, net of amortisation, and of deferred income, in respect of CA, were £5.1m and 
£8.9m respectively (as at 31 December 2011: £5.7m and £10.0m respectively). The impact on the above numbers of a one year movement in the estimated 
lifetime of the management services contract or amortisation period is not material.

As at 31 December 2012, the carrying values of deferred acquisition costs, net of amortisation, in respect of Movestic, was £17.5m (as at 31 December 2011: 
£14.0m). An increase in the length of the amortisation period by one year would have increased proﬁt before tax for the year ended 31 December 2012 by 
£0.5m and shareholders’ equity as at 31 December 2012 by £0.5m. 

  (d) Fair value of ﬁnancial assets and unit-linked investments (CA, S&P and Movestic)

Fair value measurement has been adopted to reduce volatility in reported earnings in the income statement as the liabilities so determined are measured in a way 
which is consistent with the fair value of the underlying invested ﬁnancial assets.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between willing, knowledgeable parties in an arm’s length transaction.

Fair values are determined by reference to observable market prices where available and reliable. 

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SECTION D
IFRS FINANCIAL STATEMENTS

  (e) Estimates of future beneﬁts payments arising from long-term insurance contracts (CA and S&P)

The Group makes estimates of the expected number of deaths for each of the years that it is exposed to risk. These estimates are based on either standard 
mortality tables or reinsurers’ rate tables as appropriate, adjusted to reﬂect the Group’s own experience. For contracts without ﬁxed terms the Group has 
assumed that it will be able to increase charges to policyholders in future years, in line with emerging mortality experience.

The Group has offered guaranteed annuity options within certain contracts. Estimates have been made of the number of contract holders who will exercise 
these options, in order to measure their value. Changes in investment conditions could result in signiﬁcantly more contract holders exercising their options than 
the Group has assumed in determining the liabilities arising from these contracts.

The Group makes estimates of future deaths, voluntary contract terminations, investment returns and administration expenses at the inception of long-term 
insurance contracts with ﬁxed and guaranteed terms. These estimates, which are reconsidered annually, form the assumptions used to calculate the liabilities 
arising from these contracts. 

When assessing assumptions relating to future investment returns the Group makes estimates of the impact of defaults on the related ﬁnancial assets.  
The estimates are reassessed annually.

The assumptions used to establish insurance contract liabilities and appropriate sensitivities relating to variations in critical assumptions are disclosed in Note 32.

  (f) Contracts which contain discretionary participation features (S&P)

All S&P with-proﬁts contracts contain a discretionary participation feature (‘DPF’) which entitles the holder to receive, as a supplement to guaranteed beneﬁts, 
additional beneﬁts or bonuses:

  – that may be a signiﬁcant portion of the total contractual beneﬁts;

  – whose amount or timing is contractually at the discretion of the Group; and

  – that are contractually based on realised and/or unrealised investment returns on a speciﬁed pool of assets held by the Group.

The terms and conditions of these contracts, together with UK regulations, set out the bases for the determination of the amounts on which the additional 
discretionary beneﬁts are based and within which the Group may exercise its discretion as to the quantum and timing of their payment to contract holders.

As at 31 December 2012, the carrying value of insurance contract liabilities which contain S&P discretionary participation features was £346.7m  
(31 December 2011: £347.2m re-stated).

As stated in Note 32 ‘Insurance contract provisions’, the cost to shareholders of guarantees in respect of S&P contracts with discretionary participation features 
is estimated, based on a constant margin of 10% above a market-consistent evaluation of such costs. An increase in the margin to 20% would reduce proﬁt 
before tax for the year ended 31 December 2012, by £4.2m and shareholder equity as at 31 December 2012 by £3.2m.

  (g) Insurance claim reserves (Movestic)

Provisions are determined by management based on experience of claims settled and on statistical models which require certain assumptions to be made 
regarding the timing, incidence and amount of claims. In order to calculate the total provision required, the historical development of claims is analysed using 
statistical methodology to extrapolate, within acceptable parameters, the value of outstanding claims. 

For more recent underwriting years the provisions will make more use of techniques that incorporate expected loss ratios. As underwriting years mature,  
the reserves are increasingly driven by methods based on actual claims experience. The data used for statistical modelling is internally generated. Actual claims 
experience may differ from the historical pattern on which the estimate is based and the cost of individual claims may exceed that assumed.

Liabilities carried in respect of waiver of premium and income protection policies are sensitive to the Group’s assessment of the length of period in which 
beneﬁts will be paid to policyholders (which can be signiﬁcant). Estimates are made based on the sex, age and occupation of the claimant as well as the length 
of time the claimant has been claiming on the policy.

As at 31 December 2012, the carrying value of the insurance claim reserves, gross of reinsurance, was £68.6m (as at 31 December 2011: £63.8m). The key 
sensitivities in respect of insurance claim reserves are considered in Note 32.

  (h) Insurance claim reserves – reinsurance recoverable (Movestic)

A signiﬁcant proportion of the insurance claims arising within Movestic are ceded to reinsurers. In preparing the ﬁnancial statements the Directors have made 
an assessment as to whether claims ceded to reinsurers are recoverable. As at 31 December 2012, such claims ceded to reinsurers and reﬂected on the 
balance sheet were £46.2m (31 December 2011: £43.1m). The application of a 10 per cent bad debt provision on the reinsurance balance would reduce 2012 
proﬁt before tax by £4.6m and shareholders’ equity by £3.4m.

  (i) Accounting for pension plans (Movestic)

The Group participates in a deﬁned beneﬁt pension scheme on behalf of its Swedish employees. The scheme is a multi-employer plan to which a number of 
third party employers also contribute. The underlying assets and liabilities of the scheme are pooled and are not allocated between the contributing employers. 
As a result, information is not available to account for the scheme as a deﬁned beneﬁt scheme and the Group has accounted for the scheme as a deﬁned 
contribution scheme. 

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89

SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  4 Exchange rates 

The Group’s principal overseas operations during the year were located within Sweden. 

The results and cash ﬂows of these operations have been translated into sterling at an average rate for the year of £1 = SEK 10.7326. 

Assets and liabilities have been translated at the year end rate of £1 = SEK10.5247. 

Total foreign currency exchange rate movements for the year-ended 31 December 2012 resulted in a gain recognised in the Consolidated Statement of 
Comprehensive Income of £741,000 (year ended 31 December 2011: £738,000 loss).

  5 Management of insurance risk

The Group’s management of insurance risk is a critical aspect of its business. The primary insurance activity carried out by the Group comprises the assumption 
of the risk of loss from persons that are directly subject to the risk. Such risks in general relate to life, accident, health and ﬁnancial perils that may arise from  
an insurable event. As such, the Group is exposed to the uncertainty surrounding the timing and severity of claims under the related contracts. The principal risk 
is that the frequency and severity of claims is adverse to that expected. The theory of probability is applied to the pricing and provisioning for a portfolio of 
insurance contracts. Insured events are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated 
using established statistical techniques. The risk under assurance policies is partly naturally hedged by risks under annuity policies where the exposure is to  
the risk of longevity.

The Group manages its insurance risk through adoption of underwriting strategies, the aim of which is to avoid the assumption of undue concentration of risk, 
approval procedures for new products, pricing guidelines and adoption of reinsurance strategies, the aim of which is to reinforce the underwriting strategy by 
avoiding the retention of undue concentration of risk on any one life.

Notwithstanding that the Group pursues common overarching objectives and employs similar techniques in managing these risks, the disparate characteristics 
of the products and of the market and regulatory environments of the UK and Swedish businesses are such that insurance risk is managed separately for the 
separate businesses. Accordingly, the information which follows differentiates these businesses. The UK businesses, which are substantially closed to new 
business, comprise the CA and S&P segments and these are further differentiated in the information provided below, where necessary. The Swedish business, 
which is open to new business, comprises the Movestic segment.

UK businesses
Terms and conditions of insurance contracts
The terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of future cash ﬂows arising from insurance 
contracts are set out in the product analyses below, which give an assessment of the main products of the UK businesses and of the ways in which the 
associated risks are managed.

(cid:54)(cid:88)(cid:80)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:18)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:80)(cid:3)(cid:178)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)
31 December

Long-term unit-linked without DPF (sums assured) 
Long-term non-linked without DPF (sums assured) 
(cid:44)(cid:80)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:178)(cid:3)(cid:38)(cid:36)(cid:3)(cid:11)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:80)(cid:12)(cid:3)
(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:39)(cid:51)(cid:41)(cid:3)(cid:178)(cid:3)(cid:54)(cid:9)(cid:51)(cid:3)(cid:11)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:80)(cid:12)(cid:3)
Long-term with DPF – CA (sums assured) 
Long-term with DPF – S&P (sums assured) 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

Gross  
£000  

3,847,002  
133,566  
(cid:25)(cid:15)(cid:21)(cid:21)(cid:23)(cid:3)(cid:3)
(cid:21)(cid:15)(cid:24)(cid:28)(cid:28)(cid:3)(cid:3)
56,441  
434,750  

2012 

2011

Net  
£000  

Gross  
£000  

2,942,430  
119,713  
(cid:25)(cid:15)(cid:20)(cid:21)(cid:19)(cid:3)(cid:3)
(cid:21)(cid:15)(cid:24)(cid:28)(cid:28)(cid:3)(cid:3)
120  
416,760  

4,237,926  
154,062  
(cid:25)(cid:15)(cid:19)(cid:19)(cid:26)(cid:3)(cid:3)
(cid:21)(cid:15)(cid:27)(cid:28)(cid:22)(cid:3)(cid:3)
59,855  
462,186  

Net
£000

3,220,375
137,227
(cid:24)(cid:15)(cid:27)(cid:24)(cid:25)
(cid:21)(cid:15)(cid:27)(cid:28)(cid:22)
120
439,175

90

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

Long-term unit-linked and non-linked insurance contracts – without discretionary participation features

Product features
The UK businesses have written both unit-linked and non-linked contracts, which include death and morbidity beneﬁts on a whole life, endowment and term 
assurance basis. In addition there are immediate annuities primarily written from vesting pensions.

For contracts where death is the insured risk, the most signiﬁcant factors that could increase risk are epidemics (such as AIDS, SARS or a ﬂu pandemic) or 
widespread changes in lifestyle, such as eating, smoking and exercise habits, resulting in earlier or more claims than expected.

Management of risks
Unit-linked insurance contracts are contracts where charges are made for insurance risk and administration charges and the primary purpose of which is to 
provide an investment return to policyholders. In addition, the policyholder is insured against death and serious injury. Unit-linked contracts operate by investing 
the policyholders’ premiums into pooled investment funds of the UK businesses, the policyholders’ share of the fund being represented by units. The beneﬁt  
is payable on death, or maturity if earlier, the amount payable on death being subject to a guaranteed minimum amount. For these contracts, all of the investment 
risk is borne by the policyholder as investment performance directly affects the value of the unit fund and hence the beneﬁts payable. Therefore, there is exposure 
to insurance risk only insofar as the value of the unit-linked fund is lower than the guaranteed minimum death beneﬁt. For a material portion of the business, 
the charges taken for mortality and morbidity costs are reviewable, which allows the company to mitigate some of its insurance risk. 

Non-linked business contains three distinct groups of products:

(i)  A number of products representing approximately 2% of sums assured, provide ﬁxed and guaranteed beneﬁts and have ﬁxed future premiums. For these 

there are no mitigating terms and conditions that reduce the insurance risk accepted. 

(ii)  Immediate annuities provide regular income payments generally during the outstanding life of the policyholder, and in some cases that of a surviving spouse 
or partner. In certain cases payments may be guaranteed for a minimum period. These expose the business to longevity risk, though to some extent this 
provides a hedge to the mortality risk taken on other products.

(iii)  For the remainder of the business, which is operated on a quasi-linked basis, charges are made for mortality risk on a monthly basis and these charges may  

be altered based on mortality experience, thereby minimising the exposure to mortality risk. In the light of charges made for insurance risk and administration 
services and of the investment performance of the assets notionally backing these contracts, the premium payable may be altered at regular intervals. A 
number of these contracts also include Permanent Health Insurance (PHI) beneﬁts which have reviewable charges, which may be altered based on morbidity 
experience, thereby minimising the exposure to morbidity risk. Delays in implementing increases in charges and market or regulatory restraints over the 
extent of the increases may reduce this mitigating effect. 

Reinsurance is used extensively on the business described above to mitigate concentrations of insurance risk. The insurance risk is further managed through 
pricing, product design and, for non-linked and quasi-linked contracts, appropriate investment strategy.

Concentration of insurance risk
Through the use of reinsurance exposures to material insurance risks on individual cases are avoided, with 97% of the business having retained sums assured 
of less than £250,000.

Long-term insurance contracts – with discretionary participation features – CA

Product features
CA historically wrote with-proﬁts business in the UK, where the policyholder beneﬁts comprise a guaranteed sum assured payable on death or at maturity,  
to which may be added a discretionary annual bonus and a discretionary terminal bonus.

Management of risks
This business is wholly reassured to Guardian and hence the only risk retained by CA for this business is the risk of default by the reinsurer. This risk is detailed 
in the Credit Risk Management section of Note 6. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

91

SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Long-term insurance contracts – with discretionary participation features – S&P

Product features
At retirement the with-proﬁts deferred annuity contracts provide for guaranteed minimum pensions and the with-proﬁts endowments provide for guaranteed 
minimum lump sums. With-proﬁts whole of life policies guarantee a minimum amount payable on death. The guaranteed annuities or lump sums represent 
investment returns on contributions mainly at 5% p.a. A terminal bonus may be paid at maturity or retirement, and on death, depending on the investment 
performance of the with-proﬁts policyholder assets when the policyholder receives the higher of the asset share and the minimum guaranteed amount. The 
asset share is based on the contributions invested plus an allocation of investment return less costs and expenses. In accordance with the Principles and Practices 
of Financial Management for its with-proﬁts business S&P may make a deduction of up to 1.5% per annum from the asset shares of with-proﬁts policyholders 
to meet the future cost of guarantees. The amount deducted remains part of the assets in the with-proﬁts policyholder funds. The size of the deduction is 
reassessed at least annually. In the event of a policyholder choosing to transfer out, the amount payable is not guaranteed and is based on the asset share. 

Management of risks
For life endowment and whole of life policies mortality risk is material. This risk is mitigated to some extent by the use of reinsurance. The risk is to increases in 
mortality rates, which are most likely to be from epidemics (such as AIDS, SARS or a ﬂu pandemic) or widespread changes in lifestyle, such as eating, smoking 
and exercise habits, resulting in earlier or more claims than expected. 

For deferred annuity contracts, the risk is to improving mortality. The risk is managed through the initial pricing, and technical provisions are assessed allowing 
for future mortality improvements based on industry available information on mortality experience.

Concentration of insurance risk
Through the use of reinsurance exposures to material insurance risks on individual cases are avoided, with 99.0% of the business having retained sums of less 
than £250,000.

Other risks on insurance contracts
Apart from ﬁnancial risks relating to the ﬁnancial assets, which support life assurance contracts, as set out in Note 6, there are other signiﬁcant types of risk 
pertaining to life insurance contracts written by the UK businesses, as follows:

Expense risk
The strategy of the UK businesses is to outsource all operational activities to third party administrators in order to reduce the signiﬁcant expense inefﬁciencies 
that would arise with ﬁxed and semi-ﬁxed costs on a diminishing policy base. There are, however, risks associated with the use of outsourcing. In particular, 
there will be a need in future to renegotiate the terms of the outsourcing arrangements as the existing agreements expire. There is also a risk that, at some point 
in the future, third party administrators could default on their obligations. The UK businesses monitor the ﬁnancial soundness of third party administrators and 
have retained step-in rights on the more signiﬁcant of these agreements. There are also contractual arrangements in place which provide for ﬁnancial penalties 
in the event of default by the administration service provider. 

Mortgage endowment misselling complaints
The UK businesses have experienced a signiﬁcant level of complaints from mortgage endowment policyholders since their ﬁrst regulatory mailing programme 
in 2000. In response to this, the UK businesses hold mortgage endowment complaints redress provisions. The UK businesses continue to monitor closely, 
among other factors, the volume of complaints and the value of compensation paid to policyholders in order to assess the continuing adequacy of the provisions.

There remains however a residual risk that at some point in future the levels of complaints received may prove to be higher than those anticipated within  
the provision.

Persistency risk
Persistency risk is the risk that the investor cancels the contract or discontinues paying new premiums into the contract, thereby exposing the UK businesses 
to a loss resulting from an adverse movement in the actual experience compared to that expected in the product pricing. Although changes in the levels of 
persistency would not adversely affect the result in the short-term they would reduce future proﬁts available from the contract.

92

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SECTION D
IFRS FINANCIAL STATEMENTS

Assumptions and sensitivities
The assumptions and sensitivities relating to insurance contract provisions for the UK businesses are set out in Note 32 Insurance Contract Provisions.

Swedish business
The terms and conditions of insurance contracts which have a material effect on the amount, timing and uncertainty of future cash ﬂows arising from insurance 
contracts are set out in the product analyses below, which give an assessment of the main products of Movestic and of the ways in which the associated risks  
are managed. The breakdown of the insurance products of Movestic, by gross and net premiums written and by claims outstanding, which reﬂects the scale  
of business written, is as follows:

Premiums
Year ended 31 December

Group
Sweden 
Norway 

Individual
Death 
Waiver of premium 
Income protection 

Claims outstanding
As at 31 December

Group
Sweden 
Norway 

Individual
Death 
Waiver of premium 
Income protection 

Before reinsurance  
2011  
2012  
£000  
£000  

After reinsurance
2011
£000

2012  
£000  

20,369  
2,378  

3,127  
3,096  
10,266  

17,947  
2,252  

3,463  
3,166  
11,557  

7,704  
282  

1,512  
906  
6,009  

6,845
251

1,363
902
7,645

39,236  

38,385  

16,413  

17,006

Before reinsurance  
2011  
2012  
£000  
£000  

After reinsurance
2011
£000

2012  
£000  

24,214  
4,474  

1,604  
6,007  
32,282  

21,360  
4,760  

1,350  
4,965  
31,347  

5,445  
679  

678  
1,739  
13,869  

5,194
743

820
1,304
12,656

68,581  

63,782  

22,410  

20,717 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

93

 
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Terms and conditions 
Product features – Group Contracts
Group Contracts insure policyholders in respect of death with the option to include additional accident and disability beneﬁts. Policyholders may also include their 
spouse and children (up to the age of 25) on the policy.

Policies are sold in both Sweden and Norway and all sales are intermediated. Group Contracts sold in Sweden allow the policyholder to choose the sum 
assured level. Contracts sold in Norway have sum assured levels that are normally determined by the policyholders’ employer and apply to all members of that 
company scheme. 

The Swedish product provides a maximum coverage of insured beneﬁts up to 40 times a base amount (as at 31 December 2012 SEK 44,000 being approximately 
£4,181) although most policies are between 6 to 15 times the base amount.

The Norwegian product provides a maximum coverage of insured beneﬁts up to 80 times a base amount (as at 31 December 2012 NOK 82,122, being 
approximately £9,102) although most policies are between 5 to 10 times the base amount.

All contracts are for an annual period and premium payments are made usually on either an annual or quarterly basis.

Product features – Individual Contracts
In relation to Individual Contracts, Movestic writes contracts, which include death and morbidity beneﬁts on term assurance with disability, waiver of premium 
and income protection options. Policies are sold in Sweden and all sales are intermediated. 

In relation to the income protection and the waiver of premium beneﬁts within the Individual Contracts, the monthly beneﬁts upon a claim may be payable to the 
policyholders over a long period up to their retirement. 

The contracts have been unbundled as between insurance and investment contracts. Risk in respect of investment contracts is described in Note 6. All insurance 
contracts are for an annual period and payments are made on a monthly basis.

Management of risk
The main risk associated with the Group and Individual Contracts is the frequency of claims (for either death or accident or sickness). Claims experience can be 
variable, with the main factors being the age, sex and occupation of the policyholder. 

In addition, for the Group Contracts, Movestic is exposed to a single loss event that covers a number of employees of an organisation. 

The key risks are managed through appropriate product design and pricing of the policies to ensure that the potential cost to Movestic of these events (and 
associated expenses of underwriting and administration) are reﬂected in the price charged to the policyholder. Key controls implemented include a deﬁned pricing 
structure based on the characteristics of the policyholder and the regular review of management information on the type and frequency of accidents. 

Group Contracts are issued on an annual basis which means that Movestic’s exposure runs for a period of 12 months, after which Movestic has the option to 
decline to renew or can increase the price on renewal. 

Individual Contracts are long-term contracts but Movestic has the option to review the premiums on an annual basis.

For both the Group and Individual Contracts, between 30% to 90% of the premiums and claims relating to this product are ceded to a reinsurer which reduces 
the overall insurance risk exposure to Movestic. The policies and products from the Aspis acquisition are reinsured for approximately 80% of the claims amount.

In addition, for the majority of the Group Contracts, the loss arising from a single event to multiple employees is reinsured. The reinsurance provides indemnity 
for a single loss between SEK 5m (approximately £0.5m) and SEK 140m (approximately £13.3m).

Concentration of insurance risk
Concentration of insurance risk is determined by reference to beneﬁts assured for Individual Contracts and by estimated maximum loss for Group Contracts.

Regarding beneﬁts assured for individual contracts, the combined effect of reinsurance and the fact that the vast majority of the total beneﬁt assured relates to 
numerous small value contracts, limit the level of concentration risk.

Through the use of reinsurance exposures to material insurance risks on individual cases are avoided, with 99.8% of the business having retained sums 
assured of less than £250,000.

In respect of Group Contracts, the business is exposed to multiple employees of the same organisation being involved in a single loss event. Movestic estimates 
that its largest such exposures arise in Norway, where the Group Contracts sold tend to cover all employees within that organisation (whereas in Sweden employees 
may opt in to the Group Contract). Movestic forecasts that its maximum loss would be approximately SEK 44m (approximately £4.2m) gross of reinsurance  
and SEK 5m (approximately £0.5m) after reinsurance.

Assumptions and sensitivities for Group Contract and Individual Contract insurance contract provisions
Information relating to insurance contract provisions assumptions and sensitivities for the Swedish business is set out in Note 32 Insurance Contract Provisions.

94

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SECTION D
IFRS FINANCIAL STATEMENTS

  6 Management of ﬁnancial risk

The Group is exposed to a range of ﬁnancial risks, principally through its insurance contracts, ﬁnancial assets, including assets representing shareholder assets, 
ﬁnancial liabilities, including investment contracts and borrowings, and its reinsurance assets. In particular, the key ﬁnancial risk is that, in the long-term, 
proceeds from ﬁnancial assets are not sufﬁcient to fund the obligations arising from its insurance and investment contracts and borrowings. The most important 
components of this ﬁnancial risk are market risk (interest rate risk, equity and property price risk, foreign currency exchange risk and liquidity risk), and credit 
risk, including the risk of reinsurer default. Further, the Group has signiﬁcant foreign currency exchange rate risk in relation to movements between the Swedish 
Krona and Sterling arising from its ownership of Movestic.

The terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of future cash ﬂows arising from insurance 
contracts are set out in Note 5. The terms and conditions of investment contracts that have a material effect on the amount, timing and uncertainty of future 
cash ﬂows arising from investment contracts are as follows:

The Group provides three types of investment contract: unit-linked savings, unit-linked pensions predominantly written in the UK and Sweden and guaranteed 
income and growth bonds predominantly written in the UK.

(i) 

 Unit-linked savings are single or regular premium contracts, with the premiums invested in a pooled investment fund, where the policyholder’s investment 
is represented by units or trust accounts where the policyholder decides where to invest. On certain contracts there is a small additional beneﬁt payable  
on death which is deemed not to transfer signiﬁcant insurance risk to the business for these contracts. The beneﬁts payable at maturity or surrender of the 
contracts are the underlying value of the investment in the unit-linked funds or trust accounts, less surrender penalties where applicable.

(ii)   Unit-linked pensions are single or regular premium contracts with features similar to unit-linked savings contracts. Beneﬁts are payable on transfer, 

retirement or death. 

(iii)   Guaranteed income bonds are mainly single premium contracts for a ﬁxed term offering ﬁxed-income payments plus a return of capital at maturity. A guaranteed 

growth bond offers no income, but a higher guaranteed payment at maturity date.

 Market risk management

  (i) General

The Group businesses manage their market risks within asset liability matching (ALM) frameworks that have been developed to achieve long-term investment 
returns at least equal to their obligations under insurance and investment contracts, with minimal risk. Within the ALM frameworks the businesses periodically 
produce reports at legal entity and asset and liability class level, which are circulated to the businesses’ key management. The principal technique of the ALM 
frameworks is to match assets to the liabilities arising from insurance and investment contracts by reference to the type of beneﬁts payable to policyholders, with 
separate portfolios of assets being maintained for each distinct class of liability.

For unit-linked contracts the Group’s objective is to match the liabilities, both insurance and investment contract liabilities, with units in the assets of the funds 
to which the value of the liabilities is linked, such that the policyholder bears the market risk. This minimises the impact of market risks on these contracts, 
such that the remaining primary exposure to market risk is the risk of volatility in asset-related fees due to the impact of interest rate, equity price and foreign 
currency movements on the fair value of the unit-linked assets, on which asset-related fees are based. 

For non unit-linked business, the Group’s objective is to match the timing of cash ﬂows from insurance and investment contract liabilities with the timing of cash 
ﬂows from assets subject to identical or similar risks. By matching the cash ﬂows of liabilities with those of suitable assets, market risk is managed effectively, 
whilst liquidity risk is minimised. These processes to manage the risks, which the Group has not changed from previous periods, ensure that the Group is able 
to meet its obligations under its contractual liabilities as they fall due.

With respect to S&P there is signiﬁcant additional risk insofar as investment returns on policyholder with-proﬁts assets supporting the with-proﬁts business may 
result in insufﬁcient policyholder assets to meet contractual obligations to with-proﬁts policyholders, because of the impact of contract guarantees, as explained 
further below.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

95

 
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

The notes below explain how market risks are managed using the categories utilised in the businesses’ ALM (Asset Liability Matching) frameworks. In particular, 
the ALM frameworks require the management of interest risk, equity price risk, and liquidity risk at the portfolio level, so that the appropriate risks for each 
portfolio may be managed in an effective way. The following tables reconcile the classes and portfolios used in the businesses’ ALM frameworks to relevant items 
in the consolidated balance sheet and are followed by a portfolio-by-portfolio description of the nature of the related market risk and how that risk is managed.

31 December 2012

(cid:3)

Assets
Investment in associates 
Property and equipment 
Reinsurers’ share of insurance contract provisions 
Amounts deposited with reinsurers 
Investment properties 
Deferred tax asset 
Financial assets

Equity securities at fair value through income 
Holdings in collective investment schemes at fair  
value through income  
Debt securities at fair value through income 
Insurance and other receivables 
Prepayments 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)
Reinsurers’ share of accrued policyholder claims 
Income taxes 
Cash and cash equivalents 

Total assets 

Liabilities
Insurance contract provisions 
Financial liabilities

Investment contracts  
Borrowings 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Provisions 
Deferred tax liabilities 
Reinsurance payables 
Payables related to direct insurance and investment contracts 
Other payables 
Bank overdraft 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

   Unit-linked  
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:3)
(cid:3)(cid:3)
£000  

Insurance * 
contracts   Annuities in   Guaranteed  
bonds  
payment  
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:39)(cid:51)(cid:41)(cid:3) 
£000  
£000  
£000  

–  
–  
131,266  
30,245  
77,338  
2,186  

427,294  

2,619,000  
151,201  
12,758  
137  
(cid:22)(cid:20)(cid:19)(cid:3)(cid:3)
(cid:22)(cid:15)(cid:21)(cid:20)(cid:19)(cid:15)(cid:26)(cid:19)(cid:19)(cid:3)(cid:3)
3,806  
–  
99,253  

–  
–  
102,237  
–  
22,349  
–  

2  

313,497  
61,652  
855  
–  
(cid:21)(cid:19)(cid:25)(cid:3)(cid:3)
(cid:22)(cid:26)(cid:25)(cid:15)(cid:21)(cid:20)(cid:21)(cid:3)(cid:3)
–  
–  
4,039  

–  
–  
–  
–  
–  
–  

–  

–  
112,943  
–  
–  
(cid:178)(cid:3)(cid:3)
(cid:20)(cid:20)(cid:21)(cid:15)(cid:28)(cid:23)(cid:22)(cid:3)(cid:3)
–  
–  
164  

–  
–  
–  
–  
–  
–  

–  

–  
1,512  
89  
–  
(cid:178)(cid:3)(cid:3)
(cid:20)(cid:15)(cid:25)(cid:19)(cid:20)(cid:3)(cid:3)
–  
–  
337  

Other
non-linked
contracts
and other
 shareholder
funds  
£000  

2,902  
369  
45,189  
–  
480  
109  

Total 
£000 

2,902 
369
278,692 
30,245
100,167 
2,295

7  

427,303

77,302  
36,069  
10,611  
3,023  
(cid:21)(cid:15)(cid:24)(cid:26)(cid:28)(cid:3)(cid:3)
(cid:20)(cid:21)(cid:28)(cid:15)(cid:24)(cid:28)(cid:20)(cid:3)(cid:3)
683  
4,299  
124,883  

3,009,799 
363,377 
24,313 
3,160 
(cid:22)(cid:15)(cid:19)(cid:28)(cid:24)(cid:3)
(cid:22)(cid:15)(cid:27)(cid:22)(cid:20)(cid:15)(cid:19)(cid:23)(cid:26)
4,489 
4,299
228,676 

3,554,794  

504,837  

113,107  

1,938  

308,505  

4,483,181 

1,506,770  

453,421  

113,107  

–  

133,780  

2,207,078

2,012,983  
–  
(cid:21)(cid:26)(cid:27)(cid:3)(cid:3)
(cid:21)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15)(cid:21)(cid:25)(cid:20)(cid:3)(cid:3)
4  
–  
1,422  
23,405  
3,874  
10  

–  
–  
(cid:27)(cid:3)(cid:3)
(cid:27)(cid:3)(cid:3)
–  
–  
–  
4,204  
565  
–  

–  
–  
(cid:178)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
–  
–  
–  
–  
–  

1,790  
–  
(cid:178)(cid:3)(cid:3)
(cid:20)(cid:15)(cid:26)(cid:28)(cid:19)(cid:3)(cid:3)
–  
–  
–  
148  
–  
–  

7,541  
48,324  
(cid:178)(cid:3)(cid:3)
(cid:24)(cid:24)(cid:15)(cid:27)(cid:25)(cid:24)(cid:3)(cid:3)
5,157  
5,894  
15,188  
11,137  
12,618  
592  

2,022,314 
48,324 
(cid:21)(cid:27)(cid:25)(cid:3)
(cid:21)(cid:15)(cid:19)(cid:26)(cid:19)(cid:15)(cid:28)(cid:21)(cid:23)
5,161 
5,894 
16,610 
38,894 
17,057
602

Total liabilities 

3,548,746  

458,198  

113,107  

1,938  

240,231  

4,362,220 

 *Insurance contract with DPF include shareholder funds within the S&P with-proﬁts funds.

96

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
   
 
  
  
  
  
  
 
  
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

31 December 2011

(cid:3)

   Unit-linked  
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:3)
(cid:3)(cid:3)
£000  

Other
non-linked
contracts
Insurance * 
and other
contracts   Annuities in   Guaranteed   shareholder
funds  
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:39)(cid:51)(cid:41)(cid:3) 
£000  
£000  

payment  
£000  

bonds  
£000  

Assets
Investment in associates 
Property and equipment 
Reinsurers’ share of insurance contract provisions 
Amounts deposited with reinsurers 
Investment properties 
Financial assets

Equity securities at fair value through income 
Holdings in collective investment schemes at fair  
value through income  
Debt securities at fair value through income 
Insurance and other receivables 
Prepayments 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)
Reinsurers’ share of accrued policyholder claims 
Income taxes 
Cash and cash equivalents 

Total assets 

Liabilities
Insurance contract provisions 
Financial liabilities

Investment contracts  
Borrowings 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Provisions 
Deferred tax liabilities 
Reinsurance payables 
Payables related to direct insurance and investment contracts 
Income taxes 
Other payables 
Bank overdraft 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

–  
–  
123,750  
28,031  
102,459  

404,423  

2,522,243  
113,243  
9,092  
39  
(cid:25)(cid:15)(cid:27)(cid:23)(cid:24)(cid:3)(cid:3)
(cid:22)(cid:15)(cid:19)(cid:24)(cid:24)(cid:15)(cid:27)(cid:27)(cid:24)(cid:3)(cid:3)
–  
–  
73,498  

–  
–  
92,780  
–  
29,219  

2  

292,802  
70,481  
1,318  
–  
(cid:23)(cid:26)(cid:3)(cid:3)
(cid:22)(cid:25)(cid:23)(cid:15)(cid:25)(cid:24)(cid:19)(cid:3)(cid:3)
–  
–  
1,235  

–  
–  
–  
–  
–  

–  

–  
105,516  
–  
–  
(cid:178)(cid:3)(cid:3)
(cid:20)(cid:19)(cid:24)(cid:15)(cid:24)(cid:20)(cid:25)(cid:3)(cid:3)
–  
–  
587  

–  
–  
–  
–  
–  

–  

–  
2,758  
141  
–  
(cid:178)(cid:3)(cid:3)
(cid:21)(cid:15)(cid:27)(cid:28)(cid:28)(cid:3)(cid:3)
–  
–  
664  

Total 
£000 

1,613 
385 
263,792 
28,031 
132,128 

1,613  
385  
47,262  
–  
450  

6  

404,431 

102,890  
38,612  
20,248  
3,195  
(cid:22)(cid:15)(cid:23)(cid:20)(cid:25)(cid:3)(cid:3)
(cid:20)(cid:25)(cid:27)(cid:15)(cid:22)(cid:25)(cid:26)(cid:3)(cid:3)
4,667  
6,956  
119,936  

2,917,935 
330,610 
30,799 
3,234 
(cid:20)(cid:19)(cid:15)(cid:22)(cid:19)(cid:27)(cid:3)
(cid:22)(cid:15)(cid:25)(cid:28)(cid:26)(cid:15)(cid:22)(cid:20)(cid:26)(cid:3)
4,667 
6,956 
195,920 

3,383,623  

487,884  

106,103  

3,563  

349,636  

4,330,809 

1,510,734  

444,146  

106,103  

–  

129,956  

2,190,939

1,865,860  
–  
(cid:28)(cid:21)(cid:3)(cid:3)
(cid:20)(cid:15)(cid:27)(cid:25)(cid:24)(cid:15)(cid:28)(cid:24)(cid:21)(cid:3)(cid:3)
–  
(686 ) 
–  
4,394  
–  
3,114  
115  

–  
–  
(cid:24)(cid:21)(cid:3)(cid:3)
(cid:24)(cid:21)(cid:3)(cid:3)
–  
(1,358 ) 
–  
290  
–  
1,048  
–  

–  
–  
(cid:178)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
–  
–  
–  
–  
–  
–  
–  

3,020  
–  
(cid:178)(cid:3)(cid:3)
(cid:22)(cid:15)(cid:19)(cid:21)(cid:19)(cid:3)(cid:3)
–  
(1)   
–  
554  
–  
–  
–  

7,583  
54,753  
(cid:178)(cid:3)(cid:3)
(cid:25)(cid:21)(cid:15)(cid:22)(cid:22)(cid:25)(cid:3)(cid:3)
2,811  
14,729  
16,336  
35,413  
947  
20,255  
719  

1,876,463 
54,753 
(cid:20)(cid:23)(cid:23)(cid:3)
(cid:20)(cid:15)(cid:28)(cid:22)(cid:20)(cid:15)(cid:22)(cid:25)(cid:19)(cid:3)
2,811 
15,390 
16,336 
40,651 
947 
24,417
834 

Total liabilities 

3,383,623  

446,894  

106,103  

3,563  

283,502  

4,223,685 

 *Insurance contract with DPF include shareholder funds within the S&P with-proﬁts funds.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

97

 
  
  
  
  
  
 
  
  
  
  
   
 
  
  
  
  
  
 
  
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Unit-linked contracts
For unit-linked contracts, which may be insurance or investment contracts, the Group matches the ﬁnancial liabilities, with units in the ﬁnancial assets of the 
funds to which the value of the liabilities is linked, such that the policyholders bear the principal market risk (being interest rate, equity price and foreign currency 
risks) and credit risk. Accordingly, this approach results in the Group having no signiﬁcant direct market or credit risk on these contracts. Its primary exposure  
to market risk is the risk of volatility in asset-related fees due to the impact of interest rate, equity price and foreign exchange rate movements on the fair value 
of the assets held in the linked funds, on which asset-related fees are based.

There is residual exposure to market risk on certain unit-linked contracts where the Group provides to policyholders guarantees as to fund performance or 
additional beneﬁts which are not dependent on fund performance. This exposure is mitigated to the extent that the Group matches the obligations with suitable 
ﬁnancial assets external to the unit-linked funds, such that the residual exposure is not considered to be material.

Insurance contracts with discretionary participation features
Insurance contracts with discretionary participation features subsist entirely within the UK businesses in the form of with-proﬁts policies.

For the CA business, where the policyholder beneﬁts comprise a discretionary annual bonus and a discretionary terminal bonus, the with-proﬁts business is wholly 
reinsured to Guardian and hence there is no market risk for this class of business. Policyholders have the option, for a small element of the with-proﬁts 
business, to invest a portion of their investment in unit-linked funds as an alternative to the with-proﬁts fund. In this case, a portion of the business is retained, 
with the management of ﬁnancial risks of this portion being the same as described under ‘Unit-linked Contracts’ above.

For the S&P business the primary investment objective of the with-proﬁts policyholder funds is that the guaranteed minimum beneﬁts of the with-proﬁts 
policyholders should be met entirely from the policyholder funds. The secondary investment objective is, where possible, to provide a surplus in excess of the 
guaranteed minimum beneﬁts. The entire surplus in the policyholder fund accrues to the with-proﬁts policyholders. Any deﬁcit in the policyholder fund is 
ultimately borne by shareholders. Therefore the Group has a signiﬁcant exposure to market risk in relation to with-proﬁts business should the with-proﬁts 
policyholder assets be unable to fully meet the cost of guarantees. To achieve the investment objectives, the funds may invest in a range of asset classes 
including property, equities, ﬁxed interest securities, convertibles, cash and derivatives, both in UK and overseas investments. Such exposure may be achieved 
by investment in collective investment schemes (including such schemes with total or absolute return objectives or which include investments in commodities). 
Investment guidelines restrict the level of exposure for certain asset categories. In respect of derivatives, these may only be used for the purposes of reduction 
of investment risks and efﬁcient portfolio management.

Annuities in payment
These are contracts which pay guaranteed ﬁnancial beneﬁts, generally monthly, for the lifetime of the policyholder, and in some cases of their spouse. The 
ﬁnancial component of these contracts is a guaranteed ﬁxed interest rate: accordingly the Group’s primary ﬁnancial risk on these contracts is the risk that interest 
income and capital redemptions from the ﬁxed interest debt securities backing the liabilities are insufﬁcient to fund the beneﬁts payable. The Group manages 
the interest rate risk by matching closely new contracts written with ﬁxed interest debt securities of a suitable duration and quality. Regular monitoring of the 
interest rate risk is carried out by analysis of expected cash ﬂows from the ﬁnancial assets held with those for the liabilities, which are determined by means  
of projecting expected cash ﬂows from the contracts using prudent estimates of mortality.

Guaranteed bonds
These contracts are for a ﬁxed term with ﬁnancial beneﬁts that are ﬁxed and guaranteed at the inception of the contract. The Group manages its market risk  
on these products, by closely matching contracts written with ﬁxed interest debt securities of a suitable duration and quality. Accordingly, the Group’s primary 
ﬁnancial risk is the risk that interest income and capital redemptions from the ﬁnancial assets backing the liabilities are insufﬁcient to fund the guaranteed 
beneﬁts payable. Regular monitoring of the interest rate risk is carried out by analysis of expected cash ﬂows from the ﬁnancial assets held with those for the 
liabilities, which are determined assuming all contracts continue until their expected maturity date. This analysis also enables the Group to control its liquidity 
risk for this portfolio.

98

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION D
IFRS FINANCIAL STATEMENTS

Other non-linked contracts and shareholder funds
These categories, in which market risk is borne by shareholders, consist of non-linked insurance contracts without DPF and of net shareholder assets representing 
shareholders’ equity. The Group manages market risks by setting investment guidelines which restrict market exposures.

Non-linked contracts without DPF include contracts which pay guaranteed beneﬁts on death or other insured events, the terms being ﬁxed at the inception of 
the contract. Exposure to market price risk is minimised by generally investing in ﬁxed-interest debt securities, while interest rate risk is generally managed by 
closely matching contracts written with ﬁnancial assets of suitable yield and duration. To the extent that the Group is unable to fully match its interest rate risk, 
it makes provision in respect of assumed shortfalls on guaranteed returns to policyholders.

Shareholder funds at both Group parent company and operating subsidiary level, in accordance with corporate objectives and, in some instances, in accordance 
with local statutory solvency requirements, are invested in order to protect capital and to minimise market and credit risk: Accordingly they are generally 
invested in assets of a shorter-term liquid nature, which gives rise to the risk of lower returns on these investments due to changes in short-term interest rates.

  (ii) Liquidity risk 

Liquidity risk is the risk that adequate liquid funds are not available to settle liabilities as they fall due and is managed by forecasting cash requirements and by 
adjusting investment management strategies to meet those requirements. Liquidity risk is generally mitigated by holding sufﬁcient investments which are 
readily marketable in sufﬁciently short timeframes to allow the settlement of liabilities as they fall due. Where liabilities are backed by less marketable assets, 
for example investment properties, there are provisions in contractual terms which allow deferral of redemptions in times of adverse market conditions. The 
Group’s substantial holdings of money market assets also serves to reduce liquidity risk.

The tables below present a maturity analysis of the Group’s liabilities, showing balance sheet carrying value and distinguishing between investment contracts 
and insurance contracts and other liabilities.

31 December 2012
(cid:3)
Carrying values and cash 
(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:29)(cid:3)

Insurance contract liabilities
Unit-linked 

CA 
S&P 

Annuities in payment 
Other non-linked 
Investment contract liabilities
Unit-linked 
Guaranteed bonds  
Other 
Other liabilities 

Carrying value  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

0-5 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:88)(cid:81)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:12)
10-15 years  
5-10 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

15-20 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

>20 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

Total
(cid:133)(cid:19)(cid:19)(cid:19)

1,506,770  
106,715  
346,706  
113,107  
133,780  

2,012,983  
1,790  
7,541  
132,828  

1,506,770  
106,715  
104,576  
26,883  
57,916  

2,012,983  
1,790  
7,541  
132,828  

–  
–  
75,335  
24,031  
9,182  

–  
–  
–  
–  

–  
–  
88,223  
20,837  
4,988  

–  
–  
–  
–  

–  
–  
71,820  
17,353  
3,187  

–  
–  
–  
–  

–  
–  
40,650  
28,818  
1,873  

–  
–  
–  
–  

1,506,770
106,715
380,604
117,922
77,146

2,012,983
1,790
7,5415
132,828

4,362,220  

3,958,002  

108,548  

114,048  

92,360  

71,341  

4,344,299

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

99

 
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

31 December 2011
(cid:3)
Carrying values and cash 
(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:29)(cid:3)

Insurance contract liabilities
Unit-linked 
With DPF

CA 
S&P 

Annuities in payment 
Other non-linked 
Investment contract liabilities
Unit-linked 
Guaranteed bonds  
Other 
Other liabilities 

Carrying value  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

0-5 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:88)(cid:81)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:12)
10-15 years  
5-10 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

15-20 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

>20 years  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

Total
(cid:133)(cid:19)(cid:19)(cid:19)

1,510,734  

1,510,734  

–  

–  

–  

–  

1,510,734

96,977  
347,169  
106,103  
129,956  

1,865,860  
3,020  
7,583  
156,283  

96,977  
114,762  
27,394  
48,683  

1,865,860  
3,020  
7,583  
152,875  

–  
75,125  
25,082  
41,309  

–  
–  
–  
3,409  

–  
84,821  
22,375  
6,842  

–  
–  
–  
–  

–  
76,667  
19,316  
6,232  

–  
–  
–  
–  

–  
47,291  
55,371  
13,899  

–  
–  
–  
–  

96,977
398,666
149,538
116,965

1,865,860
3,020
7,583
156,284

4,223,685  

3,827,888  

144,925  

114,038  

102,215  

116,561  

4,305,627

The maturity analysis for unit-linked insurance and investment contracts presents all the liabilities as due in the earliest period in the table because they are 
repayable or transferable on demand.

Insurance contracts with DPF (with-proﬁts business) can be surrendered before maturity for a cash amount speciﬁed in contractual terms and conditions. 
Accordingly, a maturity analysis based on the earliest contractual repayment date would present all the liabilities as due in the earliest period of the table because 
this option can be exercised immediately by all policyholders. As stated above, CA insurance contracts with DPF are wholly reinsured to Guardian and hence, in 
practice, there is no liquidity risk, the only risk retained for this business being the risk of default by the reinsurer, which is detailed under ‘Credit Risk Management’ 
below. The maturity analysis in respect of the S&P segment of the business, however, is presented on an estimated basis, in accordance with the anticipated 
maturity proﬁle and on estimates of mortality. 

 (iii) Currency risk

Currency risk is the risk that the fair value or future cash ﬂows of an asset or liability will change as a result of movements in foreign exchange rates. The Group’s 
exposure to currency risk is minimised to the extent that the risk on investments denominated in foreign currencies which back unit-linked investment and 
insurance contracts is borne by policyholders. It is, however, exposed to currency risk through:

(i) 

its investment in Movestic, the assets and liabilities of which are principally denominated in Swedish Krona; 

(ii)   the trading operations of Movestic, which include the underwriting of insurance contracts in Norway giving rise to some exposure to the Norwegian Krone: 
as the Swedish business reinsures 90 per cent of the risk and has some assets denominated in the same currencies as the foreign insurance liabilities, 
most of the foreign currency exchange rate risk on these operations is eliminated; and 

(iii)  Movestic’s part ownership of Modernac SA, an associated company, the assets and liabilities of which are denominated in Euros.

The Group’s currency risk through its ownership of Movestic is reﬂected in:

(i) 

foreign exchange translation differences arising on the translation into sterling and consolidation of Movestic’s ﬁnancial statements; and

(ii)   the impact of adverse exchange rate movements on cash ﬂows between Chesnara plc and Movestic: in the short-term these relate to capital contributions 
made to Movestic to support its regulatory solvency capital resource requirements as it develops, while, in the medium-term there is the prospect of cash 
ﬂows from Movestic to Chesnara by way of dividend payments. The risk on cash ﬂows is managed by closely monitoring exchange rate movements and 
buying forward foreign exchange contracts, where deemed appropriate.

100

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
The following tables set out the Group’s exposure to assets and liabilities denominated in foreign currencies, expressed in sterling, at the respective balance 
sheet date:

SECTION D
IFRS FINANCIAL STATEMENTS

31 December

(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:46)(cid:85)(cid:82)(cid:81)(cid:68)
Assets 
Liabilities 

Net assets 

(cid:49)(cid:82)(cid:85)(cid:90)(cid:72)(cid:74)(cid:76)(cid:68)(cid:81)(cid:3)(cid:46)(cid:85)(cid:82)(cid:81)(cid:72)
Assets 
Liabilities 

Net liabilities 

Euro
Assets 
Liabilities 

Net assets 

2012  
£000  

2011
£000

1,515,969  
1,475,561  

1,376,552
1,337,831

40,408  

38,721

4,164  
4,526  

(362 ) 

1,275  
33  

1,242  

4,690
4,762

(72 )

896
–

896

 (iv) Sensitivities

The table below shows the impact of movements in market risk variables identiﬁed above on proﬁt before tax for the year under review and on shareholder 
equity as at the balance sheet date.

The variables are:

(i)  a 10% increase and decrease in the value of assets backing unit-linked insurance and investment contract liabilities

(ii)  a 10% increase and decrease in equity and property values

(iii)  a 100 basis point increase and decrease in per annum market rates of interest

(iv)  a 10% favourable and adverse movement in foreign currency exchange rates

As explained above, market risks relating to assets backing unit-linked insurance and investment contract liabilities are borne by policyholders, while there is 
shareholder exposure to volatility in asset-related fees due to the impact of interest rate, equity price and foreign exchange rate movements on the fair value  
of the assets held in the linked funds, on which asset-related fees are based. Accordingly, the sensitivities to these risks are presented as generic sensitivities 
to unit-linked asset movements.

Variation in/arising from

(cid:3)
(cid:3)

(cid:20)(cid:19)(cid:19)(cid:3)(cid:69)(cid:83)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)
100 bp decrease in market rates of interest 
(cid:20)(cid:19)(cid:8)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)
10% decrease in equity and property prices 
(cid:20)(cid:19)(cid:8)(cid:3)(cid:73)(cid:68)(cid:89)(cid:82)(cid:88)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:80)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:40)(cid:46)(cid:29)(cid:3)(cid:86)(cid:87)(cid:72)(cid:85)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)
10% adverse movement in SEK: sterling exchange rate 

 *Not material

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012 

2011

(cid:3)(cid:3) (cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:183)(cid:3) (cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:183)
(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
(cid:3)(cid:3)
£m

(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:3)
£m  

(cid:87)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:87)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:20)(cid:27)(cid:17)(cid:25)(cid:3)(cid:3)
((cid:21)(cid:22)(cid:17)(cid:26)(cid:3)) 
(cid:20)(cid:19)(cid:17)(cid:25)(cid:3)(cid:3)
((cid:20)(cid:19)(cid:17)(cid:25)(cid:3)) 
(cid:19)(cid:17)(cid:21)(cid:3)(cid:3)
((cid:19)(cid:17)(cid:20)(cid:3)) 

(cid:20)(cid:23)(cid:17)(cid:20)(cid:3)(cid:3)
((cid:20)(cid:27)(cid:17)(cid:19)(cid:3)) 
(cid:27)(cid:17)(cid:20)(cid:3)(cid:3)
((cid:27)(cid:17)(cid:20)(cid:3)) 
(cid:23)(cid:17)(cid:24)(cid:3)(cid:3)
((cid:22)(cid:17)(cid:26)(cid:3))(cid:3)

(cid:23)(cid:17)(cid:23)(cid:3)(cid:3)
((cid:26)(cid:17)(cid:27)(cid:3)) 
(cid:20)(cid:24)(cid:17)(cid:28)(cid:3)(cid:3)
((cid:20)(cid:24)(cid:17)(cid:28)(cid:3)) 
(cid:178)(cid:3)(cid:13)(cid:3)
(cid:178)(cid:3)(cid:13)(cid:3)

(cid:22)(cid:17)(cid:27)
((cid:25)(cid:17)(cid:21)(cid:3))
(cid:20)(cid:21)(cid:17)(cid:20)
((cid:20)(cid:21)(cid:17)(cid:20)(cid:3))
(cid:23)(cid:17)(cid:22)
((cid:22)(cid:17)(cid:24)(cid:3))

As explained in Note 32(c) on page 130 the method of estimating the cost of guarantees to policyholders in respect of the S&P with-proﬁts funds has been 
changed. An effect of this change has been to make the results and ﬁnancial position of the Group more sensitive to variations in market rates of interest.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

101

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

 Credit risk management
The Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Group is exposed 
to credit risk are:

  – Counterparty risk with respect to debt securities and cash deposits;

  – Reinsurers’ share of insurance liabilities;

  – Amounts deposited with reinsurers in relation to investment contracts;

  – Amounts due from reinsurers in respect of claims already paid; and 

  – Insurance and other receivables.

In addition there will be some exposures to individual policyholders, on amounts due on insurance contracts. These are tightly controlled, with contracts being 
terminated or beneﬁts amended if amounts owed are outstanding for more than a speciﬁed period of time, so that there is no signiﬁcant risk to the results of 
the businesses.

The Group businesses structure the levels of credit risk they accept by placing limits on their exposure to a single counterparty, or group of counterparties. Such 
risks are subject to at least an annual review, while watch lists are maintained for exposures requiring additional review.

Although the businesses hold a signiﬁcant proportion of their ﬁnancial assets in debt securities and cash deposits the risk of default on these is mitigated to the 
extent that any losses arising in respect of unit-linked assets backing the insurance and investment contracts which the businesses issue, would effectively be 
passed on to policyholders and investors through the unit-linked funds backing the insurance and investment contracts.

Reinsurance is used to manage insurance risk in the businesses. This does not, however, discharge the businesses’ liability as primary insurers. If a reinsurer 
fails to pay a claim for any reason, the businesses remain liable for the payment to the policyholder. In respect of Movestic, the current guidelines state that 
re-insurance should only be effected with counterparties with a credit rating from Standard & Poor’s of A or higher, except for the reinsurer which is an associate 
of Movestic: this credit risk is managed by Movestic being represented on the Board of the reinsurer and, therefore, being able to inﬂuence its strategy and 
operational decisions.

The creditworthiness of major reinsurers is considered on an annual basis by reviewing their ﬁnancial strength.

The following table presents the assets of the Group which are subject to credit risk and a reconciliation to the balance sheet carrying value of each item:

31 December 

Holdings in collective investment schemes 
Debt securities 
Cash and cash equivalents 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Reinsurers’ share of insurance contract liabilities 
Amounts deposited with reinsurers 
Insurance and other receivables 
Reinsurers’ share of accrued policyholder claims 
Income taxes 

2012 

Balance  

2011

   Amount not  
subject to  
credit risk  
£000  

Amount  
subject to  
credit risk  
£000  

sheet   Amount not  
subject to  
credit risk  
£000  

carrying  
value  
£000  

Amount  
subject to  
credit risk  
£000  

(cid:3)(cid:3)

3,008,808  
139,513  
86,446  
(cid:21)(cid:15)(cid:27)(cid:27)(cid:28)(cid:3)(cid:3)
–  
–  
20,620  
–  
–  

991  
223,864  
142,230  
(cid:21)(cid:19)(cid:25)(cid:3)(cid:3)
278,692  
30,245  
3,693  
4,489  
4,299  

3,009,799  
363,377  
228,676  
(cid:22)(cid:15)(cid:19)(cid:28)(cid:24)(cid:3)(cid:3)
278,692  
30,245  
24,313  
4,489  
4,299  

2,792,748  
110,342  
83,572  
(cid:20)(cid:19)(cid:15)(cid:21)(cid:25)(cid:20)(cid:3)(cid:3)
–  
–  
15,121  
–  
–  

125,187  
220,268  
112,348  
(cid:23)(cid:26)(cid:3)(cid:3)
263,792  
28,031  
15,678  
4,667  
6,956  

Balance
sheet
carrying
value
£000

2,917,935
330,610
195,920
(cid:20)(cid:19)(cid:15)(cid:22)(cid:19)(cid:27)
263,792
28,031
30,799 
4,667
6,956

Total 

3,258,276  

688,709  

3,946,985  

3,012,044  

776,974  

3,789,018

Holdings in collective investment schemes are, in principle, not subject to credit risk, as, given the nature of the ﬁnancial instruments, they do not directly expose 
the Group to credit risk. However, classiﬁed within holdings in collective investment schemes is an amount of £990,000 (31 December 2011: £97,738,000),  
as presented above, invested under an investment contract arrangement with JPMorgan Life Limited (JPML). This counterparty exposure to JPML is off-set  
by a counterparty exposure that JPML has to S&P of £3m (31 December 2011: £13m) under an investment contract arrangement held by JPML with S&P.  
The exposure has reduced materially following agreement with JPML to substantially recapture the business, so as to reduce credit risk.

102

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
  
  
  
  
  
 
 
  
 
  
 
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

Under these investment contract arrangements the respective amounts are onward invested in the collective investment schemes maintained by the 
respective counterparty.

The remaining amounts presented above as not being subject to credit risk represent unit-linked assets where the risk is borne by the holders of unit-linked 
insurance and investment contracts, except for (i) reinsurers’ share of insurers’ contract provisions and (ii) amounts deposited with reinsurers in respect of 
investment contracts, where the risk of default is borne by shareholders.

Assets held to cover Insurance contracts with DPF, held within a segregated with-proﬁts fund, are included as being subject to credit risk, as such risk will be 
borne by shareholders where default would result in there being insufﬁcient with-proﬁts policyholder assets to fund minimum guaranteed obligations. However, 
in normal circumstances (where the asset share is in excess of the minimum guaranteed amount) substantially all the credit risk remains with policyholders. 

The Group’s exposure to credit risk is summarised as:

(cid:36)(cid:3)(cid:3)
£000  

(cid:37)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3)(cid:36)(cid:3)(cid:3)
£000  

(cid:56)(cid:81)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:3)
£000  

Credit rating
(cid:3)
As at 31 December 2012 

Reinsurers share of insurance contract liabilities 
Holdings in collective investment schemes 
Amounts deposited with reinsurers 
Debt securities at fair value through income 
Insurance and other receivables 
Reinsurers share of accrued policyholder claims 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Income taxes 
Cash and cash equivalents 

Total 

As at 31 December 2011
Reinsurers share of insurance contract liabilities 
Holdings in collective investment schemes 
Amounts deposited with reinsurers 
Debt securities at fair value through income 
Insurance and other receivables 
Reinsurers share of accrued policyholder claims 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Income taxes 
Cash and cash equivalents 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:36)(cid:36)(cid:36)(cid:3)(cid:3)
£000  

–  
–  
–  
218,002  
1,536  
–  
(cid:178)(cid:3)(cid:3)
–  
21,024  

(cid:36)(cid:36)(cid:3)(cid:3)
£000  

38,084  
–  
–  
2,006  
–  
632  
(cid:178)(cid:3)(cid:3)
–  
47,362  

(3,496 ) 
991  
–  
2,611  
–  
203  
(cid:21)(cid:19)(cid:25)(cid:3)(cid:3)
–  
73,838  

240,562  

88,084  

74,353  

–  
–  
–  
216,878  
–  
–  
(cid:178)(cid:3)(cid:3)
–  
–  

36,213  
–  
–  
1,044  
–  
1,482  
(cid:178)(cid:3)(cid:3)
–  
33,071  

(3,762 ) 
97,738  
–  
1,129  
–  
496  
(cid:23)(cid:26)(cid:3)(cid:3)
–  
73,117  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

278,692
991
30,245
223,864
3,693
4,489
(cid:21)(cid:19)(cid:25)
4,299
142,230

244,104  
–  
30,245  
1,245  
2,157  
3,654  
(cid:178)(cid:3)(cid:3)
4,299  
6  

285,710  

688,709

231,341  
27,449  
28,031  
1,217  
15,678  
2,689  
(cid:178)(cid:3)(cid:3)
6,956  
542  

263,792
125,187
28,031
220,268
15,678
4,667
(cid:23)(cid:26)
6,956
112,348

–  
–  
–  
–  
–  
–  
(cid:178)(cid:3)(cid:3)
–  
–  

(cid:178)  

–  
–  
–  
–  
–  
–  
(cid:178)(cid:3)(cid:3)
–  
5,618  

Total 

216,878  

71,810  

168,765  

5,618  

313,903  

776,974

Included within unrated reinsurers’ share of insurance contract provisions and unrated amounts deposited with reinsurers, in respect of investment contracts  
is a total signiﬁcant exposure of £251.4m as at 31 December 2012 (31 December 2011: £237.4m) to Guardian, which does not have a published credit rating. 
Of this amount £207m (31 December 2011: £202.9m) is in respect of currently guaranteed beneﬁts. This counterparty exposure was mitigated during 2006 
when Guardian granted to CA a ﬂoating charge over related investment assets, which ranks that company equally with Guardian policyholders. In order to monitor 
the ongoing creditworthiness of Guardian, CA reviews the ﬁnancial statements and regulatory returns submitted by Guardian to the FSA on an annual basis.

No credit limits were exceeded during the year ended 31 December 2012.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

103

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Financial assets that are past due or impaired
In 2008, a cash deposit with Kaupthing Singer & Friedlander (‘KSF’) was written down by its full amount of £1,091,000 as a result of KSF entering administration. 
During 2012, further interim distributions totalling £141,331 (2011: £108,716) were made from the administrators in respect of the deposit.

There are no other Group ﬁnancial assets that are impaired, would otherwise be past due, or impaired, whose terms have been negotiated or past due but  
not impaired.

The Group has no signiﬁcant exposure to Euro–denominated sovereign debt as at 31 December 2012.

  7 Exceptional item

Following the transfer, on 31 December 2011, of the whole of the business of the S&P operating segment to Countrywide Assured plc under the provisions of 
Part VII of the Financial Services and Markets Act 2000, S&P policyholder liabilities to taxation have, with effect from 1 January 2012, been re-classiﬁed within 
the Consolidated Balance Sheet from deferred tax liabilities to insurance contract provisions. The purpose of this is to align the classiﬁcation with that adopted by 
the CA operating segment. As a consequence there is: 

(i)  as at 1 January 2012 a reduction of £4.8m in deferred tax liabilities and an equal and opposite increase of £4.8m in insurance contract provisions; and 

(ii)   in the Condensed Consolidated Statement of Comprehensive Income a pre-tax charge of £4.8m and a deferred tax release to income tax of £4.8m, both of 
these amounts being presented as exceptional items, by virtue of their size and incidence. The net-of-tax result in the Condensed Consolidated Statement 
of Comprehensive Income attributable to these exceptional items is, accordingly, £nil.

  8 Operating segments 

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

The segments of the Group as at 31 December 2012 comprise:

CA 
This segment is part of the Group’s UK life insurance and pensions run-off portfolio and comprises the original business of Countrywide Assured plc, the Group’s 
principal UK operating subsidiary, and of City of Westminster Assurance Company Limited which was acquired in 2005 and the long-term business of which 
was transferred to Countrywide Assured plc during 2006. It is responsible for conducting unit-linked and non-linked business. 

S&P
This segment, which was acquired on 20 December 2010, is the balance of the Group’s UK life insurance and pensions run-off portfolio and comprises the 
business of Save & Prosper Insurance Limited and its subsidiary Save & Prosper Pensions Limited. It is responsible for conducting both unit-linked and non-linked 
business, including a with-proﬁts portfolio, which carries signiﬁcant additional market risk, as described in Note 6 ‘Management of ﬁnancial risk’. On 31 December 
2011 the whole of the business of this segment was transferred to Countrywide Assured plc under the provisions of Part VII of the Financial Services and Markets 
Act 2000.

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. 

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

There were no changes to the basis of segmentation during the year ended 31 December 2012.

The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal 
commercial terms in normal market conditions. The Group evaluates performance of operating segments on the basis of the proﬁt before tax attributable to 
shareholders and on the total assets and liabilities of the reporting segments and the Group. There were no changes to the measurement basis for segment 
proﬁt during the year ended 31 December 2012.

104

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION D
IFRS FINANCIAL STATEMENTS

  (i) Segmental income statement for the year ended 31 December 2012

Year ended 31 December 

(cid:3)

Net Insurance premium revenue 
Fee and commission income 
Net investment return 

Total revenue (net of reinsurance payable) 
Other operating income 

Segmental income 

(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)
Net change in investment contract liabilities 
Fees, commission and other acquisition costs 
Administrative expenses

Amortisation charge on software assets 
Depreciation charge on property and equipment 
Other 

Other operating expenses

(cid:3)(cid:3)

(cid:3)(cid:3)

Charge for amortisation of acquired value of in-force business    
Charge for amortisation of acquired value of customer relationships 
Other 

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

54,785  
35,191  
128,009  

217,985  
3,484  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:56)(cid:46)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

8,987  
2,776  
105,936  

63,772  
37,967  
233,945  

16,412  
28,691  
97,846  

117,699  
11,114  

335,684  
14,598  

142,949  
5,047  

Other  
Group  
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

–  
–  
262  

262  
–  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

80,184
66,658
332,053

478,895
19,645

221,469  

128,813  

350,282  

147,996  

262  

498,540

(140,502 ) 
(52,679 ) 
(947 ) 

–  
(22 ) 
(8,105 ) 

(2,892 ) 
–  
(625 ) 

(97,787 ) 
(4,134 ) 
(62 ) 

–  
–  
(11,000 ) 

(852 ) 
–  
(1,212 ) 

(238,289 ) 
(56,813 ) 
(1,009 ) 

–  
(22 ) 
(19,105 ) 

(3,744 ) 
–  
(1,837 ) 

(7,057 ) 
(97,040 ) 
(16,958 ) 

(2,188 ) 
(187 ) 
(13,053 ) 

(4,119 ) 
(391 ) 
(5,046 ) 

–  
–  
–  

–  
–  
(2,474 ) 

–  
–  
(2,322 ) 

(245,346 )
(153,853 )
(17,967 )

(2,188 )
(209 )
(34,632 )

(7,863 )
(391 )
(9,205 )

Segmental expenses 

(205,772 ) 

(115,047 ) 

(320,819 ) 

(146,039 ) 

(4,796 ) 

(471,654 )

Segmental income less expenses 
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)
Exceptional item 

(cid:54)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)
Financing costs 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)
Income tax credit/(expense)

Income tax credit/(expense) – before exceptional item 
Exceptional item  
After exceptional item 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

15,697  
(cid:178)(cid:3)(cid:3)
–  

(cid:20)(cid:24)(cid:15)(cid:25)(cid:28)(cid:26)(cid:3)(cid:3)
–  

13,766  
(cid:178)(cid:3)(cid:3)
(4,778 ) 

(cid:27)(cid:15)(cid:28)(cid:27)(cid:27)(cid:3)(cid:3)
(1 ) 

29,463  
(cid:178)(cid:3)(cid:3)
(4,778 ) 

(cid:21)(cid:23)(cid:15)(cid:25)(cid:27)(cid:24)(cid:3)(cid:3)
(1 ) 

(cid:20)(cid:24)(cid:15)(cid:25)(cid:28)(cid:26)(cid:3)(cid:3)

(cid:27)(cid:15)(cid:28)(cid:27)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:23)(cid:15)(cid:25)(cid:27)(cid:23)(cid:3)(cid:3)

2,384  
4,778  
7,162  

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)

(cid:3)(cid:3)

(cid:22)(cid:20)(cid:15)(cid:27)(cid:23)(cid:25)(cid:3)(cid:3)

1,957  
(cid:20)(cid:15)(cid:21)(cid:23)(cid:23)(cid:3)(cid:3)
–  

(cid:22)(cid:15)(cid:21)(cid:19)(cid:20)(cid:3)(cid:3)
(2,451 ) 

(cid:26)(cid:24)(cid:19)(cid:3)(cid:3)

(323 ) 
–  
(323 ) 

(cid:23)(cid:21)(cid:26)(cid:3)(cid:3)

(4,534 ) 
(cid:178)(cid:3)(cid:3)
–  

(4,534 ) 
(1,218 ) 

26,886
(cid:20)(cid:15)(cid:21)(cid:23)(cid:23)
(4,778 )

23,352
(3,670 )

(5,752 ) 

19,682

1,420  
–  
1,420  

3,481
4,778
8,259

(4,332 ) 

27,941

  (ii) Segmental balance sheet as at 31 December 2012

31 December 

(cid:3)

Total assets 

Total liabilities 

Net assets/(liabilities) 

Investments in associates 

Additions to segment non-current assets 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

Other  
Group  
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

1,815,021  

1,266,946  

1,534,263  

34,391  

4,650,621

1,728,523  

1,191,376  

1,476,185  

36,191  

4,432,275

86,498  

75,570  

58,078  

(1,800 ) 

218,346

–  

230  

–  

–  

2,902  

11,353  

–  

–  

2,902

11,583

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

105

  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

 (iii) Segmental income statement for the year ended 31 December 2011

Year ended 31 December 

(cid:3)

Net insurance premium revenue 
Fee and commission income 
Net investment return 

Total revenue (net of reinsurance payable) 
Other operating income 

Segmental income 

(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)
Net change in investment contract liabilities 
Fees, commission and other acquisition costs 
Administrative expenses

Amortisation charge on software assets 
Depreciation on property and equipment 
Other 

Other operating expenses

(cid:3)(cid:3)

(cid:3)(cid:3)

Charge for amortisation of acquired value of in-force business    
Charge for amortisation of acquired value of customer relationships 
Other 

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

59,561  
37,675  
(19,009 ) 

78,227  
3,584  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:56)(cid:46)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

10,440  
2,768  
(21,685 ) 

(8,477 ) 
11,702  

70,001  
40,443  
(40,694 ) 

69,750  
15,286  

17,005  
27,420  
(151,938 ) 

(107,513 ) 
6,446  

81,811  

3,225  

85,036  

(101,067 ) 

(56,981 ) 
11,731  
(1,293 ) 

–  
(18 ) 
(8,716 ) 

(3,640 ) 
–  
(729 ) 

18,063  
(963 ) 
(63 ) 

–  
–  
(11,687 ) 

(964 ) 
–  
(1,087 ) 

(38,918 ) 
10,768  
(1,356 ) 

–  
(18 ) 
(20,403 ) 

(4,604 ) 
–  
(1,816 ) 

(6,508 ) 
151,898  
(15,920 ) 

(1,979 ) 
(278 ) 
(13,085 ) 

(4,428 ) 
(758 ) 
(6,457 ) 

Other  
Group  
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

–  
–  
230  

230  
50  

280  

–  
–  
–  

–  
–  
(3,035 ) 

–  
–  
(1,391 ) 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

87,006
67,863
(192,402 )

(37,533 )
21,782

(15,751 )

(45,426 )
162,666
(17,276 )

(1,979 )
(296 )
(36,523 )

(9,032 )
(758 )
(9,664 )

Segmental expenses 

(59,646 ) 

3,299  

(56,347 ) 

102,485  

(4,426 ) 

41,712

Segmental income less expenses 
Share of loss of associate 

(cid:54)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)
Financing costs 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)
Income tax credit 

22,165  
–  

(cid:21)(cid:21)(cid:15)(cid:20)(cid:25)(cid:24)(cid:3)(cid:3)
–  

6,524  
–  

(cid:25)(cid:15)(cid:24)(cid:21)(cid:23)(cid:3)(cid:3)
(12 ) 

(cid:21)(cid:21)(cid:15)(cid:20)(cid:25)(cid:24)(cid:3)(cid:3)

(cid:25)(cid:15)(cid:24)(cid:20)(cid:21)(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

28,689  
–  

(cid:21)(cid:27)(cid:15)(cid:25)(cid:27)(cid:28)(cid:3)(cid:3)
(12 ) 

(cid:21)(cid:27)(cid:15)(cid:25)(cid:26)(cid:26)(cid:3)(cid:3)
1,772  

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)

(cid:3)(cid:3)

(cid:22)(cid:19)(cid:15)(cid:23)(cid:23)(cid:28)(cid:3)(cid:3)

1,418  
(152 ) 

(cid:20)(cid:15)(cid:21)(cid:25)(cid:25)(cid:3)(cid:3)
(1,957 ) 

(691 ) 
275  

(416 ) 

(4,146 ) 
–  

(4,146 ) 
(1,419 ) 

(5,565 ) 
1,197  

25,961
(152 )

25,809
(3,388 )

22,421
3,244

(4,368 ) 

25,665

 (iv) Segmental balance sheet as at 31 December 2011

31 December 

(cid:3)

Total assets 

Total liabilities 

Net assets/(liabilities) 

Investments in associates 

Additions to segment non-current assets 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

Other  
Group  
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

1,774,864  

1,304,209  

1,395,751  

17,130  

4,491,954

1,689,378  

1,215,473  

1,338,841  

39,073  

4,282,765

85,486  

88,736  

56,910  

(21,943 ) 

209,189

–  

6  

–  

–  

1,613  

14,653  

–  

–  

1,613

14,659

106

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  9 Fees and commission income

Year ended 31 December

(cid:41)(cid:72)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)

Policy-based fees 
Fund management-based fees 
(cid:37)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)
Change in deferred income – gross 
Change in deferred income – reinsurer’s share 

Total fee income 
Commission income 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

14,143  
25,324  
(cid:21)(cid:20)(cid:15)(cid:25)(cid:20)(cid:23)(cid:3)(cid:3)
1,116  
(45 ) 

62,152  
4,506  

2011
(cid:133)(cid:19)(cid:19)(cid:19)

12,776
26,258
(cid:21)(cid:21)(cid:15)(cid:25)(cid:21)(cid:25)
1,647
(47 )

63,260
4,603

Total fee and commission income 

66,658  

67,863

  10 Net investment return

Year ended 31 December

Dividend income 
Interest income 
Rental income from investment properties 
Net fair value gains and losses

Equity securities designated as at fair value through income on initial recognition   
Debt securities designated as at fair value through income on initial recognition    
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:3)(cid:3)
Investment properties 

(cid:3)(cid:3)

Net investment return 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

46,774  
25,961  
7,612  

224,848  
29,609  
(cid:21)(cid:15)(cid:27)(cid:28)(cid:28)(cid:3)(cid:3)
(5,650 ) 

2011
£000

40,261
28,632
8,108

(326,014 )
53,332 
(954 )
4,233 

332,053  

(192,402 )

Net fair value gains and losses in respect of holdings in collective investment schemes are included in the line that is most appropriate taking into account the 
nature of the underlying investments.

No amounts included in net fair value gains and losses of ﬁnancial instruments were estimated using a valuation technique (year ended 31 December 2011: £nil).

  11 Other operating income

Year ended 31 December

Release of unused provisions 
Recharge of shared property services to tenants 
Administration fees charged to reinsurers 
Professional indemnity insurance recoveries 
Investment management fee rebate 
HMRC interest on tax refund 
Charges to policyholder funds for yield tax 
Other 

Total other operating income 

All of the income streams setout in Notes 9,10 and 11 equate to revenue as deﬁned by IAS 18.

2012  
£000  

629  
–  
95  
52  
13,483  
–  
5,046  
340  

2011
£000

390
457
103
173
14,120
9
6,428
102

19,645  

21,782

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

107

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  12 Insurance contract claims and beneﬁts

Year ended 31 December

(cid:38)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
Net increase/(decrease) in insurance contract provisions 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)
Recoveries from reinsurers 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(cid:21)(cid:26)(cid:21)(cid:15)(cid:23)(cid:26)(cid:28)(cid:3)(cid:3)
20,732  

(cid:21)(cid:28)(cid:22)(cid:15)(cid:21)(cid:20)(cid:20)(cid:3)(cid:3)
(47,865 ) 

2011
£000

(cid:21)(cid:25)(cid:26)(cid:15)(cid:25)(cid:28)(cid:20)
(204,864 )

(cid:25)(cid:21)(cid:15)(cid:27)(cid:21)(cid:26)
(17,401 )

(cid:21)(cid:23)(cid:24)(cid:15)(cid:22)(cid:23)(cid:25)(cid:3)(cid:3)

(cid:23)(cid:24)(cid:15)(cid:23)(cid:21)(cid:25)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

  13 Change in investment contract liabilities

Year ended 31 December

Net changes in the fair value of investment contracts designated on initial recognition as fair value through income 
Net changes in the fair value of policyholders’ funds held by the Group designated on initial recognition as fair value through income 
Reinsurers’ share 

Net increase/(decrease) in investment contract liabilities 

Investment contract beneﬁts comprise beneﬁts accruing to holders of investment contracts issued by the Group.

  14 Fees, commission and other acquisition costs

Year ended 31 December

Directly expensed costs
Insurance contracts

Commission 
New business and renewal costs 

Investment contracts

Commission 
New business and renewal costs 
Additions to deferred acquisition costs

Insurance contracts 
Investment contracts – gross 

Amortisation of deferred acquisition costs

Insurance contracts 
Investment contracts-gross 

Investment contracts-reinsurance 

Total 

  15 Administrative expenses

Year ended 31 December

Personnel-related costs (Note 47) 
Investment management fees 
Amortisation charge on software assets 
Depreciation charge on property and equipment 
Costs paid to third-party administrators 
Other goods and services 

Total 

2012  
£000  

114,468  
42,195  
(2,810 ) 

2011
£000

(169,281 )
5,115
1,500

153,853  

(162,666 )

2012  
£000  

2011
£000

5,806  
4,357  

7,579  
2,851  

(5,654 ) 
(4,604 ) 

5,991  
1,667  
(26 ) 

6,037
2,654

10,457
3,444

(5,881 )
(6,747 )

5,665
1,674
(27 )

17,967  

17,276

2012  
£000  

12,910  
9,848  
2,188  
209  
8,201  
3,673  

2011
£000

12,772
11,859
1,979
296
8,436
3,456

37,029  

38,798

Included in Other Goods and Services above are the following amounts payable to the Auditor and its associates, exclusive of VAT.

108

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Year ended 31 December

Fees payable to the Company’s Auditor for the audit of the company’s annual accounts 
Fees payable to the Company’s Auditor and its associates for other services to the group:

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The audit of the Company’s subsidiaries pursuant to legislation   
(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:16)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:13)(cid:3)(cid:3)
(cid:3)(cid:3)
Taxation compliance services 
All other services 

Total 

*

Includes the audit regulatory returns submitted to the UK regulator.

  16 Other operating expenses

Year ended 31 December

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

94  

386  
(cid:20)(cid:28)(cid:21)(cid:3)(cid:3)
27  
18  

717  

2011
£000

78

360
(cid:20)(cid:27)(cid:22)
44
16

681

2012  
£000  

2011
£000

(cid:38)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:16)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:26)(cid:15)(cid:27)(cid:25)(cid:22)(cid:3)(cid:3)

(cid:28)(cid:15)(cid:19)(cid:22)(cid:21)

(cid:38)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3)(AVCR) 

391  

758

Other
Increase in other provisions 
Direct operating expenses of investment properties

Revenue-generating properties 
Non revenue-generating properties 

Recovery of cash deposit 
Payment of yield tax relating to policyholder funds 
Akademiker impairment charge 
Other 

Total 

2,546  

1,212  
233  
(141 ) 
5,046  
–  
309  

1,531

1,162
154
(109 )
6,428
29
469

9,205  

9,664

The recovery of cash deposit represents interim distributions received from the administrators of Kaupthing Singer & Friedlander relating to a cash deposit, 
previously written down and charged to operating expenses.

  17 Financing costs

Year ended 31 December

Interest expense on bank borrowings 
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
Other interest 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

1,219  
(cid:21)(cid:15)(cid:22)(cid:20)(cid:22)(cid:3)(cid:3)
138  

2011
£000

1,426
(cid:20)(cid:15)(cid:28)(cid:24)(cid:26)
5

(cid:22)(cid:15)(cid:25)(cid:26)(cid:19)(cid:3)(cid:3)

(cid:22)(cid:15)(cid:22)(cid:27)(cid:27)

Interest expense on bank borrowings is calculated using the effective interest method and is the total interest expense for ﬁnancial liabilities that are not designated 
at fair value through income.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

109

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  18 Income tax credit before exceptional item

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:29)
Year ended 31 December

CA, S&P and Other Group Activities – net credit 
Movestic – net (expense)/credit 

Total net credit 

CA, S&P and Other Group Activities
Year ended 31 December

Current tax expense
Current year 
Overseas tax 
Adjustment to prior years 

Net expense 
Deferred tax credit
Origination and reversal of temporary differences excluding exceptional item 

Total income tax credit 

(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)
Year ended 31 December

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:23)(cid:17)(cid:24)(cid:8)(cid:3)(cid:11)(cid:21)(cid:19)(cid:20)(cid:20)(cid:29)(cid:3)(cid:21)(cid:25)(cid:17)(cid:24)(cid:8)(cid:12)(cid:3)
Permanent difference arising on Part VII Transfer 
Other permanent differences 
(cid:40)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:56)(cid:46)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)
Offset of franked investment income  

Variation in rate of tax on amortisation of acquired in-force value 
Impact of new life tax regime 
Other 
(Over)/under provided in previous years 

Total income tax credit 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

3,804  
(323 ) 

2011
£000

2,969 
275

3,481  

3,244 

2012  
£000  

(2,939 ) 
(582 ) 
(29 ) 

(3,550 ) 

7,354  

3,804  

2011
£000

(2,160 )
(587 )
592 

(2,155 )

5,124

2,969

2012  
£000  

2011
£000

(cid:21)(cid:22)(cid:15)(cid:26)(cid:20)(cid:19)(cid:3)(cid:3)

(cid:21)(cid:22)(cid:15)(cid:20)(cid:20)(cid:21)

(5,809 ) 
–  
(70 ) 

3,525  
389  
6,129  
(331 ) 
(29 ) 

(6,125 )
4,146 
(270 )

2,667
619
–
1,340
592

3,804  

2,969 

The permanent difference arising on the Part VII Transfer relates to a duty of fairness reserve allowed for tax purposes in the transferred S&P business, not now 
expected to reverse.

A new regime for the taxation of life assurance companies in the UK was introduced with effect from 1 January 2013. The new regime bases the taxable trading 
proﬁt on IFRS proﬁts rather than on FSA return surplus generated as under the previous rules and also treats pension business separately from life assurance 
business. Whilst this change does not impact the 2012 current tax charge, it has created a signiﬁcant recovery in the deferred tax charge as the pension losses 
in the UK life company will be of value going forward whereas no value was ascribed to them under the previous regime. In addition, as part of the transition to 
the new regime, accumulated historical proﬁts as at 31 December 2012 are compared between the two bases and any taxable difference is brought into charge 
over the next ten years. This transitional adjustment has created a deferred tax charge as at 31 December 2012, partially offsetting the pension related  
recovery noted here.

110

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)
Year ended 31 December

Current tax credit
Current year expense 
Adjustment to prior years 

Net credits 
Deferred tax (expense)/credit
Origination and reversal of temporary differences 

Total income tax (expense)/credit 

(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)
Year ended 31 December

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)

(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:25)(cid:17)(cid:22)(cid:8)(cid:3)
Non-taxable income in relation to unit-linked business 
Non-taxable fair value adjustment 
Impact of different tax rate for subsidiaries 
Permanent differences 
Unrecognised tax recoverable 
Non-deductible expenses 
Overprovided in prior years 

Total income tax (expense)/credit 

  19 Deferred acquisition costs 

Year ended 31 December

(cid:3)

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Additions arising from new business 
Amortisation charged to income 
Foreign exchange translation difference 

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)

Current  
Non-current 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

2011
£000

–  
–  

–  

(323 ) 

(323 ) 

2012  
£000  

(cid:26)(cid:24)(cid:19)(cid:3)(cid:3)

(197 ) 
655  
(215 ) 
(41 ) 
(179 ) 
(309 ) 
(37 ) 
–  

(323 ) 

(15 )
289 

274 

1 

275 

2011
£000

(691 )

182 
195 
(293 )
5 
(8 )
–
(95 )
289

275 

2012  
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

19,720  
10,255  
(7,658 ) 
238  

2011
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

14,659
12,642
(7,339 )
(242 )

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:24)(cid:15)(cid:26)(cid:21)(cid:24)(cid:3)(cid:3)
–  
(667 ) 
–  

(cid:24)(cid:15)(cid:19)(cid:24)(cid:27)(cid:3)(cid:3)

578  
4,480  

(cid:24)(cid:15)(cid:19)(cid:24)(cid:27)(cid:3)(cid:3)

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

13,995  
10,255  
(6,991 ) 
238  

–  
–  
–  
–  

(cid:178)(cid:3)(cid:3)

–  
–  

(cid:178)(cid:3)(cid:3)

(cid:20)(cid:26)(cid:15)(cid:23)(cid:28)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:21)(cid:15)(cid:24)(cid:24)(cid:24)(cid:3)(cid:3)

(cid:20)(cid:28)(cid:15)(cid:26)(cid:21)(cid:19)

1,574  
15,923  

2,152  
20,403  

1,911
17,809

(cid:20)(cid:26)(cid:15)(cid:23)(cid:28)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:21)(cid:15)(cid:24)(cid:24)(cid:24)(cid:3)(cid:3)

(cid:20)(cid:28)(cid:15)(cid:26)(cid:21)(cid:19)

The amortisation charged to income is recognised in Fees, Commission and Other Acquisition Costs (see Note 14).

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

111

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
   
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  20 Acquired value of in-force business (AVIF)

Cost
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)
Foreign exchange translation difference 

Balance at 31 December  

Amortisation and impairment losses
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)
Amortisation for the year 
Foreign exchange translation difference 

Balance at 31 December  

Carrying amounts
(cid:36)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)

At 31 December  

Current 
Non-current 

Total 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The amortisation is charged to income and is recognised in Other Operating Expenses (see Note 16). 

  21 Acquired value of customer relationships (AVCR)

Cost
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)
Foreign exchange translation difference 

Balance at 31 December  

Amortisation and impairment losses
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)
Amortisation for the year 
Foreign exchange translation difference 

Balance at 31 December 

Carrying amounts
(cid:36)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)

At 31 December  

Current 
Non-current 

Total 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

2011
£000

(cid:20)(cid:21)(cid:26)(cid:15)(cid:28)(cid:19)(cid:26)(cid:3)(cid:3)
872  

(cid:20)(cid:21)(cid:27)(cid:15)(cid:26)(cid:26)(cid:26)
(870 )

128,779  

127,907

(cid:23)(cid:23)(cid:15)(cid:24)(cid:25)(cid:20)(cid:3)(cid:3)
7,863  
237  

(cid:22)(cid:24)(cid:15)(cid:26)(cid:22)(cid:20)
9,032
(202 )

52,661  

44,561

(cid:3)(cid:3)

(cid:27)(cid:22)(cid:15)(cid:22)(cid:23)(cid:25)(cid:3)(cid:3)

(cid:28)(cid:22)(cid:15)(cid:19)(cid:23)(cid:25)

76,118  

83,346

7,228  
68,890  

8,620
74,726

76,118  

83,346

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(cid:23)(cid:15)(cid:20)(cid:20)(cid:22)(cid:3)(cid:3)
51  

2011
£000

(cid:23)(cid:15)(cid:20)(cid:25)(cid:23)
(51 )

4,164  

4,113

(cid:20)(cid:15)(cid:27)(cid:24)(cid:27)(cid:3)(cid:3)
391  
31  

(cid:20)(cid:15)(cid:20)(cid:22)(cid:21)
758
(32 )

2,280  

1,858

(cid:21)(cid:15)(cid:21)(cid:24)(cid:24)(cid:3)(cid:3)

1,884  

291  
1,593  

(cid:22)(cid:15)(cid:19)(cid:22)(cid:21)

2,255

139
2,116

1,884  

2,255

The amortisation period of AVCR is based on the underlying returns on the policies expected to be written as a result of customer relationships.

The amortisation is charged to income and is recognised in Other Operating Expenses (see Note 16).

112

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  22 Software assets

Cost
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Additions 
Disposals 
Foreign exchange translation difference 

Balance at 31 December 

Amortisation and impairment losses
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Amortisation charge for the year 
Disposals 
Foreign exchange translation difference 

Balance at 31 December 

Carrying amounts at 31 December 

Current 
Non-current 

Total 

  23 Property and equipment

Cost
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Additions 
Disposals 
Foreign exchange translation difference 

Balance at 31 December 

Amortisation and impairment losses
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Depreciation charge for the year 
Disposals 
Foreign exchange translation difference 

Balance at 31 December 

Carrying amounts at 31 December 

Current 
Non-current 

Total 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

SECTION D
IFRS FINANCIAL STATEMENTS

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(cid:20)(cid:20)(cid:15)(cid:21)(cid:21)(cid:28)(cid:3)(cid:3)
1,094  
–  
160  

2011
£000

(cid:28)(cid:15)(cid:23)(cid:21)(cid:20)
1,968
(1 )
(159 )

12,483  

11,229

(cid:23)(cid:15)(cid:23)(cid:27)(cid:24)(cid:3)(cid:3)
2,188  
–  
98  

6,771  

5,712  

2,349  
3,363  

(cid:21)(cid:15)(cid:24)(cid:28)(cid:21)
1,979
(11 )
(75 )

4,485

6,744

1,922
4,822

5,712  

6,744

2012  
£000  

(cid:20)(cid:15)(cid:21)(cid:23)(cid:28)(cid:3)(cid:3)
235  
(123 ) 
12  

2011
£000

(cid:20)(cid:15)(cid:22)(cid:21)(cid:26)
49
(113 )
(14 )

1,373  

1,249

(cid:27)(cid:25)(cid:23)(cid:3)(cid:3)
209  
(82 ) 
13  

1,004  

369  

138  
231  

369  

(cid:25)(cid:24)(cid:25)
296
(77 )
(11 )

864

385

209
176

385

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

113

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  24 Investment in associate

Cost
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)
Foreign exchange translation difference 

Balance at 31 December 

(cid:3)
Associates at 100% 

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)(cid:3)(cid:54)(cid:17)(cid:36)(cid:17)(cid:3)

Total 31 December 2012 

(cid:3)
(cid:3)
Associates at 49% 

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)(cid:3)(cid:54)(cid:17)(cid:36)(cid:17)(cid:3)

Total 31 December 2012 

  25 Investment properties

31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Additions
Properties acquired 
Disposals 
Fair value adjustments 

Balance at 31 December 

Current 
Non-current 

Total  

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

2012  
£000  

(cid:20)(cid:15)(cid:25)(cid:20)(cid:22)(cid:3)(cid:3)
(cid:20)(cid:15)(cid:21)(cid:23)(cid:23)(cid:3)(cid:3)
45  

2011
£000

(cid:20)(cid:15)(cid:26)(cid:27)(cid:22)
(152 )
(18 )

2,902  

1,613

(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:3)
£000  

(cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)
£000

(cid:21)(cid:25)(cid:15)(cid:22)(cid:20)(cid:22)(cid:3)(cid:3)(cid:3)

(cid:21)(cid:19)(cid:15)(cid:22)(cid:28)(cid:20)(cid:3)(cid:3)

(cid:20)(cid:19)(cid:15)(cid:19)(cid:19)(cid:21)(cid:3)(cid:3)

(cid:21)(cid:15)(cid:24)(cid:22)(cid:28)

26,313  

20,391  

10,002  

2,539

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:3)
(cid:68)(cid:87)(cid:3)(cid:20)(cid:19)(cid:19)(cid:8)(cid:3)(cid:3)
£000  

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:3)
(cid:68)(cid:87)(cid:3)(cid:23)(cid:28)(cid:8)(cid:3)(cid:3)
£000  

(cid:23)(cid:28)(cid:8)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)
£000

(cid:24)(cid:15)(cid:28)(cid:21)(cid:21)(cid:3)(cid:3)

(cid:21)(cid:15)(cid:28)(cid:19)(cid:21)(cid:3)(cid:3)

5,922  

2,902  

(cid:20)(cid:15)(cid:21)(cid:23)(cid:23)

1,244

2012  
£000  

2011
£000

(cid:3)(cid:3)

(cid:20)(cid:22)(cid:21)(cid:15)(cid:20)(cid:21)(cid:27)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:19)(cid:15)(cid:27)(cid:21)(cid:19)

5,927  
(32,238 ) 
(5,650 ) 

9,310
(2,235 )
4,233

100,167  

132,128

–  
100,167  

2,750
129,378

100,167  

132,128

Investment properties were bought for investment purposes in line with the investment strategy of the Group. The properties are independently valued in 
accordance with International Valuation Standards on the basis of determining the open market value of the investment properties on an annual basis. The latest 
valuations were conducted as at 31 December 2012.

Income arises from investment properties in two streams: 

(i)  Fair value gains arising as a result of market appreciation in the value of the properties; and

(ii)  Rental income arising from leases granted on the properties. 

Both of these amounts are disclosed in Net Investment Return (see Note 10). Expenses incurred in the operation and maintenance of investment properties are 
disclosed in Other Operating Expenses (see Note 16).

114

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  26 Financial assets

 Group

(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)
31 December

Fair value through income

Designated at fair-value through income on initial recognition    
(cid:3)(cid:3)
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

Insurance and other receivables 
Prepayments 

Total 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

2011
£000

3,861,650  
(cid:22)(cid:15)(cid:19)(cid:28)(cid:24)(cid:3)(cid:3)
24,313  
3,160  

3,702,056
(cid:20)(cid:19)(cid:15)(cid:22)(cid:19)(cid:27)
30,799
3,234

3,892,218  

3,746,397

Fair value is the amount for which an asset could be exchanged between willing parties in an arm’s length transaction. The tables below show the determination 
of fair value 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).

 Financial assets at fair value through income

(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)

Equities
Listed 

(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:178)(cid:3)(cid:192)(cid:91)(cid:72)(cid:71)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)

Government Bonds 
Listed 

(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:178)(cid:3)(cid:193)(cid:82)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)

Listed 

Total debt securities 
Holdings in collective investment schemes 
Policyholders’ funds held by the group 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

Total 

Current 
Non-current 

Total 

Level 1  
£000  

Level 2  
£000  

Level 3  
£000  

Total
£000

427,303  

306,623  
46,677  

10,077  
363,377  
3,008,808  
61,171  
(cid:22)(cid:20)(cid:19)(cid:3)(cid:3)

–  

–  
–  

–  
–  
991  
–  
(cid:21)(cid:15)(cid:26)(cid:27)(cid:24)(cid:3)(cid:3)

3,860,969  

3,776  

–  

–  
–  

–  
–  
–  
–  
(cid:178)(cid:3)(cid:3)

–  

427,303

306,623
46,677

10,077
363,377
3,009,799
61,171
(cid:22)(cid:15)(cid:19)(cid:28)(cid:24)

3,864,745

1,466,685
2,396,060

3,864,745

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)

Level 1  
£000  

Level 2  
£000  

Level 3  
£000  

Total
£000

Equities
Listed 

(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:178)(cid:3)(cid:192)(cid:91)(cid:72)(cid:71)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)

Government Bonds 
Listed 

(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:178)(cid:3)(cid:193)(cid:82)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)

Listed 

Total debt securities 
Holdings in collective investment schemes 
Policyholders’ funds held by the group 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)

Current 
Non-current 

Total  

404,431  

293,903  
29,163  

7,544  
330,610  
2,820,197  
49,080  
(cid:25)(cid:15)(cid:27)(cid:23)(cid:24)(cid:3)(cid:3)

–  

–  
–  

–  
–  
97,738  
–  
(cid:22)(cid:15)(cid:23)(cid:25)(cid:22)(cid:3)(cid:3)

(cid:22)(cid:15)(cid:25)(cid:20)(cid:20)(cid:15)(cid:20)(cid:25)(cid:22)(cid:3)(cid:3)

(cid:20)(cid:19)(cid:20)(cid:15)(cid:21)(cid:19)(cid:20)(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

–  

–  
–  

–  
–  
–  
–  
(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

404,431

293,903
29,163

7,544
330,610
2,917,935
49,080
(cid:20)(cid:19)(cid:15)(cid:22)(cid:19)(cid:27)

(cid:22)(cid:15)(cid:26)(cid:20)(cid:21)(cid:15)(cid:22)(cid:25)(cid:23)

1,337,188
2,375,176

3,712,364

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

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

115

 
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Company

Year ended 31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Equity contributions paid to Movestic Livförsäkring AB 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Balance at 31 December 

Current 
Non-current 

Total 

A list of investments in subsidiaries held by the Group is disclosed in Note 53.

  27 Insurance and other receivables and prepayments

 Group

Insurance and other receivables
31 December

Receivables arising from insurance contracts
Brokers 
Policyholders 

Receivables arising from investment contracts
Policyholders 
Reinsurance receivables 
Commission receivables 
Debtor for professional indemnity insurance 

Other receivables
Loan to associated companies 
Accrued interest income 
Accrued rent 
Receivables from fund management companies 
Initial margin payments on derivatives 
Other 

Total  

Current 
Non-current 

Total  

The carrying amount is a reasonable approximation of fair value.

31 December

Prepayments 

Current 
Non-current 

Total 

The carrying amount is a reasonable approximation of fair value.

2012  
£000  

2011
£000

(cid:20)(cid:23)(cid:25)(cid:15)(cid:25)(cid:28)(cid:28)(cid:3)(cid:3)
–  

(cid:20)(cid:23)(cid:20)(cid:15)(cid:23)(cid:22)(cid:23)
5,265

146,699  

146,699

–  
146,699  

–
146,699

146,699  

146,699

2012  
£000  

694  
3,667  

7  
231  
267  
92  

642  
4,775  
720  
3,943  
6,663  
2,612  

2011
£000

653
3,926

1,737
201
417
40

536
4,631
630
7,865
4,997
5,166

24,313  

30,799

22,548  
1,765  

30,263
536

24,313  

30,799

2012  
£000  

2011
£000

3,160  

3,234

3,160  
–  

2,084
1,150

3,160  

3,234

116

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Company

Receivables and prepayments
31 December

Amounts due from subsidiary companies 
Other receivables 
Prepayments 

Total  

Current 
Non-current 

Total 

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

2011
£000

510  
25  
50  

585  

585  
–  

585  

188
37
71

296

296
–

296

The carrying amount is a reasonable approximation of fair value.

  28 Derivative ﬁnancial instruments

The Group does not hold derivatives outside the unit-linked and with-proﬁts funds, except for an option to repay a ﬁnancial reinsurance contract early, which 
comprises an embedded derivative. 

31 December

Exchange-traded futures 
Financial reinsurance embedded derivative 

Total 

Current 
Non-current 

Total 

Asset  
£000  

516  
2,579  

2012 

Liability  
£000  

(286 ) 
–  

Asset  
£000  

6,893  
3,415  

3,095  

(286 ) 

10,308  

1,118  
1,977  

(286 ) 
–  

8,163  
2,145  

3,095  

(286 ) 

10,308  

2011

Liability
£000

(144 )
–

(144 )

(144 )
–

(144 )

Derivatives within unit-linked funds
As part of its Investment management strategy, the Group purchases derivative ﬁnancial instruments comprising part of its investment portfolio for unit-linked 
investment funds, which match the liabilities arising on its unit-linked insurance and investment business. 

A variety of equity futures are part of the portfolio matching the unit-linked investment and insurance liabilities. Derivatives are used to facilitate more efﬁcient portfolio 
management allowing changes in Investment strategy to be reﬂected by futures transactions rather than a high volume of transactions in the underlying assets.

All the contracts are exchange-traded futures, with their fair value being the bid price at the balance sheet date: They are, accordingly, determined at Level 1 in the 
three-level fair value determination hierarchy set out in Note 26. 

Exchange-traded futures (by geographical investment market)
31 December

Australia 
Europe 
UK 
Hong Kong 
Japan 
South Korea 
Singapore 
USA 

Total 

2012 

2011

Asset  
£000  

Liability  
£000  

Asset  
£000  

Liability
£000

23  
–  
140  
8  
227  
16  
1  
101  

516  

–  
(26 ) 
(260 ) 
–  
–  
–  
–  
–  

183  
878  
3,613  
137  
183  
325  
30  
1,544  

(28 )
–
(72 )
(4 )
(12 )
(25 )
(3 )
–

(286 ) 

6,893  

(144 )

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

117

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Financial reinsurance embedded derivative
In respect of Movestic, 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. This assessment has been determined by management based on the contractual 
terms of the reinsurance agreement. 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 rates at the balance sheet date. It is, accordingly, determined at Level 2 in the three-level fair value determination 
hierarchy set out in Note 26.

Derivatives within the S&P with-proﬁts funds
As part of its investment management strategy, S&P enters into a limited range of derivative instruments to manage its exposure to various risks. 

S&P uses equity index futures in order to economically hedge equity market risk in the with-proﬁt funds’ investments.

The change in fair value of the futures contracts is intended to offset the change in fair value of the underlying equities being hedged. S&P settles the market value 
of the futures contracts on a daily basis by paying or receiving a variation margin. The futures contracts are not discounted as this daily settlement is equal to the 
change in fair value of the futures. As a result, there is no additional fair value to recognise in relation to these derivatives on the balance sheet at the period end.

S&P also purchases exchange rate futures to mitigate exchange rate risk within its with-proﬁts funds.

These contracts are exchange-traded contracts in active markets with their fair value being the bid price at the balance sheet date. They are, accordingly, determined 
at Level 1 in the three-level fair value determination hierarchy set out in Note 26. 

  29 Income tax assets 

(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:29)
31 December

Group
Corporation tax recoverable 

Company
Corporation tax recoverable 

The carrying amount is a reasonable approximation of fair value.

  30 Cash and cash equivalents

Group
31 December

Bank and cash balances 
Call deposits due within 1 month 
Call deposits due after 1 month 

2012  
£000  

2011
£000

4,299  

6,956

1,394  

1,197

2012  
£000  

76,115  
58,552  
94,009  

2011
£000

57,601
73,361
64,958

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Bank overdrafts 

(cid:3)(cid:3)

(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:193)(cid:82)(cid:90)(cid:86)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:21)(cid:21)(cid:27)(cid:15)(cid:25)(cid:26)(cid:25)(cid:3)(cid:3)
(602 ) 

(cid:20)(cid:28)(cid:24)(cid:15)(cid:28)(cid:21)(cid:19)
(834 )

(cid:21)(cid:21)(cid:27)(cid:15)(cid:19)(cid:26)(cid:23)(cid:3)(cid:3)

(cid:20)(cid:28)(cid:24)(cid:15)(cid:19)(cid:27)(cid:25)

The effective interest rate on short-term bank deposits was 0.74% (2011: 0.94%), with an average maturity of 37 days. All deposits included in cash and cash 
equivalents were due to mature within 3 months of their acquisition.

Included in cash and cash equivalents held by the Group are balances totalling £99,253,000 (2011: £78,907,000) held in unit-linked policyholders’ funds.

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Company
31 December

Bank and cash balances 
Call deposits due within 1 month 
Short-term deposits due within 1 year 

Total 

  31 Capital management
  (a) Objective

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

389  
29,015  
3,008  

2011
£000

267
15,370
–

32,412  

15,637

The Group’s capital management framework is designed to provide security for all shareholders, while meeting the expectations of policyholders and shareholders. 
Accordingly it:

1) 

 safeguards policyholders interests by meeting regulatory requirements established by the regulators of the insurance markets in which the Group’s regulated 
companies operate, while not retaining unnecessary excess capital;

2)  seeks to meet the dividend expectations of shareholders and to optimise the gearing ratio to ensure an efﬁcient capital base;

3)  ensures there is sufﬁcient liquidity to meet obligations to policyholders, debt ﬁnanciers and creditors as they fall due; and

4)  maintains the Group as a going concern so that it continues to provide returns and to meet obligations to all stakeholders.

The Group’s subsidiary and associate companies are subject to minimum regulatory capital requirements according to the jurisdictions in which they operate.  
In addition CA is required to prepare and submit a Group-level solvency capital statement in accordance with the EU Insurance Groups Directive (IGD).

The rules are designed to ensure that companies have sufﬁcient assets to meet their liabilities in speciﬁed adverse circumstances. As such, there is, in the UK, 
a restriction on the full transfer of surpluses from the long-term business funds to shareholder funds in CA, and on the full distribution of retained earnings from 
CA to Chesnara and, in Sweden, on distributions from Movestic shareholder funds.

On 31 December 2011 the long-term business funds and the shareholder funds of SPI and SPP were transferred to CA under the provisions of Part VII of the 
Financial Services and Markets Act 2000 (‘the Part VII Transfer’), subject to leaving sufﬁcient capital within SPI and SPP to meet regulatory requirements for  
the limited period until these companies were de-authorised as they subsequently have been during 2012. Accordingly all of the long-term business of the UK 
businesses subsists within one regulated entity, CA, with effect from that date. 

The overall capital dynamics of the Group are such that the UK businesses, being substantially in run-off, are net contributors of capital, which is reﬂected in the 
medium-term by way of dividend distributions to the parent company, while, in the medium-term, the Swedish business, as it expands, and before it achieves 
economies of scale, is a net consumer of capital, which is reﬂected by way of additional capital contributions from the parent company.

  (b) Operation of the UK, Swedish and EU regulatory regimes

UK businesses
The operation of regulation with respect to the UK Businesses is such as to specify the minimum amount of capital that must be held in addition to the insurance 
liabilities as determined for regulatory purposes. This is established by reference to two calculations, being:

(i) 

 the Pillar 1 calculation, which compares regulatory capital based on the characteristics of the in-force life assurance business with an associated measure of 
capital as prescribed by regulation; and

(ii)   the Pillar 2 calculation, which compares a risk-based assessment of economic capital with an associated measure of capital based on a realistic assessment 

of insurance liabilities.

For CA, SPI and SPP, for the whole of the period covered by these ﬁnancial statements, the minimum regulatory capital requirement was determined by the ﬁrst 
calculation, as this gave rise to the lesser measure of surplus capital. This calculation is set out below in Section (c) Regulatory Capital Resources and Requirements, 
together with the CA Board’s policy in targeting regulatory capital resource cover for total regulatory capital resource requirements. 

The long-term insurance business subsisting within CA prior to the Part VII Transfer fell outside the scope of the FSA’s ‘realistic capital’ regime and comprises 
mainly non-proﬁt business, both unit-linked and non-linked business. The with-proﬁts liabilities of the long-term insurance business, subsisting within CA prior 
to the Part VII Transfer, are wholly reassured to Guardian. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

119

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Therefore, in respect of this with-proﬁts business, there is no separate with-proﬁts fund. The long-term insurance business transferred to CA from SPI and SPP, 
which also fell outside the scope of the FSA’s ‘realistic capital’ regime, comprises with-proﬁts business, for which two separate subfunds continue to be maintained, 
and unit-linked and non-linked non-proﬁt business. CA continues to fall outside the scope of the FSA’s ‘realistic capital’ regime following the Part VII Transfer. 
Within these IFRS ﬁnancial statements excess of policyholder assets and liabilities relating to these funds is classiﬁed within insurance contract provisions.

Swedish business
Movestic is subject to the Swedish regulatory regime and has to maintain a minimum level of regulatory capital, being the prescribed minimum solvency 
margin requirements. 

The solvency surplus under the Swedish regulatory regime is the excess of the regulatory capital resources over the capital resource requirements which are 
based on the insurance business. This calculation is set out below in Section (c) Regulatory Capital Resources and Requirements together with the Movestic 
Board’s policy in targeting regulatory capital resource cover for total regulatory capital resource requirements. The Swedish business also includes a 49% 
interest in an associated company, Modernac S.A. (‘Modernac’), a Luxembourg-based reinsurer, which is subject to EU regulatory solvency requirements: its scale 
of operations are such that its capital resource requirement is the EU regulatory minimum.

Group
In addition to the solvency requirements for the UK and Swedish Businesses, as set out above, the Group is subject to the requirements of the EU Insurance 
Group Directive, in accordance with which the Group calculates the excess of the aggregate of regulatory capital resources determined on a group-wide basis 
over the aggregate minimum regulatory capital requirement imposed by local regulators. The requirement is that available Group capital resources, as set out in 
Section (d) Group Capital Position Statement below, should be at least 100% of capital requirements. 

  (c) Regulatory capital resources and requirements 

UK businesses
The following summarises the capital resources and requirements of CA, SPI and SPP, as determined for UK regulatory purposes (Pillar 1): 

31 December

Available capital resources (CR)(cid:3)

Long-term insurance capital requirement (LTICR)(cid:3)
Resilience capital requirement (RCR)(cid:3)

(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)

Total capital resource requirements (CRR)(cid:3)

(cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:53)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:38)(cid:53)(cid:53)(cid:3)(cid:11)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:12)(cid:3)

Ratio of available CR to CRR 

(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)

(cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:53)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012 

2011

£m  

S&P  

(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

–  

(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

£m  

CA  

(cid:20)(cid:19)(cid:23)(cid:17)(cid:27)(cid:3)(cid:3)

(cid:22)(cid:28)(cid:17)(cid:20)(cid:3)(cid:3)
(cid:20)(cid:27)(cid:17)(cid:22)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:24)(cid:26)(cid:17)(cid:23)(cid:3)(cid:3)

(cid:23)(cid:26)(cid:17)(cid:23)(cid:3)(cid:3)

£m

S&P

(cid:26)(cid:17)(cid:19)

(cid:178)
(cid:178)

(cid:25)(cid:17)(cid:20)

(cid:25)(cid:17)(cid:20)

(cid:19)(cid:17)(cid:28)

183%  

115%

(cid:27)(cid:20)(cid:17)(cid:27)(cid:3)(cid:3)

(cid:21)(cid:22)(cid:17)(cid:19)(cid:3)(cid:3)

(cid:25)(cid:17)(cid:20)

(cid:19)(cid:17)(cid:28)

£m  

CA  

(cid:28)(cid:28)(cid:17)(cid:22)(cid:3)(cid:3)

(cid:22)(cid:28)(cid:17)(cid:24)(cid:3)(cid:3)
(cid:20)(cid:19)(cid:17)(cid:24)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:24)(cid:19)(cid:17)(cid:19)(cid:3)(cid:3)

(cid:23)(cid:28)(cid:17)(cid:22)(cid:3)(cid:3)

199%  

(cid:26)(cid:23)(cid:17)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:23)(cid:17)(cid:25)(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The information presented in respect of CA as at 31 December 2011 reﬂects the position following the Part VII Transfer referred to above.

Available capital resources for CA as at 31 December 2012 are stated after provision for a dividend of £40.0m which was approved by the CA Board subsequent 
to 31 December 2012 (as at 31 December 2011: £44.0m subsequent to 31 December 2011). 

120

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
  
  
  
 
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

CA’s Board, as a matter of policy, continues to target CR cover for total CRR at a minimum level of 162.5% of the LTICR plus 100% of the RCR.

As at 31 December 2011 shareholder funds of £7.0m were retained in S&P, in order to cover the EU regulatory minimum for regulated insurance companies. 
SPI and SPP were de-authorised during 2012, following which those residual shareholder funds were transferred to CA shareholder funds.

Individual Capital Assessment (Pillar 2)
The FSA Prudential Sourcebooks require UK insurance companies to make their own assessment of their capital needs to a required standard (a 99.5% 
probability of being able to meet liabilities to policyholders after one year). In the light of scrutiny of this assessment, the FSA may impose its own additional 
individual capital guidance. The Individual Capital Assessment (ICA) is based on a realistic liability assessment, rather than on the statutory mathematical 
reserves, and involves stress testing the resultant realistic balance sheet for the impact of adverse events, including such market effects as signiﬁcant falls in 
equity values, interest rate increases and decreases, bond defaults and further widening of bond spreads.

CA completed a full annual assessment during 2012 as a result of which it was concluded that the effective current and medium-term capital requirement 
constraints on distributions to Chesnara will continue to be on the basis set out under ‘Regulatory capital resources and requirements’ above. This assessment 
is subject to quarterly high-level updates until the next full annual assessment.

Swedish business
The following summarises the Capital Resources and the Capital Resources Requirements of Movestic as determined for Swedish regulatory purposes and 
Movestic’s 49% proportionate share in the Capital Resources and Capital Resources Requirements of Modernac:

31 December 2012
(cid:3)

Available Capital Resources (CR)(cid:3)
Capital Resource Requirements (CRR)(cid:3)

(cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:53)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:38)(cid:53)(cid:53)(cid:3)(cid:11)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:12)(cid:3)

Ratio of available CR to CRR 

(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)

(cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:53)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)

31 December 2011
(cid:3)

Available Capital Resources (CR)(cid:3)
Capital Resource Requirements (CRR)(cid:3)

(cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:53)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:38)(cid:53)(cid:53)(cid:3)(cid:11)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:12)(cid:3)

Ratio of available CR to CRR 

(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)

(cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:53)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£m  

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)
£m

(cid:22)(cid:21)(cid:17)(cid:24)(cid:3)(cid:3)
(cid:20)(cid:20)(cid:17)(cid:25)(cid:3)(cid:3)

(cid:21)(cid:19)(cid:17)(cid:28)(cid:3)(cid:3)

(cid:22)(cid:17)(cid:24)
(cid:20)(cid:17)(cid:22)

(cid:21)(cid:17)(cid:21)

280%  

269%

(cid:20)(cid:26)(cid:17)(cid:23)(cid:3)(cid:3)

(cid:20)(cid:24)(cid:17)(cid:20)(cid:3)(cid:3)

(cid:81)(cid:18)(cid:68)

(cid:81)(cid:18)(cid:68)

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£m  

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)
£m

(cid:21)(cid:28)(cid:17)(cid:25)(cid:3)(cid:3)
(cid:20)(cid:21)(cid:17)(cid:20)(cid:3)(cid:3)

(cid:20)(cid:26)(cid:17)(cid:24)(cid:3)(cid:3)

(cid:21)(cid:17)(cid:22)
(cid:20)(cid:17)(cid:24)

(cid:19)(cid:17)(cid:27)

245%  

153%

(cid:20)(cid:27)(cid:17)(cid:21)(cid:3)(cid:3)

(cid:20)(cid:20)(cid:17)(cid:23)(cid:3)(cid:3)

(cid:81)(cid:18)(cid:68)

(cid:81)(cid:18)(cid:68)

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

121

 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

The Movestic Board has set a minimum target of 150% of the regulatory capital requirement. Swedish solvency regulation requires that a certain proportion  
of assets, to be fully admissible, is to be held in the form of cash. The operation of this requirement may, from time to time, act as the operative constraint in 
determining the level of additional funding requirements, thereby causing the solvency ratio to rise above what it would otherwise have been, had the form of assets 
matching capital resources not been a constraint. Movestic’s solvency ratio declines as the increasing scale of its business requires a higher level of regulatory 
capital: as the ratio approaches 150%, further planned capital contributions will be made by the Group.

Movestic, in accordance with local regulatory requirements, continues to make quarterly assessments of the risk-based capital requirements of its business: 
these indicate that capital resources currently provide a comfortable margin over capital resource requirements.

  (d) Group capital position statement 

The following summarises the regulatory capital resources arising in both life and non-life entities, together with a statement of capital resources on a consolidated 
basis and with a reconciliation to shareholders’ net equity established on the IFRS basis: 

As at 31 December 2012
(cid:3)
(cid:3)

(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
businesses  

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
businesses  
(cid:3)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:16)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:3)
£000  

(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:3)
non-  

£000  

£000  

(cid:3)(cid:3) (cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
business  
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

businesses  
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)
(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)
businesses
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)
£000

Shareholder funds outside long-term insurance  
funds – retained earnings 
Shareholder funds in long-term insurance funds 

–  
44,456  

–  
4,917  

49,110  
–  

49,110  
49,373  

38,759  
–  

87,869
49,373

Total shareholder funds 

44,456  

4,917  

49,110  

98,483  

38,759  

137,242

Adjustment onto regulatory basis
Policyholder funds 
Adjustments to net assets 

15,351  
(7,312 ) 

–  
(839 ) 

–  
(6,330 ) 

15,351  
(14,481 ) 

–  
(6,277 ) 

15,351
(20,758 )

Total available capital resources 

52,495  

4,078  

42,780  

99,353  

32,482  

131,835

(cid:3)
(cid:3)

Shareholder funds outside long-term insurance  
funds – retained earnings 
Shareholder funds in long-term insurance funds 

Total shareholder funds 
Adjustment onto regulatory basis 
Policyholder funds 
Adjustments to net assets 

Group life  
insurance  
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:3)
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

Other  
activities  
(cid:56)(cid:46)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3)
£000  

Other  
activities  
(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3) (cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:3)
£000  

£000  

(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3) (cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:3) (cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)
(cid:44)(cid:41)(cid:53)(cid:54)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)
£000

(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:3)
£000  

(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

87,869  
49,373  

178,839  
–  

1,649  
–  

(112,304 ) 
–  

156,053  
49,373  

12,920  
–  

168,973
49,373

137,242  

178,839  

1,649  

(112,304 ) 

205,426  

12,920  

218,346

15,351  
(20,758 ) 

–  
(62,960 ) 

–  
3  

–  
16,217  

15,351  
(67,498 ) 

Total available capital resources 

131,835  

125,879  

1,652  

(96,087 ) 

153,279  

122

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
 
  
  
  
  
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
As at 31 December 2011
(cid:3)
(cid:3)

(cid:3)

Shareholder funds outside long-term insurance  
funds – retained earnings 
Shareholder funds in long-term insurance funds 

Total shareholder funds 
Adjustment onto regulatory basis
Policyholder funds 
Adjustments to net assets 

SECTION D
IFRS FINANCIAL STATEMENTS

(cid:3)(cid:3) (cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
business  
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

businesses  
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)
(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)
businesses
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
businesses  

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
businesses  
(cid:3)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:16)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:3)
£000  

(cid:56)(cid:46)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:3)
non-  

£000  

£000  

–  
40,990  

–  
7,623  

61,164  
1,078  

61,164  
49,691  

37,059  
–  

98,223
49,691

40,990  

7,623  

62,242  

110,855  

37,059  

147,914

15,643  
(7,709 ) 

–  
(1,090 ) 

–  
(5,872 ) 

15,643  
(14,671 ) 

–  
(7,454 ) 

15,643
(22,125 )

Total available capital resources 

48,924  

6,533  

56,370  

111,827  

29,605  

141,432

(cid:3)
(cid:3)

Shareholder funds outside long-term insurance  
funds – retained earnings 
Shareholder funds in long-term insurance funds 

Total shareholder funds 
Adjustment onto regulatory basis 
Policyholder funds 
Adjustments to net assets 

Group life  
insurance  
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:3)
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

Other  
activities  
(cid:56)(cid:46)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3)
£000  

Other  
activities  
(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3) (cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:3)
£000  

£000  

(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3) (cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:3) (cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)
(cid:44)(cid:41)(cid:53)(cid:54)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)
£000

(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:3)
£000  

(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

98,223  
49,691  

156,529  
–  

1,662  
–  

(109,435 ) 
–  

146,979  
49,691  

12,519  
–  

159,498
49,691

147,914  

156,529  

1,662  

(109,435 ) 

196,670  

12,519  

209,189

15,643  
(22,125 ) 

–  
(52,271 ) 

–  
16  

–  
14,537  

15,643  
(59,843 ) 

Total available capital resources 

141,432  

104,258  

1,678  

(94,898 ) 

152,470  

The tables presented above illustrate Group total available capital resources as measured for the purposes of inclusion in the related regulatory returns. As at 
31 December 2012 they are stated after provision of a dividend of £12.9m and, as at 31 December 2011, after provision of a dividend of £12.5m, which were 
approved by the Chesnara plc Board subsequent to the respective year ends. Provision is not made for such dividends on the IFRS basis: accordingly, it is 
necessary to make adjustment to shareholder funds outside long-term insurance funds as at 31 December 2012, as reﬂected above, in order to illustrate the 
relationship with the total shareholder equity included in the consolidated balance sheet prepared on the IFRS basis. 

The following tables set out the principal forms of capital, which comprise (i) total available capital resources for the total UK Life Businesses, the total Swedish 
Life and Non-life Business and the total Group for regulatory purposes and (ii) total shareholder funds for the Group on the IFRS basis.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

123

 
  
 
  
  
  
  
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

Available Capital Resources for Regulatory Purposes
(cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)

(cid:3)(cid:3)

Share capital 
Share premium 
Treasury shares 
Other equity contributions 
Capital redemption reserve 
Foreign exchange translation reserve 
Surplus in long-term business fund 
(cid:54)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:16)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)
(cid:53)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:18)(cid:11)(cid:68)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:192)(cid:70)(cid:76)(cid:87)(cid:12)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

40,000  
–  
–  
–  
–  
–  
4,078  
(cid:24)(cid:21)(cid:15)(cid:23)(cid:28)(cid:24)(cid:3)(cid:3)
(cid:21)(cid:15)(cid:26)(cid:27)(cid:19)(cid:3)(cid:3)

(cid:28)(cid:28)(cid:15)(cid:22)(cid:24)(cid:22)(cid:3)(cid:3)

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)
£000

–  
–  
–  
–  
–  
–  
–  
(cid:178)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

1,235  
–  
–  
40,460  
–  
–  
–  
(cid:178)(cid:3)(cid:3)
(9,213 ) 

42,024
42,523
(217 )
– 
50 
7,669 
– 
(cid:24)(cid:21)(cid:15)(cid:23)(cid:28)(cid:24)(cid:3)
8,735 

(cid:22)(cid:21)(cid:15)(cid:23)(cid:27)(cid:21)(cid:3)(cid:3)

(cid:20)(cid:24)(cid:22)(cid:15)(cid:21)(cid:26)(cid:28)(cid:3)

The following tables summarise the movement in the available capital resources of the constituent funds of the life businesses, as determined under the respective 
regulatory regimes for the year ended 31 December 2012:

UK businesses

Year ended 31 December 2012

(cid:3)

non-  

Life business   Life business  
non-  
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:3)
S&P  
£000  

CA  
£000  

At beginning of period 
Surplus arising in the year 
(cid:49)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:3)
Intrafund transfers 
Transfer from long-term business fund to  
shareholder fund 
Proposed dividend 

At end of period 

6,533  
22,545  
(cid:178)(cid:3)(cid:3)
–  

(25,000 ) 
–  

(cid:23)(cid:15)(cid:19)(cid:26)(cid:27)(cid:3)(cid:3)

–  
–  
(cid:178)(cid:3)(cid:3)
–  

–  
–  

(cid:178)(cid:3)(cid:3)

With  
(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3)
CA  
£000  

48,924  
4,593  
(cid:178)(cid:3)(cid:3)
(1,022 ) 

–  
–  

With  

Life  
Life  
business  
business  
(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:3)
S&P  
£000  

CA  
£000  

S&P  
£000  

–  
–  
(cid:178)(cid:3)(cid:3)
–  

–  
–  

49,370  
–  
(cid:22)(cid:27)(cid:27)(cid:3)(cid:3)
8,022  

25,000  
(40,000 ) 

7,000  
–  
(cid:178)(cid:3)(cid:3)
(7,000 ) 

–  
–  

(cid:178)(cid:3)(cid:3)

(cid:24)(cid:21)(cid:15)(cid:23)(cid:28)(cid:24)(cid:3)(cid:3)

(cid:3)(cid:178)(cid:3)

(cid:23)(cid:21)(cid:15)(cid:26)(cid:27)(cid:19)(cid:3)(cid:3)

Year ended 31 December 2011

(cid:3)

non-  

Life business   Life business  
non-  
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:3)
S&P  
£000  

CA  
£000  

With  
(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3)
CA  
£000  

With  

Life  
Life  
business  
business  
(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:3)
S&P  
£000  

CA  
£000  

S&P  
£000  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)
business
£000

111,827
27,138 
(cid:22)(cid:27)(cid:27)
–

–
(40,000 )

(cid:28)(cid:28)(cid:15)(cid:22)(cid:24)(cid:22)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)
business
£000

(cid:36)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
Surplus arising on alignment of actuarial  
reserving methodology 
Surplus arising in the year, net of the effect  
of the item shown above 
(cid:49)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:3)
Intrafund transfers 
Transfer from long-term business fund to  
shareholder fund 
Part VII Transfer 
Proposed dividend 

(cid:22)(cid:15)(cid:21)(cid:23)(cid:27)(cid:3)(cid:3)

3,215  

21,148  
(cid:178)(cid:3)(cid:3)
–  

(22,000 ) 
922  
–  

(cid:28)(cid:21)(cid:23)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:22)(cid:25)(cid:15)(cid:25)(cid:24)(cid:20)(cid:3)(cid:3)

(cid:23)(cid:19)(cid:15)(cid:27)(cid:20)(cid:25)(cid:3)(cid:3)

(cid:22)(cid:21)(cid:15)(cid:20)(cid:26)(cid:21)(cid:3)(cid:3)

(cid:20)(cid:20)(cid:22)(cid:15)(cid:27)(cid:20)(cid:20)

–  

10,153  

(1,502 ) 
(cid:178)(cid:3)(cid:3)
1,500  

–  
(922 ) 
–  

–  
(cid:178)(cid:3)(cid:3)
(1,078 ) 

–  
39,849  
–  

–  

3,198  
(cid:178)(cid:3)(cid:3)
–  

–  
(39,849 ) 
–  

–  

–  
(cid:25)(cid:22)(cid:25)(cid:3)(cid:3)
1,078  

22,000  
28,840  
(44,000 ) 

–  

13,368

–  
(cid:20)(cid:25)(cid:27)(cid:3)(cid:3)
(1,500 ) 

–  
(23,840 ) 
–  

22,844
(cid:27)(cid:19)(cid:23)
–

–
5,000
(44,000 )

(cid:36)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:25)(cid:15)(cid:24)(cid:22)(cid:22)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:23)(cid:27)(cid:15)(cid:28)(cid:21)(cid:23)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:23)(cid:28)(cid:15)(cid:22)(cid:26)(cid:19)(cid:3)(cid:3)

(cid:26)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

(cid:20)(cid:20)(cid:20)(cid:15)(cid:27)(cid:21)(cid:26)

There were no changes in available capital resources for the year ended 31 December 2012 due to changes in management policy, regulatory changes or external 
factors. The effect of new business written in the period on available capital resources is not considered to be signiﬁcant.

124

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SECTION D
IFRS FINANCIAL STATEMENTS

Swedish business

Year ended 31 December 2012

At beginning of period 
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
Equity contributions 
Change in intangible assets: software assets 
Change in deferred tax 
Change in foreign exchange reserve 

At end of period  

Year ended 31 December 2011

At beginning of period 
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
Equity contributions 
Change in intangible assets: software assets 
Change in deferred tax 
Change in foreign exchange reserve 

At end of period  

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Total
£000

29,605
(cid:27)(cid:15)(cid:26)(cid:27)(cid:26)
–
(6,274 )
(3 )
367

32,482

Total
£000

23,321
(cid:27)(cid:15)(cid:26)(cid:24)(cid:27)
5,265
(7,438 )
(16 )
(285 )

29,605

There were no changes in available capital resources for the period ended 31 December 2012 due to changes in management policy, regulatory changes or 
external factors. 

The capital position of the Swedish business is sensitive to changes in market conditions affecting the asset values and changes in the assumptions for calculating 
the insurance contract liabilities, as described in Note 32.

Group Capital Adequacy
In accordance with the EU Insurance Groups Directive, the Group calculates the excess of the aggregate of regulatory capital employed over the aggregate 
minimum solvency requirement imposed by local regulators for all of the constituent members of the Group, all of which are based in Europe. The following 
sets out these calculations after the recognition of ﬁnal dividends for the respective ﬁnancial year, but approved by the Board and paid to Group shareholders 
after the respective dates:

31 December

Total available capital resources (CR)(cid:3)

Capital resources requirement

(cid:38)(cid:36)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)
(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:47)(cid:76)(cid:89)(cid:3)
(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)(cid:3)(cid:54)(cid:36)(cid:3)

Total (CRR)(cid:3)

Group solvency surplus (CR less CRR)(cid:3)

Group solvency ratio 

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£m  

(cid:20)(cid:24)(cid:22)(cid:17)(cid:22)(cid:3)(cid:3)

(cid:24)(cid:19)(cid:17)(cid:19)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)
(cid:20)(cid:20)(cid:17)(cid:25)(cid:3)(cid:3)
(cid:20)(cid:17)(cid:22)(cid:3)(cid:3)

(cid:25)(cid:21)(cid:17)(cid:28)(cid:3)(cid:3)

(cid:28)(cid:19)(cid:17)(cid:23)(cid:3)(cid:3)

2011
£m

(cid:20)(cid:24)(cid:21)(cid:17)(cid:24)

(cid:24)(cid:26)(cid:17)(cid:23)
(cid:25)(cid:17)(cid:20)
(cid:20)(cid:21)(cid:17)(cid:20)
(cid:20)(cid:17)(cid:24)

(cid:26)(cid:26)(cid:17)(cid:20)

(cid:26)(cid:24)(cid:17)(cid:23)

244%  

198%

The Group and its individually regulated life assurance businesses have complied with all externally and internally imposed capital requirements during the year.

There has been no material change in the Group’s management of capital during the period, except that, notwithstanding that there are no formal intragroup 
funding arrangements in place, the parent company continues to commit to provide any additional capital contributions to support the target capital requirement 
of Movestic as set out in Section (c) above.

Subject to the regulatory constraints and capital management policy of the Group as set out above, capital resources are available for use elsewhere in the Group.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

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SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  (e) Technical provisions net of reassurance – UK businesses

(i)  The technical provisions established to determine the regulatory capital resources as set out above are:

31 December

Unit-linked

Insurance contracts 
Investment contracts 

Non-unit (sterling)

Insurance contracts 
Investment contracts 

Non-participating

Insurance contracts 
Investment contracts 

With DPF 

Total 

CA 

2012  
£000  

2011  
£000  

SPI/SPP

2012  
£000  

2011
£000

662,316  
592,777  

20,128  
9,627  

149,265  
9,485  
–  

670,117  
563,576  

17,541  
9,232  

139,984  
11,037  
–  

704,833  
92,170  

19,403  
191  

9,900  
–  
340,848  

709,813
105,547

17,502
273

11,056
–
340,915

1,443,599  

1,411,487  

1,167,345  

1,185,106

(ii)  Process used to determine assumptions underlying the calculation of technical provisions.

The process used to determine the assumptions underlying the calculation of technical provisions, which are checked to ensure that they are consistent with 
observed market prices or other published information, is intended to result in conservative estimates of the most likely, or expected, outcome. The 
assumptions which are considered include the expected number and timing of deaths, other claims and investment returns over the period of risk exposure. 
A reasonable allowance is made for the level of uncertainty within the contracts. 

(iii)  The basis for establishing technical provisions is:

The technical provision for S&P with-proﬁts contracts is based on the guaranteed minimum beneﬁts and is calculated on a gross premium basis, by subtracting 
the present value of future premiums from the present value of future beneﬁts payable under the policy, until it ceases at maturity, or death if earlier. The 
gross premium method makes explicit allowance for future policy maintenance costs. If the net present value of the future discounted cash ﬂows is positive, 
no asset is recognised. Provision is not made for future bonuses as all bonuses are terminal bonuses.

For those classes of CA non-linked and unit-linked business where policyholders participate in proﬁts, the liability is wholly reinsured to Guardian. When 
performing the gross liability adequacy test allowance is made for expected future bonuses paid by Guardian. This is based on the realistic liabilities of the 
underlying policies reinsured, as provided to CA by Guardian.

For all other classes of unit linked and quasi-linked business, the technical provision consists of a provision equal to the value of the matching unit-linked 
assets plus an additional reserve calculated on a gross premium basis, by subtracting the present value of future premiums from the present value of future 
beneﬁts payable under the policy, until it ceases at maturity, or death if earlier. The gross premium method makes explicit allowance for future policy 
maintenance costs. If the net present value of the future discounted cash ﬂows is positive, no asset is recognised.

For immediate annuities in payment the technical provision is calculated as the discounted value of the expected future annuity payments under the policies, 
allowing for mortality, interest rates and expenses.

For all other classes of non-linked business the technical provision is calculated on a net premium basis, being the level of premium consistent with a 
premium stream, the discounted value of which, at the outset of the policy, would be sufﬁcient to cover exactly the discounted value of the original guaranteed 
beneﬁts at maturity, or at death if earlier, on the valuation basis. The provision is then calculated by subtracting the present value of future net premiums 
from the present value of the beneﬁts guaranteed at maturity, or death if earlier, as a result of events up to the balance sheet date. Negative provisions do 
not arise under the net premium method, which makes no allowances for voluntary discontinuances by policyholders, and which only implicitly allows for 
future policy maintenance costs.

126

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SECTION D
IFRS FINANCIAL STATEMENTS

(iv)  The principal assumptions underlying the calculation of the technical provisions are:

Mortality
A base mortality table is selected which is most appropriate for each type of contract taking into account rates charged to CA by reinsurers. The mortality 
rates reﬂected in these tables are periodically adjusted, allowing for emerging experience and changes in reinsurer rates. 

Morbidity
Morbidity tables are derived based on reinsurer tables. These are periodically adjusted to take into account emerging experience where appropriate. 

Persistency
In general, no allowance is made for lapses or surrenders within the valuation of insurance contract liabilities, which is a prudent assumption.

For S&P unit-linked business, when assessing additional reserves for expenses and mortality risk, allowance has been made for lapses at a prudent level of 75% 
of the expected level as indicated by recent experience, the rates used being:

Rate of lapse
31 December

Assurances:
(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:3)
(cid:54)(cid:76)(cid:81)(cid:74)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)

(cid:47)(cid:76)(cid:81)(cid:78)(cid:72)(cid:71)(cid:3)(cid:55)(cid:44)(cid:38)(cid:13)(cid:3)

2012 

2011

SPI * 

SPP * 

SPI  

SPP

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:22)(cid:17)(cid:19)(cid:8)(cid:3)(cid:3)
(cid:22)(cid:17)(cid:22)(cid:26)(cid:24)(cid:8)(cid:3)(cid:3)

(cid:21)(cid:17)(cid:25)(cid:21)(cid:24)(cid:8)(cid:3)(cid:3)
(cid:22)(cid:17)(cid:22)(cid:26)(cid:24)(cid:8)(cid:3)(cid:3)

(cid:22)(cid:17)(cid:26)(cid:24)(cid:8)(cid:3)(cid:3)
(cid:22)(cid:17)(cid:26)(cid:24)(cid:8)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:26)(cid:17)(cid:24)(cid:19)(cid:8)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:22)(cid:17)(cid:19)(cid:19)(cid:8)
(cid:22)(cid:17)(cid:26)(cid:24)(cid:8)

(cid:26)(cid:17)(cid:24)(cid:19)(cid:8)

* Trustee Investment Contract, a unit-linked contract (‘TIC’).

Discount rates
CA uses appropriate rates of interest, for different product types, in discounting projected liabilities. As at 31 December 2012 for the material product types, these 
lay between 1.4%% and 2.75% (31 December 2011: between 1.25% and 3.2%). 

The rates of interest shown above have been set after consideration of the risk of default on non-government bonds by applying the following adjustments  
to the earned yield:

(i)  Risk reduction of 0.1% for supranational issuers such as the European Investment Bank;

(ii)  For other issuers, a portion of the excess yield above that available on government backed bonds, where the portion varies by credit rating; and

(iii)  An overall maximum margin over the equivalent term government ﬁxed interest security of 2.0%.

Credit rating 

Reduction 

AAA  

25%  

AA  

30%  

A  

35%  

BBB  

40%  

BB  

50%  

B  

65%  

C+

80%

For many of the life insurance products the interest rate risk is managed through asset/liability management strategies that seek to match the interest rate 
sensitivity of the assets to that of the underlying liabilities. The overall objective of these strategies is to limit the net change in value of assets and liabilities 
arising from interest rate movements. 

Technical provisions for with-proﬁts contracts are particularly sensitive to the interest rate used when discounting due to the existence of investment guarantees.

Renewal expenses and inﬂation
The renewal expenses assumed are based on the charges made to CA by its two third party insurance administration services providers, with appropriate margins. 
These are assumed to inﬂate at a mix of current inﬂation rates in the UK, being the Retail Price Index and the National Average Earnings Index. Explicit 
allowance is also made for those Governance expenses which are charged to the long-term funds.

Taxation
It has been assumed that current tax legislation and tax rates will not change.

The sensitivities of technical provisions and of components of capital to changes in assumptions are materially the same as those detailed in Note 32.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

127

 
 
  
  
  
 
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  (f) Valuation of options and guarantees – UK businesses

(i)  Stochastically-valued options and guarantees 

CA has a small number of guaranteed annuity options which are valued stochastically.

(ii)  Deterministically-valued options and guarantees 

Timed Investment Funds
Certain investment funds, the ‘Timed Investment Funds’, carry a guarantee that the price at maturity date or death will not be less than the highest price attained 
between commencement and contract cessation. The cost of the guarantee can be managed by changing the investment policy adopted by each fund. 

In respect of this guarantee:

(i)  a monthly charge of 1⁄48% of the fund value is made; and

(ii)  investment conditions were such as to require the establishment of a reserve of £327,000 as at 31 December 2012 (31 December 2011: £279,605).

The reserve for a given fund is derived as the discounted exposure at fund maturity date, the exposure being the difference between the guaranteed Timed 
Investment Fund value and the projected fund maturity value, with the latter projected value being derived assuming an immediate fall in value of equities within 
the fund of 26% and allowing for future investment returns, including presumed future equity investment return of 2.57% per annum.

Guaranteed Growth Fund
The Guaranteed Growth Fund (GGF) is a deposit-based contract which provides a return to policyholders that is linked to the average residential mortgage rate. 
However, the assets backing the contract are largely held as cash on deposit. There is, therefore, likely to be a shortfall between the return given to policyholders 
and the return earned on assets, and the value of this shortfall is reserved for.

Reserves for this product comprise a ‘unit’ reserve of the current value of the beneﬁts held and a non-unit reserve for expenses.

The underlying fund at 31 December 2012 was £2.0m (31 December 2011: £6.47m). 196 policies invested in the fund (31 December 2011: 717), of which 75 
(31 December 2011: 76) were paying premiums (for a total of approximately £2,000 per annum (31 December 2011: £25,500).

For the valuation of contract liabilities the following are projected for each future year:

  – the beneﬁt outgo from the fund;

  – the investment return from the assets backing the fund; and

  – the difference between these items. 

These differences are then discounted and summed to establish the GGF loss reserve.

The following assumptions are used for calculating the loss reserve:

Rate of growth of liability: 

4.18% pa

Rate of return on cash: 

Discount rate: 

Retirement age: 

0.4% pa

0.5% pa

90% of business with policyholders retiring at age 65
10% of business with policyholders retiring at age 70 

Terminations before retirement: 

3% pa

The reserve for the guarantee as at 31 December 2012 was £0.5m (31 December 2011: £1.0m). 

Deferral of retirement ages
Policyholders with a Personal Retirement Account and Guaranteed Plus Retirement Plan may defer their retirement age on terms that may be beneﬁcial to the 
policyholder. The cost of policyholders exercising this beneﬁt is assessed using a prudent assumption as to the level of take-up of the option and deferral to age 
75. The reserve for this option as at 31 December 2012 was £7.1m (31 December 2011: £7.3m).

Increase of premiums on Personal Retirement Account
Policyholders with a Personal Retirement Account may increase their regular premium contribution on terms that can be beneﬁcial to the policyholder.  
The cost of policyholders exercising this beneﬁt is assessed using a prudent assumption as to the level of take-up of the option. The reserve for this option  
as at 31 December 2012 was £0.2m (31 December 2011: £0.2m).

Insurability options
Policyholders with certain contracts have the right to increase their sum assured without underwriting, in certain circumstances. The reserve for this option  
as at 31 December 2012 was £0.3m (31 December 2011: £0.3m).

  (g) Management of risk 

The Group’s approach to the management of risk which may have an impact on the measurement of capital resources and requirements, as measured on a 
regulatory basis, is set out in Notes 5 and 6 to these ﬁnancial statements.

128

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
SECTION D
IFRS FINANCIAL STATEMENTS

  32 Insurance contract provisions
  (a) Analysis of insurance contract provisions by operating segment

31 December 

CA 
S&P 
Movestic 

2012 
Gross   Reinsurance  
£000  

£000  

Net  
£000  

Gross   Reinsurance  
£000  

£000  

Net
£000

2011 (restated)

1,058,070  
1,080,427  
68,581  

226,649  
5,873  
46,170  

831,421  
1,074,554  
22,411  

1,042,030  
1,085,127  
63,782  

214,719  
6,008  
43,065  

827,311
1,079,119
20,717

Total insurance contract provisions 

2,207,078  

278,692  

1,928,386  

2,190,939  

263,792  

1,927,147

Current  
Non-current 

Total  

408,702  
1,798,376  

18,551  
260,141  

390,151  
1,538,235  

185,261  
2,005,678  

16,719  
247,073  

168,542
1,758,605

2,207,078  

278,692  

1,928,386  

2,190,939  

263,792  

1,927,147

See Note 2(d) for an explanation of the re-statement as at 31 December 2011.

  (b) Analysis of movement in insurance contract provisions

Year ended 31 December

2012 
Gross   Reinsurance  
£000  

£000  

Net  
£000  

Gross   Reinsurance  
£000  

£000  

Net
£000

2011 (restated)

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)
Premiums received 
Fees deducted 
(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)
Movements in provisions for contracts sold – Movestic

– in current year 
– in prior years 
Investment return 
Other movements 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:21)(cid:15)(cid:20)(cid:28)(cid:19)(cid:15)(cid:28)(cid:22)(cid:28)(cid:3)(cid:3)
75,575  
(27,467 ) 
(233,017 ) 

(cid:21)(cid:25)(cid:22)(cid:15)(cid:26)(cid:28)(cid:21)(cid:3)(cid:3)
10,845  
(3,140 ) 
(18,356 ) 

(cid:20)(cid:15)(cid:28)(cid:21)(cid:26)(cid:15)(cid:20)(cid:23)(cid:26)(cid:3)(cid:3)
64,730  
(24,327 ) 
(214,661 ) 

(cid:21)(cid:15)(cid:23)(cid:19)(cid:23)(cid:15)(cid:20)(cid:25)(cid:21)(cid:3)(cid:3)
82,668  
(27,815 ) 
(226,419 ) 

(cid:21)(cid:27)(cid:19)(cid:15)(cid:26)(cid:23)(cid:22)(cid:3)(cid:3)
11,748  
(3,446 ) 
(20,718 ) 

(cid:21)(cid:15)(cid:20)(cid:21)(cid:22)(cid:15)(cid:23)(cid:20)(cid:28)
70,920
(24,369 )
(205,701 )

25,363  
(14,972 ) 
159,877  
30,780  

14,992  
(7,611 ) 
7,983  
10,187  

10,371  
(7,361 ) 
–  
20,593  

25,477  
(16,212 ) 
(27,888 ) 
(23,034 ) 

14,172  
(9,134 ) 
(7,908 ) 
(1,665 ) 

11,305
(7,078 )
(19,980 )
(21,369 )

Balance at 31 December 

2,207,078  

278,692  

1,928,386  

2,190,939  

263,792  

1,927,147

See Note 2(d) for an explanation of the re-statement for the year ended 31 December 2011.

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SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  (c) Process, basis and assumptions for establishing insurance contract provisions

The process, basis and assumptions for establishing insurance contract provisions for the UK businesses are materially the same as those stated in Note 31(e) 
(ii), (iii) and (iv) for establishing technical provisions, except as set out in the following. 

Provisions for S&P contracts with discretionary participation features (‘DPF’) provide for the present value of projected payments to policyholders based on 
guaranteed minimum investment returns, mainly at 5 per cent per annum. When the insurance contract provisions established on this basis are greater than 
the associated policyholder asset shares, a shareholder charge for the cost of guarantees arises.

The actual cost to shareholders depends principally on the future investment performance of the associated policyholders’ assets and on the rate of discontinuance 
of policies prior to maturity. Up to 31 December 2011 the estimated cost of these guarantees to shareholders was based on a simpliﬁcation of the method used 
for statutory solvency purposes, which sought to remove some of the unrealistic level of prudence associated with that method. However, this basis is recognised 
as potentially giving rise to costs below the market-consistent level, which is considered to be the lowest acceptable reported cost. As a consequence, the 
estimated cost to shareholders, subsequent to that date, has been reﬁned and is determined by reference to the market consistent evaluation of the cost, the 
methodology of which is set out on page 158 in the EEV Supplementary Information following and is taken as a constant margin of 10% above the amount so 
determined, in order to allow for an appropriate level of prudence (the ‘market-consistent’ method).

The following sets out the cumulative charge to shareholders for the cost of guarantees on these bases:

Year ended 31 December 

At beginning of the period 
Effect of change to market-consistent method: charge to income   
Charge/(credit) to income 

At the end of period 

2012  
£000s  

44,011  
1,899  
400  

2011
£000s

50,596
–
(6,585 )

46,310  

44,011

Had the market consistent embedded value (MCEV) method been used during 2011, the cumulative cost of guarantees would have been £4,700.000 lower 
at the beginning of the period and £1,899,000 higher at the end of the period, with no resultant charge or credit to income.

Swedish business (Movestic)
Group Contracts are sold on an annual basis and the Individual Contracts include an option for Movestic to increase the premium on an ongoing basis. Therefore, 
for both Group and Individual Contracts, Movestic adopts a reserving approach that is similar to that of a non-life insurance business, with claim reserves projected 
using an estimated loss ratio with reference to previous loss development for earlier years.

The insurance contract provisions comprise unearned premium provisions, outstanding claims and associated reinsurance recoveries. Except for the income 
protection and the waiver of premium beneﬁts within the Individual Contracts, provisions for the insurance contracts are not discounted because of the short-term 
nature of the liabilities, which are generally paid by the fourth year of development for a single accident year. Income protection and waiver of premium 
contracts are discounted at a rate equivalent to a high quality (i.e. AA rated) corporate bond.

  (d) Assumptions used in establishing insurance contract provisions 

The assumptions used in establishing insurance contract provisions for the UK businesses are materially the same as those set out in Note 31 (e) (iv) for 
establishing technical provisions.

Swedish business (Movestic)
Unearned premiums
Unearned premiums represent a proportion of the premium relating to policies that expire after the balance sheet date. Unearned premiums are calculated 
automatically by the underwriting system on a straight-line basis over the period of the policy.

Outstanding claims
Outstanding claims include notiﬁed claims, claims incurred as at the balance sheet date but not reported and an estimate of the cost of handling the claims.

The key risk in respect of notiﬁed claims is that they are paid or handled inappropriately (for example invalid or fraudulent claims are paid). Management 
information is reviewed on a regular basis to identify unusual trends in the payment of claims.

The estimation of claims incurred but not reported (‘IBNR’) is generally subject to a greater degree of uncertainty than the estimation of costs of settling claims 
already notiﬁed to Movestic, where more information about the claim event is generally available. In calculating the estimated cost of claims which have not 
been notiﬁed, Movestic uses a variety of estimation techniques, generally based upon statistical analyses of historical experience, which assumes that the 
development pattern of the current claims will be consistent with past experience. 

The most common methods that are used are the chain ladder method and the Bornhuetter-Ferguson method. Chain ladder methods involve the analysis of 
historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected factors are applied to 
cumulative claims data for each accident year that is not fully developed to provide an estimated ultimate claims cost. The Bornhuetter-Ferguson method uses 
a combination of an initial estimate of the expected loss ratio and an estimate based on observed claims experience. The two estimates are combined using a 
formula that gives more weight to the experience-based estimate as time passes. 

130

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SECTION D
IFRS FINANCIAL STATEMENTS

The use of different approaches assists in giving greater understanding of the trends inherent in the data being projected and also assists in setting the range of 
possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the policies sold. Where deemed appropriate, 
an allowance is made for changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to 
increase or reduce when compared with the cost of previously settled claims. Although claim reserves are considered reasonable, on the basis of information 
available to Movestic, the ultimate liabilities will vary as a result of subsequent information and events.

Income protection and waiver of premium beneﬁts within Individual Contracts
For reported claims, the liabilities are reviewed on a case by case basis. A discounted cash ﬂow model is used to determine the liabilities and the key factors 
used are: 

– the probability of `recovery’ (i.e. return to work). The recovery rates depend on age, sex and length of time the claimant has been claiming the beneﬁts;

– the mortality rate; and 

– the discount rate.

For unreported claims, the claims development table is used. The development of insurance liabilities provides a measure of Movestic’s ability to estimate the 
ultimate value of claims. The top half of the table below illustrates how Movestic’s estimate of total claims outstanding for each accident year has changed  
at successive year-ends. The bottom half of the table reconciles the cumulative claims to the amount appearing in the balance sheet. An accident-year basis  
is considered to be the most appropriate for the business written by Movestic. The information is presented on both a gross and net of reinsurance basis.

 Analysis of claims development – gross

Estimate of ultimates

End of accident year 
One year later 
Two years later 
Three years later 
Four years later 
Five years later 

Current estimate of ultimate claims 
Cumulative payments 

In balance sheet 

Provision for prior years 
Liability in balance sheet 

 Analysis of claims development – net

Estimate of ultimates

End of accident year 
One year later 
Two years later 
Three years later 
Four years later 
Five years later 

Current estimate of ultimate claims 
Cumulative payments 

In balance sheet 

Provision for prior years 
Liability in balance sheet 

2007  
£000  

2008  
£000  

2009  
£000  

2010  
£000  

2011  
£000  

2012
£000

17,421  
13,204  
11,322  
10,134  
9,651  
9,547  

9,547  
(7,601 ) 

19,619  
15,435  
14,078  
11,825  
11,410  
–  

11,410  
(9,711 ) 

20,269  
13,879  
13,841  
13,797  
–  
–  

13,797  
(8,920 ) 

50,916  
37,851  
36,566  
–  
–  
–  

36,566  
(14,185 ) 

31,981  
18,397  
–  
–  
–  
–  

18,397  
(8,753 ) 

33,163
–
–
–
–
–

33,163
(7,299 )

1,946  

1,699  

4,877  

22,381  

9,644  

25,864

2,171
68,581

2007  
£000  

2,711  
1,717  
1,642  
1,485  
1,408  
1,443  

1,443  
(1,068 ) 

2008  
£000  

2,704  
2,349  
2,137  
1,715  
1,708  
–  

1,708  
(1,406 ) 

2009  
£000  

3,464  
2,111  
2,442  
2,446  
–  
–  

2,446  
(1,549 ) 

2010  
£000  

2011  
£000  

2012
£000

17,287  
10,356  
9,902  
–  
–  
–  

9,902  
(3,532 ) 

13,028  
6,113  
–  
–  
–  
–  

6,113  
(2,569 ) 

12,790
–
–
–
–
–

12,790
(2,214 )

375  

302  

897  

6,370  

3,544  

10,576

347
22,411

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SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  e) Sensitivity to changes in assumptions

UK businesses (CA and S&P)
Assumptions are adjusted for changes in mortality, investment return, policy maintenance expenses and expense inﬂation to reﬂect anticipated changes in market 
conditions and market experience and price inﬂation.

CA and S&P re-run their valuation models on various bases. An analysis of sensitivity around various scenarios provides an indication of the sensitivity of the 
estimates to changes in assumptions in respect of its life assurance contracts. The table presented below demonstrates the sensitivity of assets and insured 
liability estimates to particular movements in assumptions used in the estimation process. Certain variables can be expected to impact on life assurance liabilities 
more than others, and consequently a greater degree of sensitivity to these variables may be expected. 

Impact on reported net of tax proﬁts and equity to changes in key variables:

(cid:3)
(cid:3)

CA business
Investment return 
Investment return 
(cid:48)(cid:82)(cid:85)(cid:87)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:18)(cid:80)(cid:82)(cid:85)(cid:69)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:48)(cid:82)(cid:85)(cid:87)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:79)(cid:82)(cid:81)(cid:72)(cid:3)
Morbidity alone 
Policy maintenance expenses 

S&P business
(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)
Investment return 
(cid:48)(cid:82)(cid:85)(cid:87)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)
Policy maintenance expenses 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Change  
in net of  
(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)(cid:3)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:3)
2012  
£m  

Change
in net of
(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:86)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
2011
£m

(cid:3)(cid:3)
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:3)
variable  
%  

+1  
-1  
(cid:14)(cid:20)(cid:19)(cid:3)(cid:3)
(cid:14)(cid:20)(cid:19)(cid:3)(cid:3)
+10  
+10  

(cid:14)(cid:20)(cid:3)(cid:3)
-1  
(cid:14)(cid:20)(cid:19)(cid:3)(cid:3)
+10  

((cid:22)(cid:17)(cid:19)(cid:3)) 
((cid:20)(cid:17)(cid:19)(cid:3))(cid:3)
(cid:21)(cid:17)(cid:23)(cid:3)(cid:3)
(cid:22)(cid:17)(cid:24)(cid:3)(cid:3)
((cid:20)(cid:17)(cid:20)(cid:3)) 
((cid:20)(cid:17)(cid:26)(cid:3)) 

(cid:20)(cid:25)(cid:17)(cid:20)(cid:3)(cid:3)
((cid:20)(cid:26)(cid:17)(cid:25)(cid:3)) 
(cid:19)(cid:17)(cid:23)(cid:3)(cid:3)
((cid:20)(cid:17)(cid:27)(cid:3)) 

((cid:20)(cid:17)(cid:25)(cid:3))
(cid:21)(cid:17)(cid:25)
(cid:20)(cid:17)(cid:27)
(cid:21)(cid:17)(cid:28)
((cid:20)(cid:17)(cid:20)(cid:3))
((cid:20)(cid:17)(cid:27)(cid:3))

(cid:23)(cid:17)(cid:25)
((cid:23)(cid:17)(cid:22)(cid:3))
(cid:19)(cid:17)(cid:26)
((cid:21)(cid:17)(cid:24)(cid:3))

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The above sensitivities are calculated as an expected impact on IFRS-based proﬁts, net of reinsurance and tax and the analysis has been prepared for a change 
in the stated variable, with all other assumptions remaining constant. 

The sensitivities to the changes in investment returns are calculated taking into account the consequential changes to valuation assumptions.

The sensitivities to mortality and morbidity (critical illness) rates shown above are calculated on the assumption that there would be no consequential change in 
rates to policyholders. In practice, Group policy is to pass costs on to policyholders where it is contractually permitted and where it considers that the impact of 
the change is signiﬁcant.

As explained in Note 32(c) on page 130 the method of estimating the cost of guarantees to policyholders in respect of the S&P with-proﬁts funds has been 
changed. An effect of this change has been to make the results and ﬁnancial position of the Group more sensitive to variations in market rates of interest.

The main expense risk is that of unforeseen changes to third party administration expenses: the impact shown above quantiﬁes a 10% increase in those expenses. 

132

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 Swedish business (Movestic)
The key sensitivities in the measurement of the Group and Individual Contracts insurance claim reserves within Movestic are a movement in the loss ratio 
applied to earned premium and the foreign exchange risk arising on business written in Norway. In addition, for the income protection and the waiver of premium 
beneﬁts within the Individual Contracts, the claims reserves are impacted by the discount rate used. The impact of these sensitivities is shown below:

SECTION D
IFRS FINANCIAL STATEMENTS

(cid:3)

(cid:51)(cid:85)(cid:72)(cid:16)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)

5% increase in loss ratio

Gross before reinsurance 
Net after reinsurance 
5% decrease in loss ratio

Gross before reinsurance 
Net after reinsurance 

10% increase in the Norwegian Krone

Gross before reinsurance 
Net after reinsurance 

10% decrease in the Norwegian Krone

Gross before reinsurance 
Net after reinsurance 
1% increase in discount rate
Gross before reinsurance 
Net after reinsurance 

1% decrease in discount rate
Gross before reinsurance 
Net after reinsurance 

  33 Investment contracts at fair value through income and amounts deposited with reinsurer

 Analysis by operating segment

31 December

2012  
£000  

(1,962 ) 
(1,320 ) 

1,962  
1,320  

(238 ) 
(31 ) 

238  
31  

1,979  
782  

(2,363 ) 
(917 ) 

2011  
£000  

(1,875 ) 
(681 ) 

1,875  
681  

(476 ) 
74  

476  
74  

1,772  
577  

(2,014 ) 
(656 ) 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
2011
£000

2012  
£000  

(1,474 ) 
(992 ) 

1,474  
992  

(179 ) 
(23 ) 

179  
23  

1,487  
588  

(1,776 ) 
(689 ) 

(1,382 )
(502 )

1,382
502

(351 )
(55 )

351
55

1,547
425

(1,484 )
(484 )

Net
£000

(cid:3)

CA 
S&P 
Movestic 

Total 

Current 
Non-current 

Total 

(cid:3)(cid:3)

Investment  
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:3)
liability  
£000  

2012 
Amount  
deposited  
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:3)
reinsurer  
£000  

Investment  
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:3)
liability  
£000  

(cid:3)(cid:3)
Net  
£000  

2011
Amount  
deposited  
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:3)
reinsurer  
£000  

629,882  
92,170  
1,300,262  

30,245  
–  
–  

599,637  
92,170  
1,300,262  

599,495  
105,547  
1,171,421  

28,031  
–  
–  

571,464
105,547
1,171,421

2,022,314  

30,245  

1,992,069  

1,876,463  

28,031  

1,848,432

568,222  
1,454,092  

523  
29,722  

567,699  
1,424,370  

138,114  
1,738,349  

488  
27,543  

137,626
1,710,806

2,022,314  

30,245  

1,992,069  

1,876,463  

28,031  

1,848,432

The fair values of the Groups’ investment contract liabilities are determined according to a three-level valuation hierarchy which is explained in Note 26, as follows:

Investment contract liabilities 

2,010,545  

11,509  

260  

2,022,314

The liabilities in Level 1 of the valuation hierarchy represent the fair value of unit-linked liabilities based on the aggregation of prices quoted in active markets of 
their associated assets.

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

Level 1  
£000  

Level 2  
£000  

Level 3  
£000  

Total
£000

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SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  34 Liabilities relating to policyholders’ funds held by the Group

Unit-linked
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Deposits received 
Fees deducted from account balances 
Investment yield 
Foreign exchange translation difference 
Other movements 

Balance at 31 December 

Current 
Non-current 

Total 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(cid:23)(cid:28)(cid:15)(cid:19)(cid:27)(cid:19)(cid:3)(cid:3)
17,869  
(277 ) 
3,314  
833  
(9,648 ) 

2011
£000

(cid:24)(cid:21)(cid:15)(cid:22)(cid:22)(cid:26)
4,877
(526 )
(5,115 )
(578 )
(1,915 )

61,171  

49,080

21,356  
39,815  

4,304
44,776

61,171  

49,080

The fair values of the ‘Liabilities relating to Policyholders’ funds held by the Group’ are determined according to a three-level valuation hierarchy, which is explained 
in Note 26.

The fair value of these liabilities is based on the aggregation of prices quoted in active markets of their associated assets (Level 1), as disclosed in Note 26.

  35 Borrowings

Group
31 December

Bank loan 
(cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Total 

Current 
Non-current 

Total 

Company
31 December

Bank loan 

Current 
Non-current 

Total 

2012  
£000  

29,662  
(cid:20)(cid:27)(cid:15)(cid:25)(cid:25)(cid:21)(cid:3)(cid:3)

2011
£000

35,486
(cid:20)(cid:28)(cid:15)(cid:21)(cid:25)(cid:26)

48,324  

54,753

12,218  
36,106  

12,472
42,281

48,324  

54,753

2012  
£000  

2011
£000

29,662  

35,486

7,844  
21,818  

5,819
29,667

29,662  

35,486

The bank loan subsisting at 31 December 2012, which was drawn down on 20 December 2010 under a facility made available on 17 November 2010, 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. 

The fair value of the bank loan at 31 December 2012 was £30,000,000 (31 December 2011: £36,000,000). 

The fair value of amounts due in relation to ﬁnancial reinsurance was £20,197,549 (31 December 2011: £20,672,526). 

The fair value of other borrowings is not materially different from their carrying value.

134

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

  36 Other provisions

Group

(cid:3)

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)
Provisions made during the year 
Provisions used during the year 
Provisions reversed during the year 

Balance at 31 December 2011 
Provisions made during the year 
Provisions used during the year 
Provisions reversed during the year 

Balance at 31 December 2012 

31 December 2011
Current 
Non-current 

Total  

31 December 2012
Current 
Non-current 

Total  

Other  
complaints  
(cid:85)(cid:72)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3)
£000  

(cid:48)(cid:40)(cid:38)(cid:53)(cid:3)(cid:3)
£000  

Onerous  
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:3)
£000  

Unit  
pricing  
(cid:85)(cid:72)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3)
£000  

(cid:25)(cid:20)(cid:3)(cid:3)
25  
(17 ) 
–  

69  
40  
(28 ) 
–  

81  

69  
–  

69  

81   
–  

81  

(cid:21)(cid:21)(cid:20)(cid:3)(cid:3)
6  
(15 ) 
(10 ) 

202  
2  
(1 ) 
–  

203  

202  
–  

202  

203  
–  

203  

(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)
1,500  
(119 ) 
(291 ) 

2,090  
2,504  
(263 ) 
(184 ) 

4,147  

315  
1,775  

2,090  

496  
3,651  

4,147  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:20)(cid:15)(cid:27)(cid:21)(cid:21)
1,531
(152 )
(390 )

2,811
3,258
(279 )
(629 )

(cid:24)(cid:23)(cid:19)(cid:3)(cid:3)
–  
(1 ) 
(89 ) 

450  
–  
(1 ) 
(445 ) 

4  

5,161

450  
–  

450  

4  
–  

4  

1,036
1,775

2,811

1,510
3,651

5,161

The reversal of provisions during the year was credited to Other Operating Income as disclosed in Note 11.

Company

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)
Provisions made during the year 

Balance at 31 December 2011 
Provisions made during the year 
Provisions used during the year 

Company balance at 31 December 2012 

31 December 2011
Current 
Non-current 

Total 

31 December 2012
Current 
Non-current 

Total 

Onerous
contracts
£000

(cid:178)
1,500

1,500
2,463
(159 )

3,804

176
1,324

1,500

399
3,405

3,804

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

135

 
  
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  (a) Mortgage Endowment Complaints Redress (MECR)

Insurance contract provisions include a mortgage endowment complaints reserve of £2.44m, in respect of the estimate of future redress for future claims by 
customers in respect of past misselling of mortgage endowment policies.

As part of the redress process if the complaint is upheld an offer of redress is made to the customer where a loss has occurred. These offers are classiﬁed as 
payables for the ﬁrst 6 months after they are made, subsequent to which they are reclassiﬁed as provisions, as the customer loses the right of redress at the level 
offered, but continues to have a right to enforce a claim, which the Group has the right to reassess. The provision is established at the original offer level.

  (b) Other complaints redress

Offers of redress on complaints other than mortgage endowment related are classiﬁed in a manner similar to that detailed for MECR above.

  (c) Onerous contracts

The Group and Company have a number of onerous operating lease contracts that have been entered into historically, whose activity and current status is 
described in Note 49 Operating leases. Given the terms of the contracts the Group and company have created onerous contract provisions for anticipated future 
net costs. Over the terms of the contracts these provisions take account of the contract terms, future payments and future mitigating income from sublets, 
contract by contract, to create a view as to the Group’s and Company’s exposure.

These provisions comprise three components: provision for vacant properties, provision for properties due to become empty at the end of their subleases, and 
provision for future under-recoveries of costs on subleases entered into.

The provision made during 2011 of £1.5m relates to the potential cost of vacant space within the Harbour House Head Ofﬁce in Preston. The Company has a 
lease arrangement until mid-2019 for the entire building although it only occupies a small proportion. The majority of the building is available for sub-let. The 
additional provision represents the future contractual costs not expected to be covered by sub-let income when existing tenants vacate the building. During 
2012 Chesnara plc has received notice from tenants of their intention to vacate Harbour House. In recognition of this, and in light of the excess commercial 
property capacity in the market, the estimated level of future sub let income has been reduced and the provision as at 31 December 2012 has been increased 
accordingly. The critical factor to which the value is sensitive is the assumed level of re-letting income. The closing provision includes a signiﬁcantly reduced level 
of re-let income such that the maximum exposure based on no re-letting income is £0.7m.

  (d) Unit pricing redress

A data error in the indexation of the costs of underlying ﬁnancial assets in certain of the unit-linked funds was identiﬁed during 2007. As a result, the amount  
of capital gains chargeable to tax had been overestimated for unit pricing purposes and greater deductions were made from these funds than would otherwise 
have been the case. A provision of £2,994,000 was established at 31 December 2007 to cover the estimated cost of redress and the administration costs of 
performing the review. Associated recoveries from third parties were established at £494,000 as at the same date and these were included in ‘Insurance and 
other receivables’ as at 31 December 2007. 

The provision established at 31 December 2007 was estimated insofar as it was not based on speciﬁc individual calculations for each policyholder, but was 
established on the basis of generic data relating to the amount of payments to policyholders who exited from the funds in speciﬁc periods, of the unit prices 
ruling in those periods and of an estimate of the extent of the pricing error pertaining to those periods. Subsequently, a revised estimate was established at 
£2,794,000 based on speciﬁc policy-by-policy data, which by 31 December 2011 had reduced to £450,000 as compensation was paid to policyholders. During 
2012 the majority of outstanding amounts owed to policyholders, for which the respective policyholders could not be traced, were re-invested into unit-linked 
funds for the beneﬁt of all remaining policyholders, and only a small balancing residual provision of £4,000 as at 31 December 2012 continues to be held until all 
of the associated administration procedures are completed.

  (e) Sharesave Plan

A Sharesave Plan was launched during October 2011. The level of contributions combined with the closing share price, result in an immaterial level of company 
liability and hence no provision has been raised.

  37 Deferred tax assets and liabilities

Deferred tax assets and liabilities comprise:

31 December

Net deferred tax assets
CA, S&P and Other Group Activities 
Movestic 

Total 

Current 
Non-current 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)

2012  
£000  

2,295  
–  

2,295  

–  
2,295  

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:21)(cid:15)(cid:21)(cid:28)(cid:24)(cid:3)(cid:3)

2011
£000

–
–

–

–
–

(cid:178)

136

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
31 December

Net deferred tax liabilities
CA, S&P and Other Group Activities 
Movestic 

Total 

Current 
Non-current 

Total 

 CA, S&P and Other Group Activities

  (a) Recognised deferred tax assets and liabilities

31 December

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:80)(cid:72)(cid:3)
Deferred acquisition costs 
Deferred income 
Acquired value in force 
Property, plant and equipment 
Tax losses on pensions business 
Unrealised and deferred investment gains 
Excess expenses of management 
Insurance contract provisions 
Other 

Total 

Comprising:-
Net deferred tax assets 
Net deferred tax liabilities 

Total 

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

2011
£000

(4,786 ) 
(1,108 ) 

(14,623 )
(767 )

(5,894 ) 

(15,390 )

(1,048 ) 
(4,846 ) 

(1,279 )
(14,111 )

(5,894 ) 

(15,390 )

2011  
Assets / 
(liabilities ) 
£000  

(Charge)/  
credit  
in year  
£000  

2012
Assets /
(liabilities )
£000

(cid:178)(cid:3)(cid:3)
(1,319 ) 
2,322  
(6,159 ) 
(79 ) 
–  
(4,682 ) 
–  
(4,706 ) 
–  

(2,636 ) 
254  
(433 ) 
1,302  
40  
4,178  
27  
4,655  
4,706  
39  

(2,636 )
(1,065 )
1,889
(4,857 )
(39 )
4,178
(4,655 )
4,655
–
39

(14,623 ) 

12,132  

(2,491 )

–  
(14,623 ) 

2,295  
9,837  

2,295
(4,786 )

(14,623 ) 

12,132  

(2,491 )

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

137

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
 
  
  
  
  
 
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

31 December

Deferred acquisition costs 
Contingency reserves 
Deferred income 
Acquired value in force 
Property, plant and equipment 
Unrealised and deferred investment gains 
Insurance contract provisions 

Total 

Comprising:-
Net deferred tax assets 
Net deferred tax liabilities 

Total 

(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:192)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:29)

Year ended 31 December

Income tax credit before exceptional item 
Exceptional item (see Note 7 on page 104) 

Total 

2010  
Assets / 
(liabilities ) 
£000  

(Charge)/  
credit  
in year  
£000  

2011
Assets /
(liabilities )
£000

(1,692 ) 
(220 ) 
2,939  
(8,007 ) 
(73 ) 
(6,776 ) 
(5,918 ) 

373  
220  
(617 ) 
1,848  
(6 ) 
2,094  
1,212  

(1,319 )
–
2,322
(6,159 )
(79 )
(4,682 )
(4,706 )

(19,747 ) 

5,124  

(14,623 )

–  
(19,747 ) 

–  
5,124  

–
(14,623 )

(19,747 ) 

5,124  

(14,623 )

2012  
£000  

7,354  
4,778  

2011
£000

5,124
–

12,132  

5,124

A new regime for the taxation of life assurance companies in the UK was introduced with effect from 1 January 2013. The new regime bases the taxable trading 
proﬁt on IFRS proﬁts rather than on FSA return surplus generated as under the previous rules and also treats pension business separately from life assurance 
business. Whilst this change does not impact the 2012 current tax charge, it has created a signiﬁcant recovery in the deferred tax charge as the pension losses 
in the UK life company will be of value going forward whereas no value was ascribed to them under the previous regime. In addition, as part of the transition to 
the new regime, accumulated historical proﬁts as at 31 December 2012 are compared between the two bases and any taxable difference is brought into charge 
over the next ten years. This transitional adjustment has created a deferred tax charge as at 31 December 2012, partially offsetting the pension related-recovery 
noted here.

  (b) Items for which no deferred tax asset is recognised

31 December

Tax losses on pensions business 
Transitional losses on non-pensions business 
Unrelieved expenses 
Realised and unrealised investment losses 

Total 

2012  
£000  

–  
4,837  
58,685  
4,235  

2011
£000

34,180
– 
90,695
2,166

67,757  

127,041

A deferred tax asset has not been recognised in respect of unrelieved expenses, because it is not probable that there will be a sufﬁcient level of taxable income 
arising from income and gains on ﬁnancial assets, so that the Group can utilise the beneﬁts therefrom.

138

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
 
  
  
  
  
 
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 Movestic

  (a) Recognised deferred tax assets and liabilities 

31 December
(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

SECTION D
IFRS FINANCIAL STATEMENTS

(cid:3)(cid:3)
2011  
Assets / 
(liabilities ) 
£000  

(cid:3)(cid:3)
(Charge)/  
credit  
in year  
£000  

(cid:41)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:3)
exchange  
translation  
difference  
£000  

2012
Assets /
(liabilities )
£000

(561 ) 
–  
(222 ) 
16  

(31 ) 
90  
(368 ) 
(14 ) 

(9 ) 
1  
(11 ) 
1  

(601 )
91
(601 )
3

(767 ) 

(323 ) 

(18 ) 

(1,108 )

16  
(783 ) 

(767 ) 

76  
(399 ) 

(323 ) 

2  
(20 ) 

(18 ) 

94
(1,202 )

(1,108 )

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
2010  
Assets / 
(liabilities ) 
£000  

(cid:3)(cid:3)
(Charge)/  
credit  
in year  
£000  

(cid:41)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:3)
exchange  
translation  
difference  
£000  

2011
Assets /
(liabilities )
£000

(564 ) 
50  
(270 ) 
5  

(779 ) 

55  
(834 ) 

(779 ) 

(5 ) 
(50 ) 
45  
11  

1  

(39 ) 
40  

1  

8  
–  
3  
–  

11  

–  
11  

11  

2012  
£000  

(822 ) 

(822 ) 

(561 )
– 
(222 )
16

(767 )

16
(783 )

(767 )

2011
£000

734

734

Intangible assets

Fair value adjustment on acquisition 

Corporation tax recoverable 
Equity accounting for associate 
Property, plant and equipment 

Total 

Comprising:-
Net deferred tax assets 
Net deferred tax liabilities 

Total 

31 December
(cid:3)

Intangible assets

Fair value adjustments on acquisition 

Corporation tax recoverable 
Equity accounting for associate 
Property, Plant and Equipment 

Total 

Comprising:-
Net deferred tax assets 
Net deferred tax liabilities 

Total 

  (b) Unrecognised deferred tax (liabilities)/assets (gross)

31 December

Corporation tax recoverable – not recognised 

Total 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

139

 
 
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  38 Reinsurance payables

Payable to reinsurers
31 December

Payables in respect of insurance contracts 
Payables in respect of investment contracts 
Reinsurer’s share of deferred acquisition costs and claims deposits 

Total 

Current 
Non-current 

Total 

The carrying value of payables to reinsurers is a reasonable approximation of fair value.

  39 Payables related to direct insurance and investment contracts

2012  
£000  

15,914  
22  
674  

2011
£000

15,060
105
1,171

16,610  

16,336

15,154  
1,456  

16,336
–

16,610  

16,336

31 December

Accrued claims 
Intermediaries’ liabilities  
Policyholder premium liabilities 
Other 

Total 

Current 
Non-current 

Total 

2012 
Gross   Reinsurance  
£000  

£000  

32,490  
1,447  
2,289  
2,668  

4,489  
–  
–  
–  

Net  
£000  

28,001  
1,447  
2,289  
2,668  

2011
Gross   Reinsurance  
£000  

£000  

30,784  
2,378  
5,610  
1,879  

4,667  
–  
–  
–  

Net
£000

26,117
2,378
5,610
1,879

38,894  

4,489  

34,405  

40,651  

4,667  

35,984

38,894  
–  

4,489  
–  

34,405  
–  

40,651  
–  

4,667  
–  

35,984
–

38,894  

4,489  

34,405  

40,651  

4,667  

35,984

The carrying value of payables related to the direct insurance and investment contracts is a reasonable approximation of fair value.

  40 Deferred income

31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
Release to income 

Balance at 31 December 

Current 
Non-current 

Total 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

2011
£000

(cid:20)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)
(1,116 ) 

(cid:20)(cid:20)(cid:15)(cid:25)(cid:23)(cid:26)
(1,647 )

8,884  

10,000

1,018  
7,866  

1,147
8,853

8,884  

10,000

The release to income is included in Fees and Commission Income (see Note 9).

140

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
 
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  41 Income tax liabilities

31 December

(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:29)(cid:3)
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:178)(cid:3)(cid:38)(cid:36)(cid:17)(cid:3)(cid:54)(cid:9)(cid:51)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Corporation tax – Movestic 

(cid:3)(cid:3)

(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The carrying value of income tax liabilities is a reasonable approximation of fair value.

  42 Other payables

Group
31 December

Accrued expenses 
VAT 
Employee tax 
Policyholder property fund creditors 
Other 

Total 

Current 
Non-current 

Total 

Company
31 December

Accrued expenses 
Amounts due to Group companies 
Other 

Total 

Current 
Non-current 

Total 

The carrying value of other payables is a reasonable approximation of fair value.

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

(cid:178)(cid:3)(cid:3)
–  

(cid:178)(cid:3)(cid:3)

2012  
£000  

4,222  
474  
538  
1,773  
10,050  

2011
£000

(cid:28)(cid:23)(cid:26)
–

(cid:28)(cid:23)(cid:26)

2011
£000

6,524
360
421
–
17,112

17,057  

24,417

17,057  
–  

24,417
–

17,057  

24,417

2012  
£000  

2,544  
–  
181  

2011
£000

1,481
266
340

2,725  

2,087

2,725  
–  

2,087
–

2,725  

2,087

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

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SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  43 Share capital and share premium 

Group
31 December

Share capital 

115,047,662  

42,024  

115,047,662  

42,024

   Number of  
shares  

2012 

2011

Share  
capital   Number of  
shares  

£000  

Share
capital
£000

Share  
premium  
£000  

42,523  

Share
premium
£000

42,523

The number of shares in issue at the balance sheet date included 199,011 shares held in treasury (31 December 2011: 199,011).

Share capital for the group includes the impact of “reserve acquistition accounting” associated with Chesnara plc’s acquisition of Countrywide Assured Life 
Holdings Ltd (CALH) from Countrywide plc (Countrywide) on 24 May 2004. As a result of this, included within share capital of the Group is £41,501,00, which 
represents the amount of issued share capital of Countrywide Assured Life Holding (the legal subsidiary) immediately before the acquisition. As a result of this 
accounting treatment the Group share capital differs from the Chesnara plc company position. Which is set out below.

There were no changes in Group share capital or share premium during the years ended 31st December 2012 and 31st December 2011.

Company
31 December

Authorised 

Ordinary shares of 5p each 

Issued
Ordinary shares of 5p each 

   Number of  
shares  

2012 

2011

Share  
capital   Number of  
shares  

£000  

Share
capital
£000

   201,000,000  

10,050,000   201,000,000  

10,050,000

115,047,662  

5,752,383  

115,047,662  

5,752,383

Share  
premium  
£000  

42,523  

Share
premium
£000

42,523

The number of shares in issue at the balance sheet date included 199,011 shares held in treasury (31 December 2011: 199,011).

142

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
 
  
  
  
  
  
 
  
  
 
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  44 Treasury shares

Group and Company
31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

  45 Other reserves

Group
31 December

Capital redemption reserve 
Foreign exchange translation reserve 

Balance at 31 December  

Company
31 December

Capital redemption reserve 

SECTION D
IFRS FINANCIAL STATEMENTS

2012  
£000  

(cid:21)(cid:20)(cid:26)(cid:3)(cid:3)

2012  
£000  

50  
7,669  

2011
£000

(cid:21)(cid:20)(cid:26)

2011
£000

50
6,928

7,719  

6,978

2012  
£000  

50  

2011
£000

50

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

143

 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  46 Retained earnings

Group
Year ended 31 December

Retained earnings attributable to equity holders of the parent company comprise:
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
Dividends

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:20)(cid:20)(cid:26)(cid:15)(cid:27)(cid:27)(cid:20)(cid:3)(cid:3)
(cid:21)(cid:26)(cid:15)(cid:28)(cid:23)(cid:20)(cid:3)(cid:3)

(cid:20)(cid:20)(cid:20)(cid:15)(cid:21)(cid:21)(cid:22)
(cid:21)(cid:24)(cid:15)(cid:25)(cid:25)(cid:24)

2012  
£000  

2011
£000

Final approved and paid for 2010 
Interim approved and paid for 2011 
Final approved and paid for 2011 
Interim approved and paid for 2012 

Balance at 31 December  

–  
–  
(12,519 ) 
(7,006 ) 

(12,174 )
(6,833 )
– 
– 

126,297  

117,881

The interim dividend in respect of 2011, approved and paid in 2011 was paid at the rate of 5.95p per share. The ﬁnal dividend in respect of 2011, approved 
and paid in 2012, was paid at the rate of 10.90p per share so that the total dividend paid to the equity shareholders of the Parent Company in respect of the 
year ended 31 December 2011 was made at the rate of 16.85p per share.

The interim dividend in respect of 2012, approved and paid in 2012, was paid at the rate of 6.10p per share to equity shareholders of the Parent Company 
registered at the close of business on 14 September 2012, the dividend record date.

A ﬁnal dividend of 11.25p per share in respect of the year ended 31 December 2012 payable on 22 May 2013 to equity shareholders of the Parent Company 
registered at the close of business on 12 April 2013, the dividend record date, was approved by the Directors after the balance sheet date. The resulting 
total ﬁnal dividend of £12.9m has not been provided for in these ﬁnancial statements and there are no income tax consequences.

The following summarises dividends per share in respect of the year ended 31 December 2012 and 31 December 2011:

Year ended 31 December

(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:76)(cid:80)(cid:3)(cid:178)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)
(cid:41)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:178)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71)(cid:18)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:3)

Total 

Company
Year ended 31 December

(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
Dividends paid

Final approved and paid for 2010 
Interim approved and paid for 2011 
Final approved and paid for 2011 
Interim approved and paid for 2012 

Balance at 31 December 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

2012  
p  

(cid:25)(cid:17)(cid:20)(cid:19)(cid:3)(cid:3)
(cid:20)(cid:20)(cid:17)(cid:21)(cid:24)(cid:3)(cid:3)

2011
p

(cid:24)(cid:17)(cid:28)(cid:24)
(cid:20)(cid:19)(cid:17)(cid:28)(cid:19)

17.35  

16.85

2012  
£000  

(cid:26)(cid:25)(cid:15)(cid:25)(cid:23)(cid:27)(cid:3)(cid:3)
(cid:22)(cid:28)(cid:15)(cid:25)(cid:25)(cid:27)(cid:3)(cid:3)

–  
–  
(12,519 ) 
(7,006 ) 

2011
£000

(cid:26)(cid:23)(cid:15)(cid:19)(cid:21)(cid:20)
(cid:21)(cid:20)(cid:15)(cid:25)(cid:22)(cid:23)

(12,174 )
(6,833 )
–
– 

96,791  

76,648

Details of dividends, approved and paid, are set out in the ‘Group’ section above.

144

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

  47 Employee beneﬁt expense, including Directors

Year ended 31 December

(cid:3)

Wages and salaries 
Social security costs 
(cid:51)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:16)(cid:71)(cid:72)(cid:192)(cid:81)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

1,126  
152  
(cid:20)(cid:22)(cid:20)(cid:3)(cid:3)

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

840  
113  
(cid:20)(cid:20)(cid:26)(cid:3)(cid:3)

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

   Other Group  
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

6,124  
1,924  
(cid:20)(cid:15)(cid:20)(cid:22)(cid:21)(cid:3)(cid:3)

991  
143  
(cid:20)(cid:20)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)(cid:3)
£000  

9,081  
2,332  
(cid:20)(cid:15)(cid:23)(cid:28)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:19)(cid:20)(cid:20)
£000

8,930
2,381
(cid:20)(cid:15)(cid:23)(cid:25)(cid:20)

Total 

1,409  

1,070  

9,180  

1,251  

12,910  

12,772

Average number of employees
Company 
Subsidiaries 

Total 

Directors
Note 52 provides detail of compensation to Directors of the Company.

UK-based employees
UK-based employees are all employed by Chesnara plc.

23  
125  

148  

22
134

156

At the end of May 2005 the Group allowed eligible employees to enter a pension scheme known as the Chesnara plc Stakeholder Scheme, on a basis where 
employer contributions are made to the scheme at the same rate as would be payable had their membership of their predecessor scheme continued, provided 
that employee contributions also continued to be made at the same rate. The employee may opt to request the Company to pay employer contributions into  
a personal pension plan, in which instance, employer contributions will be made on the same terms as for the Chesnara plc Stakeholder Scheme.

Employees who joined the Group as a result of the acquisition of CWA Life Holdings plc continue to be members of the pre-existing deﬁned contribution 
Group Personal Pension scheme, to which employer and employee contributions are made. 

The Group has, for the period covered by these ﬁnancial statements, only made contributions to deﬁned contribution plans to provide pension beneﬁts for 
employees upon retirement and, otherwise, has no residual obligation or commitments in respect of any deﬁned beneﬁt scheme. 

The Group has established frameworks for approved and unapproved discretionary share option plans which may, at the discretion of the Remuneration 
Committee, be utilised for granting options to Executive Directors and to other Group employees. No options have been granted in relation to these plans. 
A Sharesave Plan was launched to all UK employees of the Group in October 2011.

Swedish-based employees
The Swedish Business participates in a combined deﬁned beneﬁt and deﬁned contribution scheme operated by Försäkringsbranschen Pensionskassa (the 
‘Scheme’). The Scheme is a multi-employer scheme with participants including other Swedish insurance companies not related to the Group. The Scheme 
provides, for those born in 1978 or earlier, beneﬁts to employees which are linked to their ﬁnal salary and to the amount of time working for companies 
which are members of the Scheme. For those employees born in 1979 or later, the scheme operates on a deﬁned contribution basis.

Assets and liabilities are held on a pooled basis and are not allocated by the Trustee to any individual company. Consequently, reliable information is not 
available to account for the Scheme as a deﬁned beneﬁt scheme and therefore, in accordance with IAS 19 Employee Beneﬁts, the Scheme is accounted for 
as a deﬁned contribution scheme.

Contributions to the Scheme are based on the funding recommendations of the independent qualiﬁed actuary: the contributions paid to the Scheme subsequent 
to the acquisition of the Swedish Business on 23 July 2009 and up to 31 December 2011, totalled SEK6,967,053 (£633,642). During 2012 further contributions 
of SEK 4,211,042 (£392,360) were made.

The employers within the Scheme are responsible collectively for the funding of the Scheme as a whole and therefore in the event that other employers exit 
from the Scheme, remaining employers would be responsible for the ongoing funding. The collective nature of the Scheme results in all participating entities 
sharing the actuarial risk associated with the Scheme.

Försäkringsbranschens Pensionskassa (“FPK”) issues an audited annual report (under Swedish law-limited IFRS) each year. The last available published report 
was as at 31 December 2011. 

The annual report states that the Scheme’s surplus is SEK 179m (£16.8m) as at 31 December 2011 (SEK 1,525m (£146.5m) as at 31 December 2010). As at  
31 December 2011, the fund had assets under management of SEK 10.4bn (£976m), 141 employer insurance companies participating in the Scheme and 25,900 
insured individuals.

From the available information, it cannot be determined with certainty as to whether there would be a change in the required employer funding rate, although 
there is currently no deﬁcit in the Scheme.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

145

 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

  48 Earnings per share

Earnings per share are based on the following:

Year ended 31 December

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(£000) 

Weighted average number of ordinary shares 

2012  
£000  

2011
£000

27,941  

25,665

114,848,651  

114,848,651

(cid:37)(cid:68)(cid:86)(cid:76)(cid:70)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:21)(cid:23)(cid:17)(cid:22)(cid:22)(cid:83)(cid:3)(cid:3)

(cid:21)(cid:21)(cid:17)(cid:22)(cid:24)(cid:83)

Diluted earnings per share 

(cid:21)(cid:23)(cid:17)(cid:22)(cid:22)(cid:83)(cid:3)(cid:3)

(cid:21)(cid:21)(cid:17)(cid:22)(cid:24)(cid:83)

The weighted average number of ordinary shares in respect of the years ended 31 December 2012 and 31 December 2011 is based upon 115,047,662 shares 
in issue less 199,011 own shares held in treasury.

There were no share options outstanding during the year ended 31 December 2011 or during the year ended 31 December 2012. Accordingly, there is no dilution 
of the average number of ordinary shares in issue in respect of these periods.

  49 Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:

Operating lease rentals
Year ended 31 December

(cid:3)

Less than one year 
Between one and two years 
(cid:37)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:192)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)
(cid:48)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:192)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)

Non-  
(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:3)
properties  
£000  

1,437  
1,169  
(cid:21)(cid:15)(cid:23)(cid:20)(cid:20)(cid:3)(cid:3)
(cid:26)(cid:23)(cid:25)(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

2012 

(cid:48)(cid:82)(cid:87)(cid:82)(cid:85)(cid:3)(cid:3)
vehicles  
£000  

31  
19  
(cid:22)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)

(cid:3)(cid:3)
Total  
£000  

1,468  
1,188  
(cid:21)(cid:15)(cid:23)(cid:20)(cid:23)(cid:3)(cid:3)
(cid:26)(cid:23)(cid:25)(cid:3)(cid:3)

Non-  
(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:3)
properties  
£000  

1,306  
1,363  
(cid:21)(cid:15)(cid:27)(cid:27)(cid:26)(cid:3)(cid:3)
(cid:20)(cid:15)(cid:21)(cid:21)(cid:25)(cid:3)(cid:3)

2011

(cid:48)(cid:82)(cid:87)(cid:82)(cid:85)(cid:3)(cid:3)
vehicles  
£000  

74  
64  
(cid:22)(cid:26)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)

Total
£000

1,380
1,427
(cid:21)(cid:15)(cid:28)(cid:21)(cid:23)
(cid:20)(cid:15)(cid:21)(cid:21)(cid:25)

Expenses recognised in the year in  
respect of operating leases 

1,347  

46  

1,393  

1,312  

65  

1,377

The Group leases a property under an operating lease which it part occupies in the course of its day-to-day business. The lease expires on 22 July 2019, with 
an option to renew the lease after that date. Lease payments are reviewed every five years to reflect market rentals. The lease does not include any 
contingent rentals. The Group also leases a number of ofﬁce premises which are no longer used for Group purposes. The leases typically run for approximately 
a further 4 years after the balance sheet date. Lease payments are reviewed every ﬁve years to reﬂect market rentals. None of the leases includes contingent 
rentals. These leased properties are sublet by the Group. Sublease payments as detailed below are expected to be received during the following years. The 
Group has recognised a provision of £4,147,000 at 31 December 2012 (31 December 2011: £2,090,000) in respect of these leases (see Note 36).

Leases as lessor
The Group subleases out both investment properties from its investment portfolio and the ofﬁce premises which are no longer used for Group purposes. 
The future minimum lease payments under non-cancellable leases are as follows:

Sub lease rentals
Year ended 31 December

Less than one year 
Between one and two years 
(cid:37)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:192)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)
(cid:48)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:192)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

Rental income recognised in the year 
Repairs and maintenance costs recognised in the year    

2012 
Non-  
investment  
properties  
£000  

Investment  
properties  
£000  

6,011  
5,426  
(cid:20)(cid:22)(cid:15)(cid:24)(cid:26)(cid:26)(cid:3)(cid:3)
(cid:21)(cid:19)(cid:15)(cid:22)(cid:20)(cid:22)(cid:3)(cid:3)

7,612  
1,212  

244  
25  
(cid:23)(cid:24)(cid:3)(cid:3)
(cid:22)(cid:19)(cid:3)(cid:3)

220  
74  

2011
Non- 
investment  
properties  
£000  

Investment  
properties  
£000  

7,692  
7,577  
(cid:20)(cid:27)(cid:15)(cid:25)(cid:28)(cid:25)(cid:3)(cid:3)
(cid:21)(cid:23)(cid:15)(cid:26)(cid:26)(cid:20)(cid:3)(cid:3)

8,108  
1,162  

382  
372  
(cid:28)(cid:20)(cid:20)(cid:3)(cid:3)
(cid:26)(cid:25)(cid:26)(cid:3)(cid:3)

465  
154  

Total  
£000  

6,255  
5,451  
(cid:20)(cid:22)(cid:15)(cid:25)(cid:21)(cid:21)(cid:3)(cid:3)
(cid:21)(cid:19)(cid:15)(cid:22)(cid:23)(cid:22)(cid:3)(cid:3)

7,832  
1,286  

Total
£000

8,074
7,949
(cid:20)(cid:28)(cid:15)(cid:25)(cid:19)(cid:26)
(cid:21)(cid:24)(cid:15)(cid:24)(cid:22)(cid:27)

8,573
1,316

146

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
 
  
 
  
  
  
  
 
 
  
  
  
  
 
  
  
 
  
 
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

  50 Contingencies
 Past sales
The Group has made provision for the estimated cost of settling complaints in respect of past sales of endowment mortgages. Although the provisions are 
regularly reviewed, the ﬁnal outcome could be different from the provisions established as these costs cannot be calculated with certainty and are inﬂuenced 
by external factors beyond the control of management, including future regulatory actions. 

  51 Capital commitments

There were no capital commitments as at 31 December 2012 or as at 31 December 2011.

  52 Related party transactions
  (a) Identity of related parties

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

The Company has related party relationships with:

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

(ii)  its subsidiary companies; 

(iii)  its associated company; and

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

  (b) Related party transactions

(i)  Transactions with key management personnel.

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

Year ended 31 December

(cid:54)(cid:75)(cid:82)(cid:85)(cid:87)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)
(cid:51)(cid:82)(cid:86)(cid:87)(cid:16)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)
(cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)

Total 

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)

2012  
£000  

(cid:20)(cid:15)(cid:23)(cid:23)(cid:19)(cid:3)(cid:3)
(cid:20)(cid:22)(cid:25)(cid:3)(cid:3)
(cid:22)(cid:28)(cid:3)(cid:3)

2011
£000

(cid:28)(cid:26)(cid:19)
(cid:20)(cid:22)(cid:21)
(cid:178)

1,615  

1,102

In addition to their salaries the Company also provides non-cash beneﬁts to Directors, and contributes to a post employment deﬁned contribution pension 
plan on their behalf.

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

Year ended 31 December

(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:80)(cid:72)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:75)(cid:82)(cid:85)(cid:87)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:192)(cid:87)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:12)(cid:3)
Long-term incentive plan 
Discretionary bonus 
(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:73)(cid:192)(cid:70)(cid:72)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Total 

2012  
£000  

(cid:23)(cid:23)(cid:21)(cid:3)(cid:3)
453  
238  
(cid:20)(cid:20)(cid:26)(cid:3)(cid:3)

1,250  

2011
£000

(cid:20)(cid:20)(cid:21)
415
238
(cid:178)

765

These amounts have been included in Accrued Expenses as disclosed in Note 42.

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

As at 31 December 2012, £415,715 is payable within one year in respect of the long-term incentive plan (as at 31 December 2011: £nil).

As at 31 December 2012, £237,500 in respect of discretionary bonuses was payable within one year (as at 31 December 2011: £nil).

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

147

 
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION D
IFRS FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

(ii)  Transactions with subsidiaries
The Company undertakes centralised administration functions, the costs of which it charges back to its operating subsidiaries. The following amounts which 
effectively comprised a recovery of expenses at no mark up were credited to the income statement of the Company for the respective periods:

Year ended 31 December

Recovery of expenses 

In addition, the Company has made equity contributions to its subsidiary, Movestic Livförsäkring AB as follows:

Year ended 31 December

2012  
£000  

2011
£000

2,834  

2,775

2012  
£000  

2011
£000

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:178)(cid:3)(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:47)(cid:76)(cid:89)(cid:73)(cid:124)(cid:85)(cid:86)(cid:108)(cid:78)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:36)(cid:37)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)

(cid:24)(cid:15)(cid:21)(cid:25)(cid:24)

(iii)  Transactions with associate 
Movestic Livförsäkring AB and its associate Modernac SA

Year ended 31 December

Reinsurance premiums paid 
Reinsurance recoveries received 
Reinsurance commission received 

Amounts outstanding as at balance sheet date 

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

31 December 2012

(cid:3)

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)(cid:3)(cid:54)(cid:17)(cid:36)(cid:17)(cid:3)

31 December 2011

(cid:3)

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)(cid:3)(cid:54)(cid:17)(cid:36)(cid:17)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(9,442 ) 
4,109  
899  

(4,434 ) 

2011
£000

(8,863 )
4,167
878

(3,818 )

(6,731 ) 

(1,450 )

Amounts  
(cid:82)(cid:90)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:3)
associate  
£000  

Amounts
(cid:82)(cid:90)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)
associate
£000

(cid:20)(cid:22)(cid:19)(cid:3)(cid:3)

(cid:25)(cid:15)(cid:27)(cid:25)(cid:20)

Amounts  
(cid:82)(cid:90)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:3)
associate  
£000  

Amounts
(cid:82)(cid:90)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)
associate
£000

(cid:25)(cid:24)(cid:27)(cid:3)(cid:3)

(cid:21)(cid:15)(cid:20)(cid:19)(cid:27)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

These amounts have been included in other payables as disclosed in Note 42 and other receivables as disclosed in Note 27. 

148

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
  53 Group entities 

 Control of the Group
The issued share capital of Chesnara plc the Group parent company is widely held, with no single party able to control 20% or more of such capital or of the 
rights which such ownership confers.

SECTION D
IFRS FINANCIAL STATEMENTS

 Group Subsidiary Companies

(cid:3)

(cid:3)
Name 

Countrywide Assured plc 

(cid:3)(cid:3)
Country of  
(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:3)
or Registration  

England & Wales  

Countrywide Assured Life Holdings Limited 

England & Wales  

Countrywide Assured Services Limited 

England & Wales  

Countrywide Assured Trustee Company Limited 

England & Wales  

CWA Trustee Company Limited 

England & Wales  

(cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:3)
interest  
(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:3)
2012  

(cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:3)
interest  
(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:3)
2011  

100% of all share  
capital (1 ) 

100% of all share 
share capital (1 ) 

100% of all share  
capital (1 ) 

100% of all share 
share capital (1 ) 

100% of all share  
capital (1 ) 

100% of all share 
share capital (1 ) 

100% of all share  
capital (1 ) 

100% of all share

share capital (1 ) 

Dissolved  
20 March 2012  

100% of all share

share capital (2 ) 

(cid:41)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)
Currency

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

CWA Life Holdings plc 

Movestic Livförsäkring AB  

(cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:68)(cid:70)(cid:3)(cid:54)(cid:17)(cid:36)(cid:17)(cid:3)(cid:3)

AkademikerRådgivning i Sverige AB 

Movestic Kapitalforvältning AB 

Save & Prosper Insurance Limited 

Save & Prosper Pensions Limited 

England & Wales  

Dissolved  
10 April 2012  

100% of all share
share capital  

Sweden  

100% of all share  
capital  

100% of all share
capital  

Swedish Krona

(cid:47)(cid:88)(cid:91)(cid:72)(cid:80)(cid:69)(cid:82)(cid:88)(cid:85)(cid:74)(cid:3)(cid:3)

(cid:23)(cid:28)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:3)
share capital (3 ) 

(cid:23)(cid:28)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)
share capital (3 ) 

Swedish Krona

Sweden  

Sweden  

 Dissolved  
31 January 2012  

100% of all share  
capital (3 ) 

100% of all share

capital (3 ) 

Swedish Krona

100% of all share

capital (3 ) 

Swedish Krona

England & Wales  

100% of all share  
share capital (5 ) 

100% of all share
share capital  

England & Wales  

100% of all share  
share capital (4)/(5 ) 

100% of all share

share capital (4 ) 

Sterling

Sterling

(1)  Held indirectly through Countrywide Assured Life Holdings Limited

(2)  Held indirectly through CWA Life Holdings plc – dissolved on 20 March 2012

(3)  Held indirectly through Movestic Livförsäkring AB 

(4)  Held indirectly through Save & Prosper Insurance Limited

(5)  Dissolved 22 January 2013

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

149

 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
150

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION E

EEV 
SUPPLEMENTARY
INFORMATION

IN THIS SECTION

152 
153 
154 
155 
156—169  Notes to the EEV Supplementary Information

Directors’ Responsibility Statement 
Independent Auditor’s Report 
Summarised EEV Consolidated Income Statement 
Summarised EEV Consolidated Balance Sheet 

151

SECTION E
EEV SUPPLEMENTARY INFORMATION

DIRECTORS’ RESPONSIBILITY STATEMENT

Directors’ Responsibility Statement in respect of the EEV Basis Supplementary Information

The Directors have chosen to prepare supplementary information in accordance with the EEV Principles issued in May 2004 by the CFO Forum of European 
Insurance Companies and expanded by the Additional Guidance on European Embedded Value Disclosures issued in October 2005.

When compliance with the EEV Principles is stated, those principles require the Directors to prepare supplementary information in accordance with the Embedded 
Value Methodology (‘EVM’) contained in the EEV Principles and to disclose and explain any non-compliance with the EEV guidance included in the EEV Principles.

In preparing the EEV supplementary information, the Directors have:

  – Prepared the supplementary information in accordance with the EEV Principles;

  – Identiﬁed and described the business covered by the EVM;

  – Applied the EVM consistently to the covered business;

  – Determined assumptions on a realistic basis, having regard to past, current and expected future experience and to any relevant external data, and then applied 

them consistently;

  – Made estimates that are reasonable and consistent; and

  – Described the basis on which business that is not covered business has been included in the supplementary information, including any material departures from 

the accounting framework applicable to the Group’s ﬁnancial statements.

By order of the Board

Chairman 
Peter Mason 
27 March 2013 

Chief Executive Ofﬁcer
Graham Kettleborough
27 March 2013

152

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION E
EEV SUPPLEMENTARY INFORMATION

INDEPENDENT AUDITOR’S REPORT

Independent Auditor’s Report to the Directors of Chesnara plc on the European  
Embedded Value (EEV) Basis Supplementary Information

We have audited the EEV Basis Supplementary Information of Chesnara plc for the year ended 31 December 2012 which comprises the summarised EEV 
consolidated income statement, the summarised EEV consolidated balance sheet and the related notes 1 to 10. The ﬁnancial reporting framework that has been 
applied in their preparation is the EEV Principles issued in May 2004 by the CFO Forum of European Insurance Companies and expanded by the Additional 
Guidance on European Embedded Value Disclosures issued in October 2005 (“the EEV Principles”).

We have reported separately on the statutory group ﬁnancial statements of Chesnara plc for the year ended 31 December 2012. The EEV Basis Supplementary 
Information should be read in conjunction with the ﬁnancial statements prepared on an IFRS basis.

This report is made solely to the company’s directors in accordance with our engagement letter and solely for the purpose of expressing an opinion on whether 
the EEV Basis Supplementary Information has been properly prepared in accordance with the EEV principles. Our audit work has been undertaken so that  
we might state to the company’s directors those matters we are required to state to them in an independent auditors’ report and for no other purpose. To the 
fullest extent permitted by law, we will not accept or assume responsibility to anyone other than the company, for our audit work, for this report, or for the 
opinions we have formed.

Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibility Statement in respect of the EEV Basis Supplementary Information, the directors are responsible for the 
preparation of the EEV Basis Supplementary Information. Our responsibility is to audit and express an opinion on the EEV Basis Supplementary Information in 
accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

Scope of the audit of the EEV Basis Supplementary Information
An audit involves obtaining evidence about the amounts and disclosures in the Supplementary Information sufﬁcient to give reasonable assurance that the 
Supplementary Information is free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting 
policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁcant 
accounting estimates made by the directors; and the overall presentation of the Supplementary Information. In addition, we read all the ﬁnancial and non-ﬁnancial 
information in the annual report to identify material inconsistencies with the audited ﬁnancial statements. If we become aware of any apparent material 
misstatements or inconsistencies we consider the implications for our report.

Opinion
In our opinion, the EEV Basis Supplementary Information for the year ended 31 December 2012 has been properly prepared in accordance with the EEV principles 
using the methodology and assumptions set out on pages 156 to 169.

Deloitte LLP
Chartered Accountants
Manchester
United Kingdom
27 March 2013

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

153

SECTION E
EEV SUPPLEMENTARY INFORMATION

SUMMARISED EEV CONSOLIDATED INCOME STATEMENT

Summarised EEV consolidated income statement for the year ended 31 December 2012

Year ended 31 December

(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) 
Other operational result 

(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)
Variation from longer-term investment return 
Effect of economic assumption changes 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:3)
Exceptional item

Effect of modelling adjustments 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
Tax 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)

(cid:3)(cid:3)

(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

The notes and information on pages 156 to 169 form part of this supplementary information. 

Note  

6  
6  

(cid:3)(cid:3)
6  
6  

(cid:3)(cid:3)

6  

(cid:3)(cid:3)
6  

(cid:3)(cid:3)

9  

9  

2012  
£000  

19,032  
(4,446 ) 

(cid:20)(cid:23)(cid:15)(cid:24)(cid:27)(cid:25)(cid:3)(cid:3)
28,035  
(6,504 ) 

2011
£000

15,314
(2,811 )

(cid:20)(cid:21)(cid:15)(cid:24)(cid:19)(cid:22)
(16,929 )
(32,479 )

(cid:22)(cid:25)(cid:15)(cid:20)(cid:20)(cid:26)(cid:3)(cid:3)

(cid:11)36,905 (cid:12)

3,574  

(10,328 )

(cid:22)(cid:28)(cid:15)(cid:25)(cid:28)(cid:20)(cid:3)(cid:3)
(4,862 ) 

(cid:11)(cid:23)(cid:26)(cid:15)(cid:21)(cid:22)(cid:22)(cid:3)(cid:12)
7,123

(cid:22)(cid:23)(cid:15)(cid:27)(cid:21)(cid:28)(cid:3)(cid:3)

(cid:11)40,110 (cid:12)

30.33p  

(34.92 )p

30.33p  

(34.92 )p

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

154

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SUMMARISED EEV CONSOLIDATED BALANCE SHEET

Summarised EEV consolidated balance sheet as at 31 December 2012

SECTION E
EEV SUPPLEMENTARY INFORMATION

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:3)

31 December

(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)

Value of in-force business 
Deferred acquisition costs arising on unmodelled business 
Acquired value of customer relationships 
Property and equipment 
Investment in associate 
Deferred tax asset 
Reinsurers’ share of insurance contract provisions 
Amounts deposited with reinsurers 
Investment properties 
Financial assets

Equity securities at fair value through income 
Holdings in collective investment schemes at fair value through income 
Debt securities at fair value through income 
Insurance and other receivables  
Prepayments 
Policyholders’ funds held by the Group 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)
Reinsurers’ share of accrued policy claims  
Income taxes 
Cash and cash equivalents 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)

(cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Insurance contract provisions 
Other provisions 
Deferred tax liabilities 
Financial liabilities

Investment contracts at fair value through income 
Borrowings 
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Liabilities relating to policyholders’ funds held by the Group 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Reinsurance payables 
Payables related to direct insurance and investment contracts 
Income taxes 
Other payables 
Bank overdraft 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)

(cid:49)(cid:72)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)

(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Share capital 
Share premium 
Treasury shares 
Foreign exchange reserve 
Other reserves 
Retained earnings 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:24)(cid:15)(cid:3)(cid:27)  

(cid:3)(cid:3)
(cid:3)(cid:3)

2012  
(cid:133)(cid:19)(cid:19)(cid:19)(cid:3)(cid:3)

210,080  
497  
562  
369  
2,902  
1,280  
235,782  
28,941  
100,167  

427,303  
3,009,799  
363,377  
24,313  
3,160  
61,171  
(cid:22)(cid:15)(cid:19)(cid:28)(cid:24)(cid:3)(cid:3)
(cid:22)(cid:15)(cid:27)(cid:28)(cid:21)(cid:15)(cid:21)(cid:20)(cid:27)(cid:3)(cid:3)
4,489  
8,649  
228,676  

2011
(cid:133)(cid:19)(cid:19)(cid:19)

199,560
834
694
385
1,613
–
230,891
26,637
132,128

404,431
2,917,935
330,610
30,799
3,234
49,080
(cid:20)(cid:19)(cid:15)(cid:22)(cid:19)(cid:27)
(cid:22)(cid:15)(cid:26)(cid:23)(cid:25)(cid:15)(cid:22)(cid:28)(cid:26)
4,667
6,932
195,920

(cid:3)(cid:3)

(cid:23)(cid:15)(cid:26)(cid:20)(cid:23)(cid:15)(cid:25)(cid:20)(cid:21)(cid:3)(cid:3)

(cid:23)(cid:15)(cid:24)(cid:23)(cid:25)(cid:15)(cid:25)(cid:24)(cid:27)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2,171,259  
5,161  
–  

2,033,131  
55,373  
(cid:21)(cid:27)(cid:25)(cid:3)(cid:3)
61,171  
(cid:21)(cid:15)(cid:20)(cid:23)(cid:28)(cid:15)(cid:28)(cid:25)(cid:20)(cid:3)(cid:3)
16,183  
38,894  
4,350  
17,057  
602  

2,165,320
2,811
3,080

1,887,261
61,765
(cid:20)(cid:23)(cid:23)
49,080
(cid:20)(cid:15)(cid:28)(cid:28)(cid:27)(cid:15)(cid:21)(cid:24)(cid:19)
15,883
40,651
923
24,417
834

(cid:23)(cid:15)(cid:23)(cid:19)(cid:22)(cid:15)(cid:23)(cid:25)(cid:26)(cid:3)(cid:3)

(cid:23)(cid:15)(cid:21)(cid:24)(cid:21)(cid:15)(cid:20)(cid:25)(cid:28)

(cid:22)(cid:20)(cid:20)(cid:15)(cid:20)(cid:23)(cid:24)(cid:3)(cid:3)

(cid:21)(cid:28)(cid:23)(cid:15)(cid:23)(cid:27)(cid:28)

42,024  
42,523  
(217 ) 
15,378  
50  
211,387  

42,024
42,523
(217 )
14,026
50
196,083

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:24)(cid:15)(cid:3)(cid:27)(cid:3)(cid:3)

(cid:22)(cid:20)(cid:20)(cid:15)(cid:20)(cid:23)(cid:24)(cid:3)(cid:3)

(cid:21)(cid:28)(cid:23)(cid:15)(cid:23)(cid:27)(cid:28)

The notes and information on pages 156 to 169 form part of this supplementary information. Approved by the Board of Directors on 27 March 2013  
and signed on its behalf by:

Ken Romney 

Graham Kettleborough 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

155

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION

  1 Basis of preparation

This section sets out the detailed methodology followed for producing these Group ﬁnancial statements which are supplementary to the Group’s primary ﬁnancial 
statements which have been prepared in accordance with International Financial Reporting Standards (‘IFRS’). These ﬁnancial statements have been prepared 
in accordance with the European Embedded Value (‘EEV’) principles issued in May 2004 by the European CFO Forum and supplemented by Additional Guidance 
on EEV Disclosures issued by the same body in October 2005. The principles provide a framework intended to improve comparability and transparency in 
embedded value reporting across Europe. 

In order to improve understanding of the Group’s ﬁnancial position and performance, certain of the information presented in these ﬁnancial statements is presented 
on a segmental basis: the business segments are the same as those described in Note 8 to the primary ﬁnancial statements prepared on the IFRS basis. 

  2 Covered business

The Group uses EEV methodology to value the bulk of its long-term business (the ‘covered business’), which is written primarily in the UK and Sweden, as follows:

(i) 

 for the UK businesses (comprising the CA and S&P segments), the covered business comprises the business’s long-term business being those individual 
life insurance, pensions and annuity contracts falling under the deﬁnition of long-term insurance business for UK regulatory purposes. 

(ii)   for the Swedish business (comprising the Movestic segment), the covered business comprises the business’s long-term pensions and savings unit-linked 
business. Group life and sickness business, including waiver of premium and non-linked individual life assurance policies are not included in the covered 
business: the result relating to this business is established in accordance with IFRS principles and is included within ‘other operational result’ within the 
consolidated summarised income statement. 

(iii)  The operating expenses of the holding company, Chesnara plc, are allocated across the segments.

On 31 December 2011, under the provisions of Part VII of the Financial Services and Markets Act 2000 (‘The Part VII Transfer’), the long-term business funds 
and certain of the shareholder funds of the companies comprising the S&P business segment, being Save & Prosper Insurance Limited and Save & Prosper 
Pensions Limited, were transferred to Countrywide Assured plc (‘CA’), the principal operating subsidiary company of the UK Business. As a result, the whole of 
the covered business of the UK Business subsists within CA with effect from that date. The transfer gives rise to beneﬁts which have been recognised within 
the covered business, including:

(i)  Determination of the capital requirements of the covered business on a combined basis; and

(ii)   Other ﬁnancial synergies. The impact of these beneﬁts has been recognised in the cash ﬂow projections relating to the value of business in force as at 

31 December 2011 and in the income statement for the year then ended.

Under EEV principles no distinction is made between insurance and investment contracts, as there is under IFRS, which accords these classes of contracts 
different accounting treatments.

  3 Methodology
  (a) Embedded value

Overview
Shareholders’ equity comprises the embedded value of the covered business, together with the net equity of other Group companies, including that of the holding 
company which is stated after writing down fully the carrying value of the covered business.

The embedded value of the covered business is the aggregate of the shareholder net worth (‘SNW’) and the present value of future shareholder cash ﬂows from 
in-force covered business (value of in-force business) less any deduction for (i) the cost of guarantees within S&P, and (ii) the cost of required capital. It is  
stated after allowance has been made for aggregate risks in the business. SNW comprises those amounts in the long-term business, which are either regarded 
as required capital or which represent surplus assets within that business.

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SECTION E
EEV SUPPLEMENTARY INFORMATION

New business
 CA and S&P
Much of the covered business is in run-off and is, accordingly, substantially closed to new business. Up to 31 December 2012 the UK businesses did still sell  
a small amount of new business but, overall, the contribution from new business to the results established using EEV methodology is not material. Accordingly, 
not all of those items related to new business values, which are recommended by the EEV guidelines, are reported in this supplementary ﬁnancial information.

 Movestic
New business, in relation to the pensions and savings covered business is taken as all business where contracts are signed and new premiums paid during the 
reporting period, for both new policies and premium increases on existing business, but excluding standard renewals. New business premium volumes as 
disclosed in the Swedish Business Review on page 25 are not consistent with this deﬁnition, as they include non-covered business. New business premium 
volume for the period which is consistent with the analysis of proﬁt in Note 6 is as follows:

(cid:51)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
31 December

New business premium income* 

2012  

2011

£18.8m  

£26.3m

*Basis: annualised premium plus 1/10 single premium translated into sterling at the 2012 average rate of SEK 10.7326 = £1 (2011: SEK10.4102 = £1).

The new business contribution has been assessed as at the end of the period, using opening assumptions.

Value of in-force business 
The cash ﬂows attributable to shareholders arising from in-force business are projected using best estimate assumptions for each component of cash ﬂow. 

The present value of the projected cash ﬂows is established by using a discount rate which reﬂects the time value of money and the risks associated with the 
cash ﬂows which are not otherwise allowed for. There is a deduction for the cost of holding the required capital, as set out below. 

In respect of Movestic there are certain non-linear exposures of shareholder proﬁt to asset returns arising from variable administrative fees and variable investment 
fund rebates which are modelled deterministically rather than stochastically.

Participating business
For participating business within the S&P business the Group maintains the assets and liabilities in separate with-proﬁts funds. In accordance with the Principles 
and Practices of Financial Management, in the ﬁrst instance all beneﬁts, which in some cases include guaranteed minimum investment returns, are paid from 
policyholder assets within the fund. The participating business effectively operates as a smoothed unit linked contract subject to minimum beneﬁt guarantees. 
The with-proﬁts funds contain assets which are attributable to shareholders as well as those attributable to policyholders. Assets attributable to shareholders 
can only be released from the fund subject to meeting prudent liabilities in respect of minimum beneﬁts and the frictional cost of this restriction has been allowed 
for in determining the value of the in-force business.

Fundamentally, the value of the with-proﬁts in-force business is driven by the fund management charges levied on the policyholder assets, subject to the effect 
of minimum beneﬁt guarantees.

Taxation
The present value of the projected cash ﬂows arising from in-force business takes into account all tax which is expected to be paid under current legislation, 
including tax which would arise if surplus assets within the covered business were eventually to be distributed. For the UK businesses, allowance has been made 
for planned reductions in corporation tax, as announced by the Chancellor in his budget speech on 21 March 2012, and allowance has been made for changes 
to insurance taxation taking effect from 1 January 2013. The value as at 31 December 2011 was not restated to allow for these changes. No allowance has been 
made for the changes announced by the Chancellor in his budget speech on 20 March 2013.

The value of the in-force business has been calculated on an after-tax basis and is grossed up to the pre-tax level for presentation in the income statement.  
The amount used for the grossing up is the amount of shareholder tax, excluding those payments made on behalf of policyholders, being policyholder tax in the 
UK businesses and yield tax in Movestic.

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157

 
 
 
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION (CONTINUED)

Cost of capital
The valuation approach used requires consideration of ‘frictional’ costs of holding shareholder capital: in particular, the cost of tax on investment returns and the 
impact of investment management fees can reduce the face value of shareholder funds. For CA, the expenses relating to corporate governance functions 
eliminate any taxable investment return in shareholder funds, while investment management fees are not material. The cost of holding the required capital 
to support the covered business (see 3(b) below) is reﬂected as a deduction from the value of in-force business.

Financial options and guarantees 
CA
The principal ﬁnancial options and guarantees in CA are (i) guaranteed annuity rates offered on some unit-linked pension contracts and (ii) a guarantee offered 
under Timed Investment Funds that the unit price available at the selected maturity date (or at death, if earlier) will be the highest price attained over the policy’s 
life. The cost of these options and guarantees has been assessed, in principle, on a market-consistent basis, but, in practice, this has been carried out on 
approximate bases, which are appropriate to the level of materiality of the results. 

S&P 
The principal ﬁnancial options and guarantees in S&P are (i) minimum beneﬁts payable on maturity or retirement for participating business; (ii) the option to extend 
the term under the Personal Retirement Account contract on terms potentially beneﬁcial to the policyholder; (iii) the option to increase premiums under the 
Personal Retirement Account contract on terms potentially beneﬁcial to the policyholder; and (iv) certain insurability options offered. 

The cost of guaranteeing a minimum investment return on participating contracts, being the only material guarantee, has been assessed on a market consistent 
basis. This has involved the use of a stochastic asset model, which is designed to establish a cost of guarantees which is consistent with prices in the market 
at the valuation date, for example the prices of derivative instruments. For the remaining options and guarantees the cost has been assessed on an approximate 
basis, appropriate to the level of materiality of the results.

Movestic
In respect of Movestic, some contracts provide policyholders with an investment guarantee, whereby a minimum rate of return is guaranteed for the ﬁrst 5 years 
of the policy, at a rate of 3% per annum. The value of the guarantee is ignored as it is not material to the results.

Allowance for risk
Allowance for risk within the covered business is made by:

(i) 

 setting required capital levels by reference to the assessment of capital needs made by the directors of the regulated entities within the  
respective businesses;

(ii)   setting the risk discount rate, which is applied to the projected cash ﬂows arising on the in-force business, at a level which includes an appropriate risk 

margin (see 3(c) below); and

(iii)  explicit allowance for the cost of ﬁnancial options and guarantees and, where appropriate, for reinsurer default.

Internal group company
EEV Guidance requires that actual and expected proﬁt or loss incurred by an internal group company on services provided to the covered business should be 
included in allowances for expenses. The covered business in Movestic is partially managed by an internal group fund management company. Not all relevant 
future income and expenses of that company have been included in the calculation of embedded value. However, the effect is not considered to be material.

Consolidation adjustments
Consolidation adjustments have been made to:

(i)  eliminate the investment in subsidiaries;

(ii)  allocate group debt ﬁnance against the segment to which it relates; and

(iii)  allocate corporate expenses as explained in Note 4(d) below.

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SECTION E
EEV SUPPLEMENTARY INFORMATION

  (b) Level of required capital

The level of required capital of the covered business reﬂects the amount of capital that the Directors consider necessary and appropriate to manage the respective 
businesses. In forming their policy the Directors have regard to the minimum statutory requirements and an internal assessment of the market, insurance and 
operational risks inherent in the underlying products and business operations. The capital requirement resulting from this assessment represents:

(i) 

 for the UK business, 162.5% of the long-term insurance capital requirement (‘LTICR’) together with 100% of the resilience capital requirement (‘RCR’), 
as determined by the regulations of the Financial Services Authority in the UK; and

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

The required level of regulatory capital is provided as follows:

(i) 

 for the UK businesses, by the retained surplus within the long-term business fund and by share capital and retained earnings within the shareholder funds 
of the regulated entities; and

(ii)   for Movestic, by share capital and additional equity contributions from the parent company, net of the accumulated deﬁcit in the regulated entity, these 

components together comprising shareholder’s equity. 

Movestic is reliant, in the short to medium term, on further equity contributions from the parent company, Chesnara plc.

  (c) Discount rates

The discount rates are a combination of the reference rate and a risk margin. The reference rate reﬂects the time value of money and the risk margin reﬂects 
any residual risks inherent in the covered business and makes allowance for the risk that future experience will differ from that assumed. In order to reduce the 
subjectivity when setting the discount rates, the Group has decided to adopt a ‘bottom up’ market-consistent approach to allow explicitly for market risk.

Using the market-consistent approach, each cash ﬂow is valued at a discount rate consistent with that used in the capital markets: in accordance with this, 
equity-based cash ﬂows are discounted at an equity discount rate and bond-based cash ﬂows at a bond discount rate. In practice a short-cut method known 
as the ‘certainty equivalent’ approach has been adopted. This method assumes that all cash ﬂows earn the reference rate of return and are discounted at the 
reference rate.

In general, and consistent with the market’s approach to valuing ﬁnancial instruments for hedging purposes, the reference rate is based on swap yields. These 
have been taken as mid swap yields available in the market at the end of the reporting period.

Allowance also needs to be made for non-market risks. For some of these risks, such as mortality and expense risk, it is assumed that the shareholder can 
diversify away any uncertainty where the impact of variations in experience on future cash ﬂows is symmetrical. For those risks that are assumed to be diversiﬁable, 
no adjustment has been made. For any remaining risks that are considered to be non-diversiﬁable risks, there is no risk premium observable in the market 
and, therefore, a constant margin has been added to the risk margin. The margin added reﬂects the assumed risks within the businesses and is 50 basis points 
for CA and S&P (2011: 50 basis points), and 70 basis points for Movestic (2011: 70 basis points). This margin is applied to the basic value of in-force business 
prior to the deductions for ﬁnancial options and guarantees and the cost of required capital.

  (d) Analysis of proﬁt

The contribution to operating proﬁt, which is identiﬁed at a level which reﬂects an assumed longer-term level of investment return, arises from three sources:

(i)  new business;

(ii)  return from in-force business; and

(iii)  return from shareholder net worth.

Additional contributions to proﬁt arise from:

(i)  variances between the actual investment return in the period and the assumed long-term investment return; and

(ii)  the effect of economic assumption changes.

The contribution from new business represents the value recognised at the end of each period in respect of new business written in that period, after allowing 
for the cost of acquiring the business, the cost of establishing the required technical provisions and after making allowance for the cost of capital, calculated on 
opening assumptions.

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159

 
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION (CONTINUED)

The return from in-force business is calculated using closing assumptions and comprises:

(i) 

the expected return, being the unwind of the discount rates over the period applied to establish the value of in-force business at the beginning of the period;

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

period; and

(iii)   the net effect of changes in future assumptions, made prospectively at the end of the period, from those used in establishing the value of business in force 

at the beginning of the period, other than changes in economic assumptions.

The contribution from shareholder net worth comprises the actual investment return on residual assets in excess of the required capital. 

  (e) Assumption setting

There is a requirement under EEV methodology to use best estimate demographic assumptions and to review these at least annually with the economic 
assumptions being reviewed at each reporting date. The current practice is detailed below.

Each year the demographic assumptions are reviewed as part of year-end processes and hence were reviewed in December 2012. 

The detailed projection assumptions, including mortality, morbidity, persistency and expenses reﬂect recent operating experience. Allowance is made for future 
improvement in annuitant mortality based on experience and externally published data. Favourable changes in operating experience, particularly in relation to 
expenses and persistency, are not anticipated until the improvement in experience has been observed. Holding company expenses (for the Chesnara Group such 
expenses relate largely to listed company functions) are allocated across the segments in proportion to the value before tax of the in-force business. Hence the 
expense assumptions used for the cash ﬂow projections include the full cost of servicing this business. 

The economic assumptions are reviewed and updated at each reporting date based on underlying investment conditions at the reporting date. The assumed 
discount rates and inﬂation rates are consistent with the investment return assumptions. 

In addition, the demographic assumptions used at 31 December 2012 are considered to be best estimate and, consequently, no further adjustments are required. 
In respect of the CA Business, the assumptions required in the calculation of the value of the annuity rate guarantee on pension business have been set equal  
to best-estimate assumptions. 

  (f) Pension schemes

In Movestic, where the Group participates in a combined deﬁned beneﬁt and deﬁned contribution scheme, future contributions to the scheme are reﬂected  
in the value of in-force business.

  (g) Financial reassurance

In respect of Movestic the Group uses ﬁnancial reinsurance to manage the impact of its new business strain. Whilst this liability is valued at fair value within 
the IFRS statements, allowing for an option which provides the Group with the right to settle the liability early on beneﬁcial terms, when valuing the shareholder 
net worth within the EEV it is considered more appropriate to assess this liability at a higher cost, reﬂecting the likelihood of the option not being utilised. 

160

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SECTION E
EEV SUPPLEMENTARY INFORMATION

  4 Assumptions
  (a) Investment returns

Investment returns are assumed to be equal to the reference rate, as covered in Note 3(c) above. For linked business, the aggregate return has been determined 
by the reference rate less an appropriate allowance for tax. For the valuation at 31 December 2012 the models for the CA business have been enhanced to 
allow for the use of a full yield curve. Refer to Note 6(a) below for the impact of this change which is classiﬁed as a modelling adjustment. For 2011, whilst for 
S&P and Movestic, a full swap curve was used, for the CA business, a single rate was applied for all durations.

The rates presented below are indicative spot rates:

31 December
(cid:3)

Investment Return 
5 year 
10 year 
15 year 
20 year 
25 year 
30 year 

(cid:44)(cid:81)(cid:193)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:178)(cid:3)(cid:53)(cid:51)(cid:44)(cid:3)

(cid:38)(cid:36)(cid:3)

2012  

2011  

1.9%  

1.03%  
1.93%  
2.58%  
2.94%  
3.15%  
3.23%  

(cid:54)(cid:9)(cid:51)(cid:3)

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)

2012  

2011  

2012  

2011

1.03%  
1.93%  
2.58%  
2.94%  
3.15%  
3.23%  

1.58%  
2.36%  
2.79%  
3.00%  
3.14%  
3.20%  

1.52%  
2.04%  
2.28%  
2.33%  
2.33%  
2.33%  

2.04%
2.37%
2.42%
2.39%
2.39%
2.39%

(cid:21)(cid:17)(cid:22)(cid:8)

(cid:3)(cid:3)

(cid:21)(cid:17)(cid:22)(cid:8)(cid:3)(cid:3)

(cid:21)(cid:17)(cid:23)(cid:8)(cid:3)(cid:3)

(cid:21)(cid:17)(cid:22)(cid:8)(cid:3)(cid:3)

(cid:21)(cid:17)(cid:23)(cid:3)(cid:8)(cid:3)

(cid:20)(cid:17)(cid:26)(cid:20)(cid:8)(cid:3)(cid:3)

  (b) Actuarial assumptions

The demographic assumptions used to determine the value of the in-force business have been set at levels commensurate with the underlying operating experience 
identiﬁed in the periodic actuarial investigations.

Certain products contain provisions that provide for the charges in respect of morality risk to be reviewable. In these cases assumptions for future experience and 
charges are assumed to be in linked and assumptions are only updated when decisions have been made regarding product charges, so as not to capitalise any 
beneﬁts that may not accrue to shareholders.

  (c) Taxation

Projected tax has been determined assuming current tax legislation and rates continue unaltered, except where future tax rates or practices have been announced. 
The tax rates for CA and S&P allow for changes in Corporation Tax as announced by the Chancellor in his budget speech of 21 March 2012, so reﬂect a reduction 
from the current rate of 24% to 23% from April 2013, and 21% from April 2014. They do not allow for the further change, announced by the Chancellor in his budget 
speech on 20 March 2013, for a reduction in the UK Corporation Tax rate to 20% from April 2015.

  (d) Expenses

The expense levels are based on internal expense analysis investigations and are appropriately allocated to the new business and policy maintenance functions. 
For CA and S&P, these have been determined by reference to:

(i) 

the outsourcing agreements in place with our third-party business process administrators;

(ii)  anticipated revisions to the terms of such agreements as they fall due for renewal; and 

(iii)  corporate governance costs relating to the covered business.

For Movestic, these have been determined by reference to:

(i) 

 an expense analysis in which all expenses were allocated to covered and uncovered business, with expenses for the covered business being allocated to 
acquisition and maintenance activities; and

(ii)   expense drivers, being, in relation to acquisition costs, the number of policies sold during the period and, in relation to maintenance expenses, the average 

number of policies in force during the period.

Holding company expenses (for the Chesnara Group such expenses relate largely to listed company functions) are allocated across the segments in proportion 
to the value before tax of the in-force business. For periods up to and including 31 December 2011 such expenses were previously reported as wholly allocable 
to the CA segment. All segmental information in the following Notes to the Supplementary Information has, as applicable, been restated to reﬂect the change 
in allocation methodology. 

EEV Guidance requires that no allowance is made for future productivity improvements in expense assumptions. For the UK business, for expenses relating to 
policy administration this requirement is met. As the UK company is essentially closed to new business, those governance expenses which are not immediately 
variable can reasonably be expected to reduce through management control in the future, though the timing and scale of such reductions is not ﬁxed. A prudent 
estimate of the reductions has been allowed for within the expense assumptions.

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161

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION (CONTINUED)

  (e) Discount rate

An explicit constant margin is added to the reference rate shown in (a) above to cover any remaining risks that are considered to be non-market, non-diversiﬁable 
risks, as there is no risk premium observable in the market. This margin, which is 50 basis points for CA and S&P (as at 31 December 2011: 50 basis points) 
and 70 basis points for Movestic (as at 31 December 2011: 70 basis points), gives due recognition to the relative sensitivity of the value of in-force business 
to the discount rate for the different businesses, and to the fact that:

a) For CA:

(i) 

the covered business is substantially closed to new business;

(ii)  there is no signiﬁcant exposure in the with proﬁt business, which is wholly reinsured; 

(iii)   expense risk is limited as a result of the outsourcing of substantially all policy administration and related functions to third-party business process 

administrators; and 

(iv)  for much of the life business the Group has the ability to vary risk charges made to policyholders.

b) For S&P:

(i) 

the covered business is substantially closed to new business; and

(ii)   expense risk is limited as a result of the outsourcing of substantially all policy administration and related functions to third-party business  

process administrators.

c) For Movestic:

(i) 

the covered business remains open; 

(ii)  the in-force business is relatively small; 

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

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

policyholder populations.

162

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SECTION E
EEV SUPPLEMENTARY INFORMATION

  5 Analysis of shareholders’ equity

31 December 2012
(cid:3)
(cid:3)

Regulated entities
Capital required 
Restricted capital 
Free surplus 

(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Adjustments to shareholder net worth: 

Deferred acquisition costs 
Financial reinsurance liability 
Software asset adjustment 
Adjustment to provisions on insurance contracts 
Policyholder funds 

(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:18)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)
In-force value of covered business 

(cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
(cid:47)(cid:72)(cid:86)(cid:86)(cid:29)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
Net equity of other Group companies 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)

(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:12)
(cid:3)
(cid:3)

Regulated entities
Capital required 
Restricted capital 
Free surplus 

(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
Adjustments to shareholder net worth: 

Deferred acquisition costs 
Financial reinsurance liability 
Software asset adjustment 
Adjustment to provisions on insurance contracts 
Policyholder funds 

(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:18)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)
In-force value of covered business 

(cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
(cid:47)(cid:72)(cid:86)(cid:86)(cid:29)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
Net equity of other Group companies 

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:3)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3)
(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:3)(cid:3)
(cid:38)(cid:36)(cid:3)(cid:3)
£000  

26,967  
–  
37,142  

47,731  
–  
27,513  

17,355  
–  
15,127  

(cid:25)(cid:23)(cid:15)(cid:20)(cid:19)(cid:28)(cid:3)(cid:3)

(cid:26)(cid:24)(cid:15)(cid:21)(cid:23)(cid:23)(cid:3)(cid:3)

(cid:22)(cid:21)(cid:15)(cid:23)(cid:27)(cid:21)(cid:3)(cid:3)

–  
–  
–  
–  
–  
(cid:22)(cid:27)(cid:27)(cid:3)(cid:3)

(cid:25)(cid:23)(cid:15)(cid:23)(cid:28)(cid:26)(cid:3)(cid:3)
67,040  

(cid:20)(cid:22)(cid:20)(cid:15)(cid:24)(cid:22)(cid:26)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)

(cid:20)(cid:22)(cid:20)(cid:15)(cid:24)(cid:22)(cid:26)(cid:3)(cid:3)
–  

–  
–  
–  
3,052  
(15,351 ) 
(cid:178)(cid:3)(cid:3)

(cid:25)(cid:21)(cid:15)(cid:28)(cid:23)(cid:24)(cid:3)(cid:3)
18,537  

(cid:27)(cid:20)(cid:15)(cid:23)(cid:27)(cid:21)(cid:3)(cid:3)
(29,662 ) 

(cid:24)(cid:20)(cid:15)(cid:27)(cid:21)(cid:19)(cid:3)(cid:3)
–  

(54,314 ) 
(5,213 ) 
(5,712 ) 
–  
–  
(cid:25)(cid:15)(cid:22)(cid:23)(cid:19)(cid:3)(cid:3)

(cid:11)(cid:21)(cid:25)(cid:15)(cid:23)(cid:20)(cid:26)(cid:3)(cid:12)(cid:3)
124,503  

(cid:28)(cid:27)(cid:15)(cid:19)(cid:27)(cid:25)(cid:3)(cid:3)
–  

(cid:28)(cid:27)(cid:15)(cid:19)(cid:27)(cid:25)(cid:3)(cid:3)
1,587  

(cid:20)(cid:22)(cid:20)(cid:15)(cid:24)(cid:22)(cid:26)(cid:3)(cid:3)

(cid:24)(cid:20)(cid:15)(cid:27)(cid:21)(cid:19)(cid:3)(cid:3)

(cid:28)(cid:28)(cid:15)(cid:25)(cid:26)(cid:22)(cid:3)(cid:3)

(cid:21)(cid:27)(cid:15)(cid:20)(cid:20)(cid:24)(cid:3)(cid:3)

(cid:22)(cid:20)(cid:20)(cid:15)(cid:20)(cid:23)(cid:24)

(cid:178)(cid:3)(cid:3)
28,115  

(cid:21)(cid:27)(cid:20)(cid:15)(cid:23)(cid:23)(cid:22)
29,702

(cid:3)(cid:3)
(cid:38)(cid:36)(cid:3)(cid:3)
£000  

28,701  
–  
37,147  

(cid:3)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:3)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3)
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

59,237  
888  
29,854  

18,131  
–  
11,474  

(cid:3)(cid:3)

(cid:25)(cid:24)(cid:15)(cid:27)(cid:23)(cid:27)(cid:3)(cid:3)

(cid:27)(cid:28)(cid:15)(cid:28)(cid:26)(cid:28)(cid:3)(cid:3)

(cid:21)(cid:28)(cid:15)(cid:25)(cid:19)(cid:24)(cid:3)(cid:3)

–  
–  
–  
–  
–  
(cid:22)(cid:19)(cid:27)(cid:3)(cid:3)

(cid:25)(cid:25)(cid:15)(cid:20)(cid:24)(cid:25)(cid:3)(cid:3)
60,655  

(cid:20)(cid:21)(cid:25)(cid:15)(cid:27)(cid:20)(cid:20)(cid:3)(cid:3)
(cid:178)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:25)(cid:15)(cid:27)(cid:20)(cid:20)(cid:3)(cid:3)
–  

–  
–  
–  
2,913  
(15,643 ) 
(cid:178)(cid:3)(cid:3)

(cid:26)(cid:26)(cid:15)(cid:21)(cid:23)(cid:28)(cid:3)(cid:3)
17,519  

(cid:28)(cid:23)(cid:15)(cid:26)(cid:25)(cid:27)(cid:3)(cid:3)
(35,486 ) 

(cid:24)(cid:28)(cid:15)(cid:21)(cid:27)(cid:21)(cid:3)(cid:3)
–  

(53,293 ) 
(5,499 ) 
(6,744 ) 
–  
–  
(cid:26)(cid:15)(cid:26)(cid:27)(cid:23)(cid:3)(cid:3)

(cid:11)(cid:21)(cid:27)(cid:15)(cid:20)(cid:23)(cid:26)(cid:3)(cid:12)(cid:3)
121,386  

(cid:28)(cid:22)(cid:15)(cid:21)(cid:22)(cid:28)(cid:3)(cid:3)
–  

(cid:28)(cid:22)(cid:15)(cid:21)(cid:22)(cid:28)(cid:3)(cid:3)
1,332  

(cid:20)(cid:21)(cid:25)(cid:15)(cid:27)(cid:20)(cid:20)(cid:3)(cid:3)

(cid:24)(cid:28)(cid:15)(cid:21)(cid:27)(cid:21)(cid:3)(cid:3)

(cid:28)(cid:23)(cid:15)(cid:24)(cid:26)(cid:20)(cid:3)(cid:3)

(cid:20)(cid:22)(cid:15)(cid:27)(cid:21)(cid:24)(cid:3)(cid:3)

(cid:21)(cid:28)(cid:23)(cid:15)(cid:23)(cid:27)(cid:28)

(cid:178)(cid:3)(cid:3)
13,825  

(cid:21)(cid:26)(cid:28)(cid:15)(cid:22)(cid:22)(cid:21)
15,157

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

92,053
–
79,782

(cid:20)(cid:26)(cid:20)(cid:15)(cid:27)(cid:22)(cid:24)(cid:3)

(54,314 )
(5,213 )
(5,712 )
3,052
(15,351 )
(cid:25)(cid:15)(cid:26)(cid:21)(cid:27)

(cid:20)(cid:19)(cid:20)(cid:15)(cid:19)(cid:21)(cid:24)
210,080

(cid:22)(cid:20)(cid:20)(cid:15)(cid:20)(cid:19)(cid:24)
(29,662 )

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

106,069
888
78,475

(cid:20)(cid:27)(cid:24)(cid:15)(cid:23)(cid:22)(cid:21)

(53,293 )
(5,499 )
(6,744 )
2,913
(15,643 )
(cid:27)(cid:15)(cid:19)(cid:28)(cid:21)

(cid:20)(cid:20)(cid:24)(cid:15)(cid:21)(cid:24)(cid:27)
199,560

(cid:22)(cid:20)(cid:23)(cid:15)(cid:27)(cid:20)(cid:27)
(35,486 )

–  
–  
–  

(cid:178)(cid:3)(cid:3)

–  
–  
–  
–   
–  
(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)
–  

(cid:178)(cid:3)(cid:3)
–  

–  

–  

(cid:178)(cid:3)(cid:3)

–  
–  
–  
–  
–  
(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)
–  

(cid:178)(cid:3)(cid:3)
–  

The analysis of shareholder equity at 31 December 2011 has been restated to:

(i) 

reﬂect the change in methodology for the allocation of holding company expenses to the segments, as explained in Note 4(d) above; and to

(ii)   reﬂect a change in the determination of S&P restricted capital and free surplus within the analysis of the S&P regulated capital resources, there being 

a £5,366,000 reduction in the determination of restricted capital, and a consequential increase of the same amount in free surplus.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

163

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION (CONTINUED)

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

Year ended 31 December 2012
(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85) 
Dividend paid to parent 
Contribution from parent 
Synergies and adjustments arising from the Part VII transfer, including adjustments to required capital 
Surplus arising in the year 
Adjustments to required capital 
Decrease in policyholder funds cover for capital requirement  

(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)

(cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:12)
(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85) 
Dividend paid to parent 
Contribution from parent 
Synergies and adjustments arising from the Part VII transfer, including adjustments to required capital 
Surplus arising in the year 
Adjustments to required capital 
Increase in policyholder funds cover for capital requirement 

(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)

(cid:3)(cid:3)

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

Year ended 31 December 2012
(cid:3)

(cid:57)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
Amount charged to foreign exchange reserve 
(cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)

(cid:57)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:12)
(cid:3)

(cid:57)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
Amount charged to foreign exchange reserve 
(cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)

(cid:57)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:22)(cid:26)(cid:15)(cid:20)(cid:23)(cid:26)(cid:3)(cid:3)
(22,000 ) 
–  
7,000  
13,261  
1,734  
–  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:21)(cid:28)(cid:15)(cid:27)(cid:24)(cid:23)(cid:3)(cid:3)
(22,000 ) 
–  
–  
14,557  
5,394  
(292 ) 

(cid:20)(cid:20)(cid:15)(cid:23)(cid:26)(cid:23)(cid:3)(cid:3)
–  
–  
–  
2,877  
776  
–  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:26)(cid:27)(cid:15)(cid:23)(cid:26)(cid:24)
(44,000 )
–
7,000
30,695
7,904
(292 )

(cid:22)(cid:26)(cid:15)(cid:20)(cid:23)(cid:21)(cid:3)(cid:3)

(cid:21)(cid:26)(cid:15)(cid:24)(cid:20)(cid:22)(cid:3)(cid:3)

(cid:20)(cid:24)(cid:15)(cid:20)(cid:21)(cid:26)(cid:3)(cid:3)

(cid:26)(cid:28)(cid:15)(cid:26)(cid:27)(cid:21)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:22)(cid:19)(cid:15)(cid:19)(cid:25)(cid:23)(cid:3)(cid:3)
(26,000 ) 
–  
10,144  
21,784  
1,155  
–  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:21)(cid:23)(cid:15)(cid:20)(cid:23)(cid:28)(cid:3)(cid:3)
–  
–  
2,243  
14,518  
(11,770 ) 
714  

(cid:23)(cid:15)(cid:26)(cid:22)(cid:25)(cid:3)(cid:3)
–  
5,265  
–  
1,019  
454  
–  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:24)(cid:27)(cid:15)(cid:28)(cid:23)(cid:28)
(26,000 )
5,265
12,387
37,321
(10,161 )
714

(cid:22)(cid:26)(cid:15)(cid:20)(cid:23)(cid:26)(cid:3)(cid:3)

(cid:21)(cid:28)(cid:15)(cid:27)(cid:24)(cid:23)(cid:3)(cid:3)

(cid:20)(cid:20)(cid:15)(cid:23)(cid:26)(cid:23)(cid:3)(cid:3)

(cid:26)(cid:27)(cid:15)(cid:23)(cid:26)(cid:24)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:25)(cid:19)(cid:15)(cid:25)(cid:24)(cid:24)(cid:3)(cid:3)
–  
(cid:25)(cid:15)(cid:22)(cid:27)(cid:24)(cid:3)(cid:3)

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:20)(cid:26)(cid:15)(cid:24)(cid:20)(cid:28)(cid:3)(cid:3)
–  
(cid:20)(cid:15)(cid:19)(cid:20)(cid:27)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:20)(cid:15)(cid:22)(cid:27)(cid:25)(cid:3)(cid:3)
1,640  
(cid:20)(cid:15)(cid:23)(cid:26)(cid:26)(cid:3)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

199,560
1,640
(cid:27)(cid:15)(cid:27)(cid:27)(cid:19)

(cid:25)(cid:26)(cid:15)(cid:19)(cid:23)(cid:19)(cid:3)(cid:3)

(cid:20)(cid:27)(cid:15)(cid:24)(cid:22)(cid:26)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:23)(cid:15)(cid:24)(cid:19)(cid:22)(cid:3)(cid:3)

(cid:21)(cid:20)(cid:19)(cid:15)(cid:19)(cid:27)(cid:19)

(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:27)(cid:24)(cid:15)(cid:19)(cid:22)(cid:24)(cid:3)(cid:3)

(cid:22)(cid:28)(cid:15)(cid:21)(cid:25)(cid:28)(cid:3)(cid:3)

(24,380 ) 

(21,750 ) 

(cid:20)(cid:23)(cid:20)(cid:15)(cid:20)(cid:20)(cid:20)(cid:3)(cid:3)
(1,409 ) 
(18,316 ) 

(cid:21)(cid:25)(cid:24)(cid:15)(cid:23)(cid:20)(cid:24)
(1,409 )
(64,446 )

(cid:25)(cid:19)(cid:15)(cid:25)(cid:24)(cid:24)(cid:3)(cid:3)

(cid:20)(cid:26)(cid:15)(cid:24)(cid:20)(cid:28)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:20)(cid:15)(cid:22)(cid:27)(cid:25)(cid:3)(cid:3)

(cid:20)(cid:28)(cid:28)(cid:15)(cid:24)(cid:25)(cid:19)

The movement in the in-force value for the year ended 31 December 2011 has been restated to reﬂect the change in methodology for the allocation of holding 
company expenses to the segments, as explained in Note 4(d).

164

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

S&P
On 20 December 2010, the Group drew down £40m on a bank loan facility, in order to part fund the acquisition of Save & Prosper Insurance Limited and its 
subsidiary, Save & Prosper Pensions Limited (together ‘S&P’). This effectively represented a purchase of part of the underlying value in force of S&P by way 
of debt ﬁnance and it follows that the embedded value of the UK regulated entity is not attributable to equity shareholders of the Group to the extent of  
the outstanding balance on the loan account at each balance sheet date. In accordance with this a further £6.0m of the loan was repaid on 20 December 2012, 
leaving principal outstanding at that date of £30m.

Movestic
The adjusted shareholder net worth of Movestic is that of the regulated entity, which includes also the net worth attributable to the non-covered business within 
the regulated entity. Accordingly, for Movestic, the embedded value of regulated entities comprises the embedded value of covered business and the value of 
the non-covered business of the regulated entity, the latter component being valued on an IFRS basis.

  6 Summarised statement of changes in equity and analysis of proﬁt/(loss) 
  (a) Changes in equity may be summarised as:

(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Year ended 31 December

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Effect of modelling adjustments 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
Foreign exchange reserve movement  
Dividends paid 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(cid:3)(cid:3)
(cid:22)(cid:20)(cid:15)(cid:21)(cid:24)(cid:24)(cid:3)(cid:3)
3,574  

(cid:3)(cid:3)

(cid:3)(cid:3)

2012  
£000  

(cid:21)(cid:28)(cid:23)(cid:15)(cid:23)(cid:27)(cid:28)(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:22)(cid:23)(cid:15)(cid:27)(cid:21)(cid:28)(cid:3)(cid:3)
1,352  
(19,525 ) 

(cid:22)(cid:20)(cid:20)(cid:15)(cid:20)(cid:23)(cid:24)(cid:3)(cid:3)

2011  
£000  

(cid:3)(cid:3)
(29,782 ) 
(10,328 ) 

(cid:3)(cid:3)

(cid:3)(cid:3)

2011
£000

(cid:22)(cid:24)(cid:23)(cid:15)(cid:25)(cid:22)(cid:25)

(cid:11)40,110 (cid:12)
(1,030 )
(19,007 )

(cid:21)(cid:28)(cid:23)(cid:15)(cid:23)(cid:27)(cid:28)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Effect of modelling adjustments
Modelling adjustments during the year ended 31 December 2012 give rise to a net increase in EEV of £3.6m, comprising:

Movestic
During 2012, there has been a continued focus on ensuring that the Movestic EEV model is robust. The process, which has included independent review, has 
identiﬁed the following:

(i)  Levels of commission claw-back within the future cash ﬂow projections were overstated by £7.9m; and

(ii)  Several enhancements to policy fee cash ﬂow estimates and data input routines have been identiﬁed with a total net adverse impact of £1.1m.

UK
The CA and CWA EEV models previously assumed a single average rate of investment return for all durations as opposed the use of a full yield curve. This 
approximation was reported in the EEV assumptions section 4(a) of the Supplementary Information within the 2011 Report and Accounts. As at 31 December 2012 
the models have been enhanced to recognise differing rates of return across the different durations of the yield curve resulting in a net of tax increase of £12.6m.

Modelling adjustments during the year ended 31 December 2011 gave rise to a net reduction in EEV of £(10.3)m comprising:

Movestic
(i) 

 An improvement was introduced into the Movestic modelling system in respect of projected fee income from investment contracts where the fee is premium 
based, such contracts hitherto not being differentiated and this resulted in an increase in embedded value of £2.7m; and

(ii)   Modelling errors were detected relating to certain parameters and discounting periods speciﬁed at inception of the new model and the correction of these 
has given rise to a reduction in embedded value of £12.4m. The European Embedded Value principles issued by the European CFO Forum in May 2004, 
together with supplementary guidance, do not provide speciﬁc guidance on how these errors should be treated and presented.

UK
S&P model enhancements giving rise to a further £0.6m reduction in EEV, account for the balance of the total modelling adjustments of £(10.3)m for the year 
ended 31 December 2011, as presented above.

The effect of modelling adjustments is classiﬁed as an exceptional item in the consolidated income statement and is presented after operating proﬁt.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

165

 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION (CONTINUED)

  (b) The proﬁt/(loss) for the year before modelling adjustments is analysed as:

(cid:3)(cid:3)
(cid:38)(cid:36)(cid:3)(cid:3)
£000  

339  

2,308  
5,194  
(335 ) 
859  

(cid:27)(cid:15)(cid:22)(cid:25)(cid:24)(cid:3)(cid:3)
8,864  
(4,106 ) 

Year ended 31 December 2012
(cid:3)
(cid:3)

(cid:38)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
New business contribution 
Return from in-force business

Expected return 
Experience variances 
Operating assumption changes 
Return on shareholder net worth 

(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)
Variation from longer-term investment return 
Effect of economic assumption changes 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
Tax thereon 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)

(cid:3)(cid:3)

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
Tax  

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:20)(cid:22)(cid:15)(cid:20)(cid:21)(cid:22)(cid:3)(cid:3)

(cid:20)(cid:24)(cid:15)(cid:26)(cid:20)(cid:23)(cid:3)(cid:3)

 (cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(33 ) 

274  
3,029  
(2,858 ) 
7,048  

(cid:26)(cid:15)(cid:23)(cid:25)(cid:19)(cid:3)(cid:3)
10,967  
(2,713 ) 

(cid:3)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:3)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3)
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

306  

2,596  

2,582  
8,223  
(3,193 ) 
7,907  

(cid:20)(cid:24)(cid:15)(cid:27)(cid:21)(cid:24)(cid:3)(cid:3)
19,831  
(6,819 ) 

(cid:21)(cid:27)(cid:15)(cid:27)(cid:22)(cid:26)(cid:3)(cid:3)
(5,990 ) 

3,290  
(7,855 ) 
5,176  
–  

(cid:22)(cid:15)(cid:21)(cid:19)(cid:26)(cid:3)(cid:3)
8,204  
315  

(cid:20)(cid:20)(cid:15)(cid:26)(cid:21)(cid:25)(cid:3)(cid:3)
–  

(cid:21)(cid:21)(cid:15)(cid:27)(cid:23)(cid:26)(cid:3)(cid:3)

(cid:20)(cid:20)(cid:15)(cid:26)(cid:21)(cid:25)(cid:3)(cid:3)

–  

–  
–  
–  
–  

–  
–  
–  

–  
–  

– (cid:3)

(cid:178)(cid:3)(cid:3)
–  

(cid:20)(cid:15)(cid:21)(cid:28)(cid:28)(cid:3)(cid:3)
(295 ) 

(5,745 ) 
1,423  

(cid:21)(cid:21)(cid:15)(cid:27)(cid:23)(cid:26)(cid:3)(cid:3)

(cid:20)(cid:21)(cid:15)(cid:26)(cid:22)(cid:19)(cid:3)(cid:3)

(cid:11)4,322 (cid:12) 

31,255

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

(cid:3)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:3)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3)
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:3)(cid:3)
(cid:38)(cid:36)(cid:3)(cid:3)
£000  

398  

4,072  
5,203  
1,641  
1,126  

(cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:12)
(cid:3)
(cid:3)

(cid:38)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
New business contribution 
Return from in-force business

Expected return 
Experience variances 
Operating assumption changes 
Return on shareholder net worth 

(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)

Variation from longer-term investment return 
Effect of economic assumption changes 

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
Tax thereon 

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:47)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)

(cid:3)(cid:3)

(cid:51)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
Tax 

(cid:47)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

3,066  
(8,754 ) 

(1,762 ) 
(23,706 ) 

(cid:25)(cid:15)(cid:26)(cid:24)(cid:21)(cid:3)(cid:3)

(cid:11)(cid:21)(cid:22)(cid:15)(cid:21)(cid:26)(cid:26)(cid:3)(cid:12) 

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

42  

440  

3,074  

257  
(157 ) 
(887 ) 
2,936  

4,329  
5,046  
754  
4,062  

5,902  
(4,922 ) 
(3,371 ) 
–  

(cid:20)(cid:21)(cid:15)(cid:23)(cid:23)(cid:19)(cid:3)(cid:3)

(cid:21)(cid:15)(cid:20)(cid:28)(cid:20)(cid:3)(cid:3)

(cid:20)(cid:23)(cid:15)(cid:25)(cid:22)(cid:20)(cid:3)(cid:3)

(cid:25)(cid:27)(cid:22)(cid:3)(cid:3)

1,304  
(32,460 ) 

(cid:11)16,525 (cid:12) 
5,651  

(18,233 ) 
(19 ) 

(cid:11)(cid:20)(cid:26)(cid:15)(cid:24)(cid:25)(cid:28)(cid:3)(cid:12)(cid:3)
–  

(cid:11)(cid:20)(cid:19)(cid:15)(cid:27)(cid:26)(cid:23)(cid:3)(cid:12) 

(cid:11)(cid:20)(cid:26)(cid:15)(cid:24)(cid:25)(cid:28)(cid:3)(cid:12)(cid:3)

–  

–  
–  
–  
–  

(cid:178)(cid:3)(cid:3)

–  
–  

(cid:178)(cid:3)(cid:3)
–  

(cid:178)(cid:3)(cid:3)

(cid:178)(cid:3)(cid:3)
–  

(cid:22)(cid:19)(cid:27)(cid:3)(cid:3)
280  

(3,119 ) 
1,192  

(cid:11)(cid:20)(cid:19)(cid:15)(cid:27)(cid:26)(cid:23)(cid:3)(cid:12) 

(cid:11)(cid:20)(cid:25)(cid:15)(cid:28)(cid:27)(cid:20)(cid:3)(cid:12) 

(cid:11)(cid:20)(cid:15)(cid:28)(cid:21)(cid:26)(cid:3)(cid:12) 

(cid:11)(cid:21)(cid:28)(cid:15)(cid:26)(cid:27)(cid:21)(cid:3)(cid:12)

The analysis of proﬁt/(loss) of covered business before tax for the year ended 31 December 2011 has been restated to reﬂect the change in methodology for the 
allocation of holding company expenses to the segments as explained in Note 4(d) above.

166

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

2,902

5,872
368
1,983
7,907

19,032
28,035
(6,504 )

40,563
(5,990 )

(cid:22)(cid:23)(cid:15)(cid:24)(cid:26)(cid:22)

(4,446 )
1,128

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

3,514

10,231
124
(2,617 )
4,062

(cid:20)(cid:24)(cid:15)(cid:22)(cid:20)(cid:23)

(16,929 )
(32,479 )

(cid:11)34,094 (cid:12)
5,651

(cid:11)(cid:21)(cid:27)(cid:15)(cid:23)(cid:23)(cid:22)(cid:3)(cid:12)

(2,811 )
1,472

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

  7 Sensitivities to alternative assumptions

The following tables show the sensitivity of the embedded value as reported at 31 December 2012, and of the new business contribution of Movestic, to variations 
in the assumptions adopted in the calculation of the embedded value. Sensitivity analysis is not provided in respect of the new business contribution of CA and 
S&P for the year ended 31 December 2012 as the reported level of new business contribution is not considered to be material (see Note 3(a)). 

(cid:3)
(cid:3)
(cid:3)

(cid:3)
(cid:3)

(cid:3)
(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)

(cid:3)(cid:3)
(cid:56)(cid:46)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:38)(cid:36)(cid:3)(cid:3)
(cid:51)(cid:85)(cid:72)(cid:16)(cid:87)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
(cid:51)(cid:85)(cid:72)(cid:16)(cid:87)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:3)(cid:3)
(cid:55)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:56)(cid:46)(cid:3)(cid:3)
(cid:51)(cid:82)(cid:86)(cid:87)(cid:16)(cid:87)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:51)(cid:82)(cid:86)(cid:87)(cid:16)(cid:87)(cid:68)(cid:91)(cid:3)(cid:3)
£m  

(cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)

(cid:20)(cid:23)(cid:28)(cid:17)(cid:22)(cid:3)(cid:3)

(cid:27)(cid:20)(cid:17)(cid:24)  

(cid:11)(cid:20)(cid:26)(cid:17)(cid:27)(cid:3)(cid:12)(cid:3)

(cid:21)(cid:20)(cid:22)(cid:17)(cid:19)(cid:3)(cid:3)

(cid:28)(cid:27)(cid:17)(cid:20)(cid:3)(cid:3)

(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:18)(cid:81)(cid:72)(cid:90)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) 
contribution arising from:

(cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:86)(cid:72)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
100 basis point increase in yield curve 
100 basis point reduction in yield curve 
10% decrease in equity and property values 

(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
10% decrease in maintenance expenses 
10% decrease in lapse rates 
(cid:24)(cid:8)(cid:3)(cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:18)(cid:80)(cid:82)(cid:85)(cid:69)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)

Assurances 
Annuities 

Reduction in the required capital to
statutory minimum 

(2.5 ) 
3.1  
(2.2 ) 

3.1  
2.7  

1.0  
(1.8 ) 

0.4  

18.0  
(17.8 ) 
(10.9 ) 

4.5  
(1.9 ) 

0.9  
(0.7 ) 

0.8  

(1.7 ) 
(1.3 ) 
1.5  

(0.2 ) 
0.2  

–  
0.2  

–  

13.8  
(16.0 ) 
(11.6 ) 

7.4  
1.0  

1.9  
(2.3 )(cid:3)

1.2  

(0.6 ) 
0.6  
(10.2 ) 

6.1  
8.9  

0.2  
(cid:81)(cid:18)(cid:68)(cid:3)(cid:3)

–  

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:49)(cid:72)(cid:90)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)

(cid:54)(cid:90)(cid:72)(cid:71)(cid:76)(cid:86)(cid:75)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

£m

(cid:21)(cid:17)(cid:25)

(0.1 )
0.1
–

0.4
0.8

–
(cid:81)(cid:18)(cid:68)

–

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

 Economic sensitivities
(i) 

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

(ii)   100 basis point reduction in the yield curve: The reference rate is reduced by 1% (with a minimum of zero to avoid negative yields where relevant) and the 

rate of future inﬂation has also been reduced by 1% so that real yields remain constant; and

(iii)   10% decrease in the equity and property values. This gives rise to a situation where, for example, a Managed Fund unit liability with a 60% equity holding 

would reduce by 6% in value. 

 Operating sensitivities
(i)  10% decrease in maintenance expenses, giving rise to, for example, a base assumption of £20 per policy pa reducing to £18 per policy pa;

(ii)  10% decrease in persistency rates giving rise to, for example, a base assumption of 10% of policy base lapsing pa reducing to 9% pa;

(iii)   5% decrease in mortality/morbidity rates giving rise to, for example, a base assumption of 95% of the parameters in a selected mortality/morbidity table 
reducing to 90.25% of the parameters in the same table, assuming no changes are made to policyholder charges or any other management actions; and

(iv)   the sensitivity to the reduction in the required capital to the statutory minimum shows the effect of reducing the required capital from that deﬁned in Note 3(b) 

above to the minimum requirement prescribed by regulation. 

In each sensitivity calculation all other assumptions remain unchanged except where they are directly affected by the revised economic conditions: for example, 
as stated, changes in interest rates will directly affect the reference rate. 

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

167

 
  
  
  
  
  
  
  
  
 
 
SECTION E
EEV SUPPLEMENTARY INFORMATION

NOTES TO THE EEV SUPPLEMENTARY INFORMATION (CONTINUED)

  8 Reconciliation of shareholders’ equity on the IFRS basis to shareholders’ equity on the EEV basis

31 December 2012
(cid:3)
(cid:3)

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:41)(cid:53)(cid:54)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)
(cid:53)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:192)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
Other 
Adjustments

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Deferred acquisition costs 
Deferred income 
Adjustment to provisions on investment contracts,  
net of amounts deposited with reinsurers 
Adjustments to provisions on insurance contracts, net of reinsurers’ share 
Acquired in-force value 
Acquired value of customer relationships 
Software assets 
Adjustment to borrowings 
Deferred tax 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)
Value of in-force business 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:40)(cid:57)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:29)
Shareholder net worth in regulated entities 
Shareholders’ net equity in other Group companies 
(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:3)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:3)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3)
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:27)(cid:25)(cid:15)(cid:23)(cid:28)(cid:27)(cid:3)(cid:3)

(cid:26)(cid:24)(cid:15)(cid:24)(cid:26)(cid:19)(cid:3)(cid:3)

(cid:24)(cid:27)(cid:15)(cid:19)(cid:26)(cid:27)(cid:3)(cid:3)

(cid:11)(cid:20)(cid:15)(cid:27)(cid:19)(cid:19)(cid:3)(cid:12)(cid:3)

(cid:21)(cid:20)(cid:27)(cid:15)(cid:22)(cid:23)(cid:25)

(cid:178)(cid:3)(cid:3)
(253 ) 

(4,631 ) 
8,214  

(11,451 ) 
(40 ) 
(11,403 ) 
–  
–  
–  
(2,437 ) 

(cid:25)(cid:23)(cid:15)(cid:23)(cid:28)(cid:26)(cid:3)(cid:3)
67,040  

(29,662 ) 
–  

–  
–  

–  
(7,051 ) 
(5,574 ) 
–  
–  
–  
–  

–  
–  

29,662  
253  

(17,000 ) 
–  

–  
–  
(54,286 ) 
(1,322 ) 
(5,712 ) 
(7,049 ) 
2,461  

–  
–  

–  
–  
–  
–  
–  
–  
–  

–
–

(21,631 )
8,214

(11,451 )
(7,091 )
(71,263 )
(1,322 )
(5,712 )
(7,049 )
24

(cid:22)(cid:22)(cid:15)(cid:21)(cid:27)(cid:22)(cid:3)(cid:3)
18,537  

(cid:11)(cid:21)(cid:23)(cid:15)(cid:27)(cid:22)(cid:19)(cid:3)(cid:12)(cid:3)
124,503  

(cid:21)(cid:27)(cid:15)(cid:20)(cid:20)(cid:24)(cid:3)(cid:3)
–  

(cid:20)(cid:19)(cid:20)(cid:15)(cid:19)(cid:25)(cid:24)
210,080

(cid:20)(cid:22)(cid:20)(cid:15)(cid:24)(cid:22)(cid:26)(cid:3)(cid:3)

(cid:24)(cid:20)(cid:15)(cid:27)(cid:21)(cid:19)(cid:3)(cid:3)

(cid:28)(cid:28)(cid:15)(cid:25)(cid:26)(cid:22)(cid:3)(cid:3)

(cid:21)(cid:27)(cid:15)(cid:20)(cid:20)(cid:24)(cid:3)(cid:3)

(cid:22)(cid:20)(cid:20)(cid:15)(cid:20)(cid:23)(cid:24)

64,497  
–  
(cid:178)(cid:3)(cid:3)

62,945  
–  
(29,662 ) 

(26,417 ) 
1,587  
–  

–  
28,115  
–  

101,025
29,702
(29,662 )

(cid:25)(cid:23)(cid:15)(cid:25)(cid:23)(cid:26)(cid:3)(cid:3)

(cid:22)(cid:22)(cid:15)(cid:21)(cid:27)(cid:22)(cid:3)(cid:3)

(cid:11)(cid:21)(cid:23)(cid:15)(cid:27)(cid:22)(cid:19)(cid:3)(cid:12)(cid:3)

(cid:21)(cid:27)(cid:15)(cid:20)(cid:20)(cid:24)(cid:3)(cid:3)

(cid:20)(cid:19)(cid:20)(cid:15)(cid:19)(cid:25)(cid:24)

168

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
SECTION E
EEV SUPPLEMENTARY INFORMATION

(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:12)
(cid:3)
(cid:3)

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:41)(cid:53)(cid:54)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)
(cid:53)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:192)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
Other 
Adjustments

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

Deferred acquisition costs 
Deferred income 
Adjustment to provisions on investment contracts,  
net of amounts deposited with reinsurers 
Adjustments to provisions on insurance contracts, net of reinsurers’ share 
Acquired in-force value 
Acquired value of customer relationships 
Software assets 
Adjustment to borrowings 
Deferred tax 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)
Value of in-force business 

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:183)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:40)(cid:57)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:29)
Shareholder net worth in regulated entities 
Shareholders’ net equity in other Group companies 
(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:38)(cid:36)(cid:3)(cid:3)
£000  

(cid:3)(cid:3)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:3)
£000  

(cid:48)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:3)
£000  

(cid:3)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:3)
(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:3)
£000  

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)
£000

(cid:27)(cid:24)(cid:15)(cid:23)(cid:27)(cid:25)(cid:3)(cid:3)

(cid:27)(cid:27)(cid:15)(cid:26)(cid:22)(cid:25)(cid:3)(cid:3)

(cid:24)(cid:25)(cid:15)(cid:28)(cid:20)(cid:19)(cid:3)(cid:3)

(cid:11)21,943 (cid:12)(cid:3)

(cid:21)(cid:19)(cid:28)(cid:15)(cid:20)(cid:27)(cid:28)

(cid:178)(cid:3)(cid:3)
(282 ) 

(5,272 ) 
9,285  

(11,477 ) 
(119 ) 
(13,350 ) 
–  
–  
–  
1,885  

(cid:25)(cid:25)(cid:15)(cid:20)(cid:24)(cid:25)(cid:3)(cid:3)
60,655  

(35,486 ) 
–  

–  
–  

–  
(7,163 ) 
(6,068 ) 
–  
–  
–  
1,744  

–  
–  

35,486  
282  

(13,161 ) 
–  

–  
–  
(57,770 ) 
(1,561 ) 
(6,744 ) 
(7,012 ) 
2,523  

–  
–  

–  
–  
–  
–  
–  
–  
–  

–
–

(18,433 )  
9,285

(11,477 )
(7,282 )
(77,188 )
(1,561 )
(6,744 )
(7,012 )
6,152

(cid:23)(cid:20)(cid:15)(cid:26)(cid:25)(cid:22)(cid:3)(cid:3)
17,519  

(cid:11)(cid:21)(cid:25)(cid:15)(cid:27)(cid:20)(cid:24)(cid:3)(cid:12)(cid:3)
121,386  

(cid:20)(cid:22)(cid:15)(cid:27)(cid:21)(cid:24)(cid:3)(cid:3)
–  

(cid:28)(cid:23)(cid:15)(cid:28)(cid:21)(cid:28)
199,560

(cid:20)(cid:21)(cid:25)(cid:15)(cid:27)(cid:20)(cid:20)(cid:3)(cid:3)

(cid:24)(cid:28)(cid:15)(cid:21)(cid:27)(cid:21)(cid:3)(cid:3)

(cid:28)(cid:23)(cid:15)(cid:24)(cid:26)(cid:20)(cid:3)(cid:3)

(cid:20)(cid:22)(cid:15)(cid:27)(cid:21)(cid:24)(cid:3)(cid:3)

(cid:21)(cid:28)(cid:23)(cid:15)(cid:23)(cid:27)(cid:28)

66,156  
–  
(cid:178)(cid:3)(cid:3)

77,249  
–  
(35,486 ) 

(28,147 ) 
1,332  
–  

–  
13,825  
–  

115,258
15,157
(35,486 )

(cid:25)(cid:25)(cid:15)(cid:20)(cid:24)(cid:25)(cid:3)(cid:3)

(cid:23)(cid:20)(cid:15)(cid:26)(cid:25)(cid:22)(cid:3)(cid:3)

(cid:11)(cid:21)(cid:25)(cid:15)(cid:27)(cid:20)(cid:24)(cid:3)(cid:12)(cid:3)

(cid:20)(cid:22)(cid:15)(cid:27)(cid:21)(cid:24)(cid:3)(cid:3)

(cid:28)(cid:23)(cid:15)(cid:28)(cid:21)(cid:28)

The reconciliation for the year ended 31 December 2011 has been restated to reﬂect the change in methodology for the allocation of holding company expenses 
to the segments as explained in Note 4(d) above.

  9 Earnings per share

Year ended 31 December

(cid:37)(cid:68)(cid:86)(cid:76)(cid:70)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:3)
(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:192)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

(cid:3)(cid:3)
(cid:3)(cid:3)

2012  
p  

(cid:22)(cid:19)(cid:17)(cid:22)(cid:22)(cid:3)(cid:3)
(cid:21)(cid:26)(cid:17)(cid:21)(cid:20)(cid:3)(cid:3)

(cid:22)(cid:19)(cid:17)(cid:22)(cid:22)(cid:3)(cid:3)
(cid:21)(cid:26)(cid:17)(cid:21)(cid:20)(cid:3)(cid:3)

2011
p

(34.92 )
(25.93 )

(34.92 )
(25.93 )

  10 Foreign exchange translation reserve

A foreign exchange translation reserve arises on the translation of the ﬁnancial statements of Movestic, the functional currency of which is the Swedish Krona, 
into pounds sterling, which is the presentational currency of the Group ﬁnancial statements. Items in the consolidated income statement are translated at the 
average exchange rate of SEK10.7326 = £1 ruling in the reported period (year ended 31 December 2011: SEK10.4104 = £1), while all items in the balance sheet 
are stated at the closing rates ruling at the reported balance sheet date, being SEK10.5247 = £1 at 31 December 2012 (SEK10.6553 = £1 at 31 December 2011). 
The differences arising on translation using this methodology are recognised directly in shareholders’ equity within the foreign exchange translation reserve.

The reported embedded value is sensitive to movements in the SEK: £ exchange rate. Had the exchange rate as at 31 December 2012 been 10% higher at 
SEK11.5772 = £1, then the reported embedded value of £311.1m as at 31 December 2012 would have been reported as £301.7m.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

169

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
170

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION F

ADDITIONAL 
INFORMATION

IN THIS SECTION

Financial Calendar 
Key Contacts 

172 
173 
174—177   Notice of Annual General Meeting
178—180   Explanatory Notes to the Notice  

of Annual General Meeting

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

171

SECTION F
ADDITIONAL INFORMATION

FINANCIAL CALENDAR

28 March 2013
Results for the year ended 31 December 2012  
announced

10 April 2013
Ex dividend date 

11 April 2013
Published Financial Statements issued 
to shareholders

12 April 2013
Dividend record date

17 May 2013
Annual General Meeting

17 May 2013
Interim Management Statement for the quarter  
ending 31 March 2013

22 May 2013
Dividend payment date

August 2013
Interim results for the 6 months ending  
30 June 2013 announced

November 2013
Interim Management Statement for the quarter  
ending 30 September 2013 announced

172

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

SECTION F
ADDITIONAL INFORMATION

Bankers
National Westminster Bank plc
135 Bishopsgate
London
EC2M 3UR

The Royal Bank of Scotland
8th Floor, 135 Bishopsgate
London
EC2M 3UR

Lloyds TSB Bank plc
3rd Floor, Black Horse House
Medway Wharf Road
Tonbridge
Kent
TN9 1QS

Public Relations Consultants
Cubitt Consulting
30 Coleman Street
London
EC2R 5AL

Corporate Advisors
Canaccord Genuity Limited
41 Lothbury
London
EC2R 7AE

KEY CONTACTS

Registered and Head Ofﬁce
Harbour House
Portway
Preston
Lancashire
PR2 2PR

Tel: +44 (0)1772 840000
Fax: +44 (0)1772 840010
www.chesnara.co.uk

Legal Advisors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2HA

Addleshaw Goddard LLP
100 Barbirolli Square
Manchester
M2 3AB

Auditor
Deloitte LLP
Chartered Accountants and Statutory Auditors
2 Hardman Street
Manchester
M60 2AT
United Kingdom

Registrars
Capita
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU

Stockbrokers
Panmure Gordon
One New Change
London
EC4M 3UR

Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR

CHESNARA | ANNUAL REPORT & ACCOUNTS 2012

173

SECTION F
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NOTICE OF ANNUAL GENERAL MEETING

This document is important and requires your immediate attention

If you are in any doubt as to the action you  
should take, you should immediately consult your 
stockbroker, bank manager, solicitor, accountant or 
other independent professional adviser authorised 
under the Financial Services and Markets Act 2000  
if you are resident in the United Kingdom or, if you 
reside elsewhere, another appropriately authorised 
ﬁnancial adviser.

If you have sold or otherwise transferred all of your 
shares in Chesnara plc please pass this document 
together with the accompanying proxy form as soon 
as possible to the purchaser or transferee, or to the 
person who arranged the sale or transfer so they can 
pass these documents to the person who now holds 
the shares.

Company No. 4947166

(b)  to make donations to political organisations other than 

Chesnara plc
Notice is given that the 2013 Annual General Meeting of 
Chesnara plc will be held at the ofﬁces of Panmure Gordon (UK) 
Limited, One New Change, London EC4M 9AF on 17 May 
2013 at 11a.m. for the business set out below. Resolutions  
1 to 12 inclusive will be proposed as ordinary resolutions 
and resolutions 13 to 15 inclusive will be proposed as  
special resolutions.

 1. To receive and adopt the audited accounts for the ﬁnancial 
year ended 31 December 2012, together with the reports  
of the directors and auditor thereon.

 2. To declare a ﬁnal dividend of 11.25 pence per share for the 

ﬁnancial year ended 31 December 2012. 

 3. To approve the directors’ remuneration report set out in the 
Annual Report and Accounts for the ﬁnancial year ended  
31 December 2012.

 4. To re-elect Frank Hughes as a director who retires by rotation 
in accordance with the Company’s Articles of Association.

 5. To elect Veronica France as a director.

 6. To elect David Brand as a director. 

 7. To elect Mike Evans as a director.

 8. To elect David Rimmington as a director.

 9. To reappoint Deloitte LLP as auditor of the Company to hold 
ofﬁce until the conclusion of the next general meeting of  
the Company at which accounts are laid before shareholders.

10. To authorise the directors to ﬁx the auditor’s remuneration. 

 11. That, from the passing of this resolution until the earlier of  
16 November 2014 and the conclusion of the Company’s 
next Annual General Meeting, the Company and all companies 
which are its subsidiaries at any time during such period  
are authorised:

(a)  to make donations to political parties or independent 

election candidates;

political parties; and

(c)   to incur political expenditure,

up to an aggregate total amount of £100,000, with the 
individual amount authorised for each of heads (a) to (c) above 
being limited to £100,000. Any such amounts may comprise 
sums paid or incurred in one or more currencies. Any sum paid 
or incurred in a currency other than sterling shall be converted 
into sterling at such rate as the board may decide is appropriate. 
Terms used in this resolution have, where applicable, the 
meanings that they have in Part 14 of the Companies Act 2006 
on “Control of political donations and expenditure”. 

 12. That the directors be and they are hereby generally and 

unconditionally authorised in accordance with section 551  
of the Companies Act 2006 to exercise all powers of the 
Company to allot shares in the Company and to grant rights 
to subscribe for or to convert any security into such shares 
(“Allotment Rights”), but so that:

(a)   the maximum amount of shares that may be allotted or 

made the subject of Allotment Rights under this authority 
are shares with an aggregate nominal value of 
£3,790,019, of which:

(i)   half may be allotted or made the subject of Allotment 

Rights in any circumstances; and

(ii)  the other half may be allotted or made the subject of 

Allotment Rights pursuant to any rights issue (as referred 
to in the Financial Services Authority’s listing rules) or 
pursuant to any arrangements made for the placing or 
underwriting or other allocation of any shares or other 
securities included in, but not taken up under, such 
rights issue;

(b)   this authority shall expire 18 months after the passing of 

this resolution or, if earlier, on the date of the Company’s 
next Annual General Meeting;

(c)   the Company may make any offer or agreement before 
such expiry which would or might require shares to be 
allotted or Allotment Rights to be granted after such expiry; 
and 

(d)  all authorities vested in the directors on the date of the 

notice of this meeting to allot shares or to grant Allotment 
Rights that remain unexercised at the commencement of 
this meeting are revoked.

174

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ADDITIONAL INFORMATION

13. That, subject to the passing of the resolution numbered 12  
in the notice convening this meeting, the directors be and 
they are hereby empowered, pursuant to section 570 of the 
Companies Act 2006, to allot equity securities (as deﬁned  
in section 560 of that Act) pursuant to the authority conferred 
on them by the foregoing resolution numbered 12 in the notice 
of this meeting or by way of a sale of treasury shares as if 
section 561 of that Act did not apply to such allotment, provided 
that this power shall be limited to:

(c)  the maximum price (exclusive of expenses) which may  
be paid for such ordinary shares is the maximum price 
permitted under the Financial Services Authority’s listing 
rules or, in the case of a tender offer (as referred to in 
those rules), 5% above the average of the middle market 
quotations for the ordinary shares (as derived from the 
Daily Ofﬁcial List of London Stock Exchange plc) for the ﬁve 
business days immediately preceding the date on which 
the terms of the tender offer are announced;

(d)  the authority hereby conferred shall expire 18 months after 
the passing of this resolution or, if earlier, on the date of 
the Company’s next Annual General Meeting; and

(e)  the Company may make a contract or contracts to purchase 
ordinary shares under the authority hereby conferred  
prior to the expiry of such authority which will or may be 
completed wholly or partly after the expiry of such authority, 
and may make a purchase of ordinary shares in pursuance 
of any such contract or contracts.

15. That a general meeting of the Company (other than an Annual 
General Meeting) may be called on not less than 14 clear 
days’ notice.

By order of the Board

Mary Fishwick
Company Secretary

Registered ofﬁce:
Harbour House
Portway 
Preston
Lancashire
PR2 2PR
Registered in England No. 4947166

Dated 27 March 2013 

(a)  the allotment of equity securities in connection with  

any rights issue or open offer (each as referred to in the 
Financial Services Authority’s listing rules) or any other 
pre-emptive offer that is open for acceptance for a period 
determined by the directors to the holders of ordinary 
shares on the register on any ﬁxed record date in proportion 
to their holdings of ordinary shares (and, if applicable, to the 
holders of any other class of equity security in accordance 
with the rights attached to such class), subject, in each case, 
to such exclusions or other arrangements as the directors 
may deem necessary or appropriate in relation to fractions 
of such securities, the use of more than one currency for 
making payments in respect of such offer, any such shares 
or other securities being represented by depositary receipts, 
treasury shares, any legal or practical problems in relation 
to any territory or the requirements of any regulatory body 
or any stock exchange; and 

(b)  the allotment of equity securities for cash (otherwise than 
as mentioned in sub-paragraph (a) above), provided that 
the maximum aggregate nominal value of equity securities 
allotted does not exceed £287,619, 

and shall expire 18 months after the passing of this resolution 
or, if earlier, on the date of the Company’s next Annual 
General Meeting save that, before the expiry of this power, 
the Company may make any offer or agreement which  
would or might require equity securities to be allotted after 
such expiry.

 14. That the Company be and is hereby generally and 

unconditionally authorised for the purposes of section 701  
of the Companies Act 2006 to make one or more market 
purchases (as deﬁned in section 693 of that Act) of ordinary 
shares of 5p each in the capital of the Company, provided 
that:

(a)  the maximum aggregate number of ordinary shares hereby 

authorised to be purchased is 11,484,908;

(b)  the minimum price (exclusive of expenses) which may be 

paid for such ordinary shares is 5p per share;

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175

SECTION F
ADDITIONAL INFORMATION

NOTES

 1. Any member who is entitled to attend and vote at this 

 3. CREST members who wish to appoint one or more proxies 

Annual General Meeting is entitled to appoint another person, 
or two or more persons in respect of different shares held  
by him, as his proxy to exercise all or any of his rights to attend 
and to speak and to vote at the Annual General Meeting. 

 2. A member wishing to attend and vote at the Annual General 
Meeting in person should arrive prior to the time ﬁxed for  
its commencement. A member that is a corporation can only 
attend and vote at the Annual General Meeting in person 
through one or more representatives appointed in accordance 
with section 323 of the Companies Act 2006. Any such 
representative should bring to the Annual General Meeting 
written evidence of his appointment such as a certiﬁed  
copy of a board resolution of, or a letter from, the corporation 
concerned conﬁrming the appointment. Any member wishing 
to vote at the Annual General Meeting without attending  
in person or (in the case of a corporation) through its duly 
appointed representative must appoint a proxy to do so.  
A proxy need not be a member of the Company. A form of 
proxy for this Annual General Meeting is enclosed and, in 
order to be valid, must be completed in accordance with the 
instructions that accompany it and then be delivered (together 
with any power of attorney or other authority under which it  
is signed, or a certiﬁed copy of such item), to the Company’s 
Registrars, Capita Registrars at PXS, 34 Beckenham Road, 
Beckenham, Kent, BR3 4TU or by post to Business Reply 
Licence No RSBH-UXKS-LRBC, PXS, 34 Beckenham Road, 
Beckenham, Kent, BR3 4TU by 11 a.m. on Wednesday  
15 May 2013. Alternatively, members may appoint a proxy 
online by following the instructions for the electronic 
appointment of a proxy at www.capitashareportal.com, by 
entering the company name “Chesnara plc” and following the 
on screen instructions. To be a valid proxy appointment, the 
member’s electronic message conﬁrming the details of the 
appointment completed in accordance with those instructions 
must be transmitted so as to be received by the same time. 
Members who hold their shares in uncertiﬁcated form may 
also use the “CREST” voting service to appoint a proxy 
electronically, as explained below. The appointment of a proxy 
will not preclude a member from attending and voting at the 
Annual General Meeting.

through the CREST system may do so by using the procedures 
described in “the CREST voting service” section of the 
CREST Manual. CREST personal members or other CREST 
sponsored members, and those CREST members who have 
appointed one or more voting service providers, should refer 
to their CREST sponsor or voting service provider(s), who will 
be able to take the appropriate action on their behalf. In order 
for a proxy appointment or a proxy instruction made using 
the CREST voting service to be valid, the appropriate CREST 
message (a “CREST proxy appointment instruction”) must 
be properly authenticated in accordance with the speciﬁcations 
of CREST’s operator, Euroclear UK & Ireland Limited 
(“Euroclear”), and must contain all the relevant information 
required by the CREST Manual. To be valid, the message 
(regardless of whether it constitutes the appointment of a proxy 
or is an amendment to the instruction given to a previously 
appointed proxy) must be transmitted so as to be received  
by Capita Registrars (ID RA10), by 11 a.m. on Wednesday  
15 May 2013, which is acting as the Company’s “issuer’s 
agent”. After this time, any change of instruction to a proxy 
appointed through the CREST system should be communicated 
to the appointee through other means. The time of the 
message’s receipt will be taken to be when (as determined 
by the timestamp applied by the CREST Applications Host) 
the issuer’s agent is ﬁrst able to retrieve it by enquiry through 
the CREST system in the prescribed manner. Euroclear does 
not make available special procedures in the CREST system 
for transmitting any particular message. Normal system timings 
and limitations apply in relation to the input of CREST proxy 
appointment instructions. It is the responsibility of the CREST 
member concerned to take (or, if the CREST member is a 
CREST personal member or a CREST sponsored member or 
has appointed any voting service provider(s), to procure that 
his CREST sponsor or voting service provider(s) take(s)) such 
action as is necessary to ensure that a message is transmitted 
by means of the CREST system by any particular time. 
CREST members and, where applicable, their CREST sponsors 
or voting service providers should take into account the 
provisions of the CREST Manual concerning timings as well 
as its section on “Practical limitations of the system”. In certain 
circumstances, the Company may, in accordance with the 
Uncertiﬁcated Securities Regulations 2001 or the CREST 
Manual, treat a CREST proxy appointment instruction as invalid.

 4. Copies of directors’ service contracts and letters of appointment 
will be available for inspection at the registered ofﬁce of the 
Company during normal business hours each business day and 
at the place of the Annual General Meeting for at least  
15 minutes prior to and during the Annual General Meeting. 

176

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ADDITIONAL INFORMATION

 5. The time by which a person must be entered on the register 
of members in order to have the right to attend and vote at 
the Annual General Meeting (and for the purpose of the 
determination by the Company of the votes they may cast) is 
6.00p.m. on Wednesday 15 May 2013. Changes to entries 
on the register of members after that time will be disregarded 
in determining the right of any person to attend or vote at  
the Annual General Meeting.

 6. The right to appoint proxies does not apply to persons 

nominated to receive information rights under section 146  
of the Companies Act 2006, as such rights can only be 
exercised by the member concerned. Any person nominated 
to enjoy information rights under section 146 of the 
Companies Act 2006 who has been sent a copy of this notice 
of Annual General Meeting is hereby informed, in accordance 
with section 149(2) of the Companies Act 2006, that they 
may have a right under an agreement with the registered 
member by whom they were nominated to be appointed,  
or to have someone else appointed, as a proxy for this Annual 
General Meeting. If they have no such right, or do not wish 
to exercise it, they may have a right under such an agreement 
to give instructions to the member as to the exercise of 
voting rights. Nominated persons should contact the registered 
member by whom they were nominated in respect of  
these arrangements. 

 7. As at 27 March 2013 (being the last practicable date prior to 

the publication of this document), the Company’s issued share 
capital consisted of 115,047,662 ordinary shares, carrying 
one vote each. The total voting rights in the Company as at 
27 March 2013 (being the last practicable date prior to the 
publication of this document) were 114,849,083.

 8. Information regarding this Annual General Meeting, including 
information required by section 311A of the Companies Act 
2006, is available at www.chesnara.co.uk. Any electronic 
address provided either in this notice or any related documents 
(including the proxy appointment form) may not be used to 
communicate with the Company for any purposes other than 
those expressly stated. 

 9. In accordance with section 319A of the Companies Act 2006, 
any member attending the Annual General Meeting has  
the right to ask questions. The Company must cause to be 
answered any such question relating to the business being 
dealt with at the Annual General Meeting, but no such answer 
need be given if (a) to do so would interfere unduly with the 
preparations for the Annual General Meeting or involve the 
disclosure of conﬁdential information, (b) the answer has 
already been given on a website in the form of an answer to 
a question or (c) it is undesirable in the interests of the 
Company or the good order of the Annual General Meeting 
that the question be answered.

 10. Under section 527 of the Companies Act 2006, members 

meeting the threshold requirements set out in that section 
have the right to require the Company to publish on a 
website a statement in accordance with section 528 of the 
Companies Act 2006 setting out any matter relating to (i)  
the audit of the Company’s accounts (including the auditor’s 
report and the conduct of the audit) that are to be laid before 
the Annual General Meeting or (ii) any circumstances 
connected with an auditor of the Company ceasing to hold 
ofﬁce since the previous meeting at which annual accounts 
and reports were laid in accordance with section 437 of the 
Companies Act 2006. The Company may not require the 
members requesting any such website publication to pay its 
expenses in complying with sections 527 or 528 of the 
Companies Act 2006. Where the Company is required to place 
a statement on a website under section 527 of the Companies 
Act 2006, it must forward the statement to the Company’s 
auditor not later than the time when it makes the statement 
available on the website. The business which may be dealt 
with at the Annual General Meeting includes any statement 
that the Company has been required under section 527 of 
the Companies Act 2006 to publish on a website. 

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177

SECTION F
ADDITIONAL INFORMATION

EXPLANATORY NOTES TO THE NOTICE OF  
ANNUAL GENERAL MEETING

The notes on the following pages give an explanation of the 
proposed resolutions:

Resolution 1:

Report and accounts
For each ﬁnancial year, the directors are required to present 
the directors’ report, the audited accounts and the auditor’s 
reports to shareholders at a general meeting.

Resolution 2:

Final dividend
The payment of the ﬁnal dividend requires the approval of 
shareholders in general meeting. If the Annual General Meeting 
approves resolution 2, the ﬁnal dividend of 11.25 pence per 
share will be paid on 22 May 2013 to ordinary shareholders 
who are on the register of members at the close of business 
on 12 April 2013 in respect of each ordinary share.

Resolution 3:

Approval of the directors’ remuneration report
The Company is required by law to seek the approval of 
shareholders of its annual report on remuneration policy and 
practice. This does not affect the directors’ entitlement to 
remuneration and the result of this resolution is advisory only.

The remuneration report for the year ended 31 December 2012 
is set out in full on pages 56 to 60 of this document. 

Your directors are satisﬁed that the Company’s policy and 
practice in relation to directors’ remuneration are reasonable 
and that they deserve shareholder support.

Resolutions 4 – 8 inclusive:

Re-election/Election of directors
Under the Company’s Articles of Association, directors are 
obliged to retire by rotation at Annual General Meetings and 
may not serve beyond three years without being re-elected 
by shareholders. The director who now falls due for retirement 
and re-election at the Annual General Meeting is Frank Hughes. 
In addition, Veronica France, David Brand and Mike Evans 
have been appointed to the board since the last Annual General 
Meeting and it is proposed that David Rimmington be elected 
to the board at the Meeting and they are therefore put forward 
for election to the board. Brief biographical details of Veronica 
France, David Brand, Mike Evans and David Rimmington can 
be found on page 49 of this document. The Chairman conﬁrms 
that, following formal performance evaluation of Frank Hughes 
by the board, he continues to be effective and demonstrate 
commitment to the role. The Chairman further conﬁrms that, 
following a rigorous selection process by the board, each  
of Veronica France, David Brand, Mike Evans and David 
Rimmington, is expected to be effective and committed to 
her or his role. The remaining directors therefore unanimously 
recommend that each of these directors be re-elected or 
elected (as applicable) as a director of the Company. 

Resolutions 9 and 10:

Re-appointment and remuneration of auditors
The Company is required to appoint an auditor, at each general 
meeting before which accounts are laid, to hold ofﬁce until 
the end of the next such meeting. Deloitte LLP has indicated 
that it is willing to act as the Company’s auditor. You are asked 
to re-appoint Deloitte LLP and, following normal practice,  
to authorise the directors to determine its remuneration. The 
directors recommend its appointment. 

Resolution 11:

Political donations
It has always been the Company’s policy that it does not make 
political donations. This remains the Company’s policy. 

Part 14 of the Companies Act 2006 imposes restrictions on 
companies making political donations to any political party or 
other political organisation or to any independent election 
candidate unless they have been authorised to make donations 
at a general meeting of the Company. Whilst the Company 
has no intention of making such political donations, the Act 
includes broad and ambiguous deﬁnitions of the terms “political 
donation” and “political expenditure” which may apply to 
some normal business activities which would not generally 
be considered to be political in nature. 

The directors therefore consider that, as a purely precautionary 
measure, it would be prudent to obtain the approval of the 
shareholders to make donations to political parties, political 
organisations and independent election candidates and to 
incur political expenditure up to the speciﬁed limit. The directors 
intend to seek renewal of this approval at future Annual 
General Meetings, but wish to emphasise that the proposed 
resolution is a precautionary measure for the above reason and 
that they have no intention of making any political donations 
or entering into party political activities.

Resolution 12

Power to allot shares
The directors are currently authorised to allot shares and to 
grant rights to subscribe for or to convert any security into 
shares of the Company, but their authorisation ends on the date 
of this year’s Annual General Meeting. This resolution seeks 
to renew the directors’ authority to allot shares. 

The Association of British Insurers (“ABI”) published guidance 
on 31 December 2008 (as amended on 30 November 2009) 
to the effect that ABI members will regard as routine a request 
for authorisation to allot new shares in an amount of up to 
one third of the existing issued share capital and additionally 
that they will regard as routine requests to authorise the 
allotment of a further one third, provided that such additional 
authority is applied to fully pre-emptive rights issues only  
and the authorisation is valid for one year only. This authority 
was conferred on the directors at last year’s Annual General 
Meeting and the directors recommend that the Company 

178

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SECTION F
ADDITIONAL INFORMATION

should have this additional headroom this year. This authority 
is limited to a maximum nominal amount of £3,790,019 
(representing 75,800,380 ordinary shares), which represents 
approximately two thirds in aggregate of the total ordinary share 
capital in issue (excluding treasury shares) as at 27 March 
2013 (being the latest practicable date prior to the publication 
of this document). Of this amount, 37,900,190 ordinary shares 
(representing approximately one third in aggregate of the 
total ordinary share capital in issue, excluding treasury shares) 
can only be allotted pursuant to a rights issue. 

As at 27 March 2013 (being latest practicable date prior  
to the publication of this document), the Company held 
198,579 treasury shares, being approximately 0.17% of the 
total ordinary share capital in issue (calculated exclusive of 
treasury shares).

The renewed authority will expire 18 months after the passing 
of this resolution or, if earlier, on the date of the next Annual 
General Meeting.

The directors have no present intention of exercising this 
authority. The purpose of giving the directors this authority  
is to maintain the Company’s ﬂexibility to take advantage  
of any appropriate opportunities that may arise. 

Resolution 13

Disapplication of pre-emption rights
This resolution, which will be proposed as a special resolution, 
seeks to renew the authority conferred on the directors at 
last year’s Annual General Meeting to issue equity securities 
of the Company for cash without ﬁrst offering them to existing 
shareholders in proportion to their existing shareholdings. 
Other than in connection with a rights or other similar issue 
or scrip dividend (where difﬁculties arise in offering shares  
to certain overseas shareholders and in relation to fractional 
entitlements), the authority contained in this resolution  
will be limited to an aggregate nominal value of £287,619 
(representing 5,752,380 ordinary shares), which represents 
approximately 5% of the Company’s issued equity share 
capital as at 27 March 2013 (being the latest practicable  
date prior to the publication of this document). The renewed 
authority will expire 18 months after the passing of this 
resolution or, if earlier, on the date of the of the next Annual 
General Meeting. This is a standard resolution for most UK 
listed companies each year.

In accordance with the Statement of Principles on disapplying 
pre-emption rights issued in July 2008 by the Pre-Emption 
Group (which is supported by the Association of British 
Insurers, the National Association of Pension Funds Limited 
and the Investment Managers Association), the board 
conﬁrms its intention that no more than 7.5% of the issued 
share capital will be issued for cash on a non pre-emptive 
basis during any rolling three year period. The directors have 
no present intention of exercising this authority.

Resolution 14:

Authority to purchase own shares
This resolution, which will be proposed as a special resolution, 
is to renew the authority granted to the directors at last 
year’s Annual General Meeting, which expires on the date of 
this year’s Annual General Meeting, and to give the Company 
authority to buy back its own ordinary shares in the market 
as permitted by the Companies Act 2006. The authority limits 
the number of shares that can be purchased to a maximum  
of 11,484,908 (representing 10% of the issued ordinary share 
capital of the Company (excluding treasury shares) as at  
27 March 2013 (being the latest practicable date prior to the 
publication of this document) and sets the minimum and 
maximum prices. This authority will expire no later than  
18 months after the date of the Annual General Meeting.

Your directors believe that the Company should continue to 
have the authority to purchase its own shares. The authority 
will be exercised only if the directors believe that to do so 
would result in an increase in earnings per share and would 
promote the success of the Company for the beneﬁt of its 
shareholders generally. To the extent that any shares so 
purchased are held in treasury (see below), earnings per share 
will be enhanced until such time, if any, as such shares are 
resold or transferred out of treasury.

Any purchases of ordinary shares would be by means of market 
purchases through the London Stock Exchange.

Sections 724 – 732 inclusive of the Companies Act 2006 
provide that shares held in treasury can be cancelled, sold for 
cash or, in appropriate circumstances, used to meet obligations 
under employee share schemes. Any shares held in treasury 
would not be eligible to vote nor would any dividend be paid 
on any such shares. If any ordinary shares purchased pursuant 
to this authority are not held by the Company as treasury 
shares, then such shares would be immediately cancelled,  
in which event the number of ordinary shares in issue  
would be reduced.

The directors believe that it continues to be desirable for the 
Company to have this choice. Holding the repurchased shares 
as treasury shares gives the Company the ability to re-issue 
them quickly and cost effectively and provides the Company 
with additional ﬂexibility in the management of its capital base. 
No dividends will be paid on, and no voting rights will be 
exercised in respect of, treasury shares. In 2012, no shares 
were purchased into treasury, none were sold and none 
were cancelled. Between 1 January 2013 and 27 March 2013 
432 shares were transferred out of treasury to meet a 
sharesave plan option.

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179

SECTION F
ADDITIONAL INFORMATION

EXPLANATORY NOTES TO THE NOTICE OF  
ANNUAL GENERAL MEETING (CONTINUED)

Resolution 15:

Notice of general meetings
The Companies Act 2006 requires the notice period for general 
meetings of the Company to be at least 21 days, but, as a 
result of a resolution which was passed by the Company’s 
shareholders at last year’s Annual General Meeting, the 
Company is currently able to call general meetings (other than 
an Annual General Meeting) on not less than 14 clear days’ 
notice. In order to preserve this ability, shareholders must 
approve the calling of meetings on not less than 14 days’ 
notice. Resolution 14 seeks such approval. The approval will 
be effective until the Company’s next Annual General Meeting, 
when it is intended that a similar resolution will be proposed. 
The Company will also need to meet the requirements for 
electronic voting under the Companies (Shareholders’ Rights) 
Regulations 2009 before it can call a general meeting on  
less than 21 days’ notice.

The shorter notice period would not be used as a matter  
of routine for general meetings, but only where the ﬂexibility  
is merited by the business of the meeting and is thought  
to be to the advantage of shareholders as a whole.

The directors recommend all shareholders to vote in favour 
of all the resolutions, as the directors intend to do in respect 
of their own shares, and consider that they are in the best 
interests of the Company and its shareholders as a whole.

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Registered and Head Ofﬁce
Harbour House, Portway, Preston, Lancashire PR2 2PR
T +44 (0)1772 840 000  F +44 (0)1772 840 010 
www.chesnara.co.uk

Designed by The Chase