WELCOME TO THE
CHESNARA
ANNUAL
REPORT
FOR YEAR ENDED 31 DECEMBER 2018
CONTENTS
SECTION A • OVERVIEW
SECTION D • IFRS FINANCIAL STATEMENTS
92
Independent Auditor’s Review Report
to the members of Chesnara plc
100 Consolidated Statement of
Comprehensive Income
101 Consolidated Balance Sheet
102 Company Balance Sheet
103 Consolidated Statement of Cash Flows
104 Company Statement of Cash Flows
105 Consolidated Statement of Changes
in Equity
105 Company Statement of Changes in Equity
106 Notes to the Consolidated
Financial Statements
SECTION E • ADDITIONAL INFORMATION
180 Financial calendar
180 Key contacts
181 Notice of Annual General Meeting
183 Explanatory notes to the notice of the
Annual General Meeting
187 Reconciliation of metrics
188 Glossary
189 Note on terminology
04 An introduction to Chesnara
06 Delivering our strategy
08 2018 highlights
10 Measuring our performance
12 Chairman’s Statement
SECTION B • STRATEGIC REPORT
18 Overview of our strategy, culture
& values and business model
20 Our strategy
22 Our culture & values
24 Business review
31 Capital management
34 Financial review
40 Financial management
42 Risk management
46 Corporate and social responsibility
SECTION C • CORPORATE GOVERNANCE
50 Board profile and Board of Directors
52 Governance overview from the Chairman
54 Corporate Governance Report
58 Nomination & Governance
Committee Report
60 Directors’ Remuneration Report
80 Audit & Risk Committee Report
86 Directors’ Report
89 Directors’ Responsibilities Statement
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SECTION A:
OVERVIEW
02
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SECTION A
04 An introduction to Chesnara
06 Delivering our strategy
08 2018 highlights
10 Measuring our performance
12 Chairman’s Statement
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OVERVIEW
AN INTRODUCTION TO CHESNARA
Chesnara plc is a life assurance and pensions
consolidator. It has operations in the UK, Sweden
and the Netherlands.
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primarily focuses on the territories in which we
WHO WE ARE
– We are a responsible and profitable company engaged in the
management of life and pension policies in the UK, Sweden
and the Netherlands.
– Chesnara plc was formed in 2004 and is listed on the London
Stock Exchange.
– The group initially consisted of Countrywide Assured, a closed
life and pensions book demerged from Countrywide plc, a large
estate agency group.
– Since incorporation, the group has grown through the acquisition
of three predominantly closed UK businesses, an open life and
pensions business in Sweden and both a closed-book group and
an open life and pensions business in the Netherlands. See page 6
for further detail on our history and businesses.
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WHAT WE DO
in other European countries where there is
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where we are confident that conditions will
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realistic market share expectations and hence
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outcomes and returns for policyholders whilst
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RISK BASED
MANAGEMENT
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SECTION A
WE AIM TO PROVIDE VALUE FOR MONEY
TO OUR CUSTOMERS AND INVESTORS IN
A COMPLIANT MANNER.
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HOW WE OPERATE
– Chesnara devolves management to its divisions which
operate within a centrally defined governance and risk
management framework.
– A central UK-based team has significant experience and a
proven track record in governing, acquiring and successfully
integrating life and pension businesses.
– In the UK, we adopt an outsourced operating model to the
fullest extent possible, whereas our overseas divisions use
outsourced services on a more limited basis.
– Acquisitions are assessed against stringent financial criteria
adopting a robust risk-based due diligence process.
– We maintain strong solvency levels.
HOW WE CREATE VALUE
Policyholder
– Effective customer service operations, clear communication
and competitive fund performance, with full regard to all
regulatory matters, support our aim to ensure policyholders
receive good returns and service in line with fair outcomes
for customers.
– Provide security through strong solvency.
Shareholder
– Surpluses emerge from the in-force books of business
through efficient management of the policy base and good
capital management practices. These surpluses enable
dividends to be paid from the subsidiaries to Chesnara, which
fund the attractive dividend strategy and support our wish
to be a share held for the long term by our shareholders.
– Growth from both the proven acquisition model and from
writing profitable new business in Sweden and the
Netherlands has a positive impact on the Economic Value
of the business.
1.1m
POLICIES
MANAGE
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FUNDS
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
05
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OVERVIEW
DELIVERING OUR STRATEGY
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COMPANY HISTORY
WHAT WE’VE DONE
2004
Chesnara is born - Countrywide estate agency group
divests its life insurance business and this becomes
the inaugural portfolio of Chesnara plc with an opening
Embedded Value of £126m.
6 SUCCESSFUL ACQUISITIONS ACROSS
3 TERRITORIES
2005
Chesnara makes its first acquisition – City of
Westminster Assurance, adding £30.3m of
Embedded Value.
2009
Chesnara plc moves into Europe with the acquisition
of a Swedish business now called Movestic. The
group’s Embedded Value reaches £263m. Unlike the
UK operation, Movestic is open to new business which
adds a further source of Embedded Value growth.
2010
The acquisition of Save and Prosper takes the
group’s assets under management to over £4 billion.
2013
Direct Line’s life assurance business is acquired
and by the end of 2014, total group Embedded Value
rises above £400m.
2015
Expansion into a new territory with the acquisition of
the Waard Group (a closed-book) in the Netherlands.
2016
Building upon our entry to the Dutch market
we announce the acquisition of Legal & General
Nederland, an open business.
2017
Completion of Legal & General Nederland
acquisition, renamed Scildon, at a 32% discount to
its Economic Value of £202.5m.
Our deals demonstrate flexibility
and creativity where appropriate:
– Tactical ‘bolt-on’ deals to more
transformative deals
– Open minded regarding deal size
– Willingness to find value beyond the UK
– Flexible and efficient deal funding
solutions
– Capability to find expedient solutions to
de–risk where required
We are not willing to compromise on
quality, value or risk. All deals have:
– been at a competitive discount to value
– satisfied our dual financial requirements of
generating medium-term cash and
enhancing long-term value
– been within Chesnara’s risk appetite
– been subject to appropriate due diligence
– been either neutral or positive in terms of
customer outcomes
– supported Chesnara’s position as an
income investment
OUTCOMES
06
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SECTION A
DIVIDEND HISTORY
14 SUCCESSIVE YEARS OF DIVIDEND GROWTH
We recognise the importance of providing stable and attractive
dividends to our shareholders. A full year 2018 dividend of 20.67p
per share represents an increase of 3% on the prior year, and
is Chesnara’s fourteenth successive year of dividend growth.
Dividend per share history
Pence per share
15.1
11.9
12.5
13.1
15.6 16.0 16.4 16.9 17.4 17.9 18.4 18.9 19.5 20.1 20.7
VALUE GROWTH
£626.1M OF ECONOMIC VALUE
Value growth* is achieved through a combination of efficient
management of the existing policies, acquisitions and writing
profitable new business. The growth, shown here since
incorporation, includes £148m of new equity since 2004 but is
net of £298m of cumulative dividend payments. The value of
the group is affected by investment market conditions at any
given point in time, with the closing 2018 position reflecting falls
in equity and bond values that were witnessed during the year.
Value growth
£m
723
603
626
455
417
376
355
295
311
263
176 189
187
183
126
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
*Value is based on Embedded Value principles up until 2015, thereafter it is based on
Economic Value (see page 39 for further information). The transition from Embedded
Value to Economic Value resulted in only a modest change in valuation.
CASH GENERATION
POLICYHOLDERS
CASH GENERATION CONTINUES TO
SUPPORT DIVIDENDS
OUR PRIMARY RESPONSIBILITIES REMAIN
TO OUR POLICYHOLDERS
Ultimately the group needs to generate cash to service its
dividends. We define cash generation as the movement in the
group’s surplus own funds above the group’s internally required
capital. Cumulative cash generation over the last 5 years
represents c190% of the total dividends over the same period.
Business as usual cash generation*
84.0
– Customers can be confident that they have policies with a
well capitalised group where financial stability is central to
our culture and values.
– Our investment returns remain competitive across the group.
– We deliver good customer service levels across the group.
Dividend
42.6
44.2
22.5
2014
24.0
2015
36.5
27.6
47.8
30.1
31.0
2016
2017
2018
*The chart illustrates how business as usual cash generation compares to the total
shareholder dividend. For this purpose the cash figure is based on divisional cash
generation plus non-exceptional group items. To include exceptional items would mislead
in terms of illustrating the effectiveness of the core business in funding the dividend.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
07
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OVERVIEW
2018 HIGHLIGHTS
FINANCIAL
IFRS
£27.0M
(cid:88)(cid:73)(cid:171)(cid:179) (cid:168)(cid:171)(cid:48)(cid:1651)T(cid:4)(cid:230) (cid:168)(cid:171)(cid:133)(cid:73)(cid:88)T
2017 £89.6M
SOLVENCY
158%
GROUP SOLVENCY
2017 146%
The 2017 result includes a £20.3m gain on acquisition of
Legal & General Nederland.
£23.7M
IFRS TOTAL COMPREHENSIVE INCOME
2017 £86.9M
The 2018 result includes a foreign exchange loss of £0.8m
(2017: gain of £8.3m). The 2017 result includes a £20.3m gain
on acquisition of Legal & General Nederland.
Financial review p36
We are well capitalised at both group and subsidiary level
under Solvency II and have not used any elements
of the long-term guarantee package, including transitional
arrangements.
Capital management p31
ECONOMIC VALUE
CASH GENERATION
£626.1M
ECONOMIC VALUE
2017 £723.1M
£47.8M
GROUP CASH GENERATION
2017 £28.6M
Movement in the year includes dividend distributions of
£30.4m and includes a foreign exchange retranslation loss
of £5.8m.
Financial review p39
The 2018 result benefits from a £26.8m release of surplus
previously constrained within the UK with-profits funds.
The 2017 comparitive includes a £55.3m adverse effect of
completing the acquisition of Legal & General Nederland.
ECONOMIC VALUE EARNINGS
£(60.9)M
Financial review p37
£63.9M
ECONOMIC VALUE EARNINGS
2017 £139.5M
DIVISIONAL CASH GENERATION
2017 £86.7M
The loss includes £49.7m relating directly to economic market
conditions. The 2017 result includes a non-recurring £65.4m
gain arising on the acquisition of Legal & General Nederland.
The 2018 cash result benefits from a £26.8m release of
previously constrained surplus within the UK with-profits funds.
Financial review p37
Financial review p38
£10.6M
NEW BUSINESS PROFIT
2017 £12.4M
Business review p26 to 29
These financial highlights include the use of Alternative
Performance Measures (APMs) that are not required to be
reported under International Financial Reporting Standards.
The definition for each of these items has been included in
page 10 and in further detail within the Financial Review
section on pages 34 to 39.
08
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SECTION A
OPERATIONAL & STRATEGIC
DIVIDEND
SYMBOL GUIDE
FULL YEAR DIVIDEND INCREASE
Throughout the Report and Accounts the following symbols are used to help distinguish
between the various financial and non-financial measures reported:
Total dividends for the year increased by 3% to 20.67p per share
(7.21p interim and 13.46p proposed final). This compares with
20.07p in 2017 (7.00p interim and 13.07p final).
IFRS
ECONOMIC BACKDROP
(cid:32)(cid:171)(cid:48)(cid:230)(cid:88)T (cid:200)(cid:122)(cid:33)(cid:48)(cid:171)T(cid:4)(cid:88)(cid:122)T(cid:231), (cid:73)(cid:4)(cid:110)(cid:110)(cid:88)(cid:122)(cid:74) (cid:48)(cid:170)(cid:200)(cid:88)T(cid:231) (cid:120)(cid:4)(cid:171)(cid:107)(cid:48)T(cid:179)
AND WIDENING BOND SPREADS
The uncertainty over Brexit was an unwelcome background
to the economic backdrop for the year. 2018 saw volatility in
equity markets, with many leading equity indices closing
more than 10% lower than at the start of the year. In
addition to this we have seen pricing pressures in corporate
and some government bonds.
17 IFRS 17
Cash generation
Economic Value
Economic Value Earnings
Solvency
Dividend/Total Shareholder Return
Part VII
Operational performance
Compliance
New business market share
(cid:74)(cid:171)(cid:133)(cid:200)(cid:168)(cid:1651)(cid:225)(cid:88)(cid:40)(cid:48) (cid:88)(cid:73)(cid:171)(cid:179) (cid:1487)(cid:1493) (cid:168)(cid:171)(cid:133)(cid:74)(cid:171)(cid:4)(cid:120)(cid:120)(cid:48) IS PROGRESSING
TO PLAN
The group’s IFRS 17 programme has progressed well during
the year. The initial impact assessment phase has been
completed and an implementation plan has been drawn up
which is now being progressed.
Acquisitions
Risk appetite
17 IFRS 17
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
09
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OVERVIEW
MEASURING OUR PERFORMANCE
HOW WE MEASURE PERFORMANCE WITHIN THESE REPORT AND ACCOUNTS
T(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:577)(cid:653)(cid:637)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:260)(cid:457)(cid:613)(cid:577)(cid:616)(cid:637)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:4)(cid:442)(cid:442)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:1239)(cid:3)(cid:677)(cid:457)(cid:3)(cid:653)(cid:624)(cid:457)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)(cid:637)(cid:577)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:624)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:616)(cid:457)(cid:613)(cid:577)(cid:616)(cid:637)(cid:3)(cid:515)(cid:577)(cid:677)(cid:3)(cid:677)(cid:457)(cid:546)(cid:546)(cid:3)(cid:677)(cid:457)(cid:3)(cid:515)(cid:387)(cid:676)(cid:457)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:457)(cid:449)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:3)(cid:616)(cid:387)(cid:566)(cid:508)(cid:457)(cid:3)
(cid:577)(cid:505)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)(cid:520)(cid:624)(cid:3)(cid:441)(cid:616)(cid:577)(cid:387)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:520)(cid:566)(cid:442)(cid:546)(cid:653)(cid:449)(cid:457)(cid:624)(cid:3)(cid:564)(cid:387)(cid:566)(cid:688)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:566)(cid:577)(cid:637)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)I(cid:121)(cid:260)(cid:268)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:566)(cid:387)(cid:546)(cid:688)(cid:624)(cid:520)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:3)(cid:546)(cid:520)(cid:505)(cid:457)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)
(cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:387)(cid:546)(cid:624)(cid:577)(cid:3)(cid:566)(cid:457)(cid:457)(cid:449)(cid:624)(cid:3)(cid:637)(cid:577)(cid:3)(cid:616)(cid:457)(cid:442)(cid:577)(cid:508)(cid:566)(cid:520)(cid:624)(cid:457)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:520)(cid:564)(cid:613)(cid:577)(cid:616)(cid:637)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:268)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)II(cid:3)(cid:718)(cid:508)(cid:653)(cid:616)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:387)(cid:624)(cid:520)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:616)(cid:457)(cid:508)(cid:653)(cid:546)(cid:387)(cid:637)(cid:577)(cid:616)(cid:688)(cid:3)(cid:624)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:1245)(cid:3)I(cid:566)(cid:3)
(cid:387)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)(cid:387)(cid:520)(cid:564)(cid:3)(cid:637)(cid:577)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:624)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:457)(cid:616)(cid:624)(cid:613)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:546)(cid:546)(cid:3)(cid:624)(cid:637)(cid:387)(cid:543)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1245)
FINANCIAL ANALYSIS OF A LIFE AND PENSION BUSINESS
Whilst the IFRS results form the core of the Report and Accounts and hence retain prominence as a key financial performance metric, there is a general acceptance
that the IFRS results in isolation do not adequately recognise the wider financial performance of a typical life and pensions business.
In light of the limitations of IFRS reporting, these Report and Accounts adopt several Alternative Performance Measures (APMs) to present a more meaningful
view of the financial position and performance. The non-IFRS APMs have at their heart the Solvency II valuation known as Own Funds and as such, all major
financial APMs are derived from a defined rules-based regime. The diagram below shows the core financial metrics that sit alongside the IFRS results, together
with their associated KPIs and interested parties.
FINANCIAL STATEMENTS
ADDITIONAL METRICS
IFRS profits
I
R
Capital requirements
Solvency capital
requirement
SCR plus
management
buffer
IFRS net assets
*
Solvency II valuation
(Own Funds)
P
I
R
B
Solvency
Stakeholder focus:
P
I
R
B
Policyholders
Investors
Regulators
Business partners
Key performance indicators
* See page 187 for a
reconciliation between
IFRS net assets and
Solvency II Own Funds
Percentage
Absolute
I
Economic Value
I
B
Cash generation
Balance sheet
Earnings
Group
Divisional
SOLVENCY
ECONOMIC VALUE
CASH GENERATION
Solvency is a fundamental financial measure
which is of paramount importance to investors
and policyholders. It represents the
relationship between the value of the business
as measured on a Solvency II basis and the
capital the business is required to hold - the
Solvency Capital Requirement (SCR). Solvency
can be reported as an absolute surplus value
or as a ratio.
Solvency gives policyholders comfort
regarding the security of their provider. This is
also the case for investors together with
giving them a sense of the level of potential
surplus available to invest in the business or
distribute as dividends (subject to other
considerations and approvals).
Economic Value (EcV) is deemed to be a more
meaningful measure of the long-term value
of the group and it generally approximates to
Embedded Value reporting, which was used
before the introduction of SII. In essence, the
IFRS balance sheet is not generally deemed
to represent a fair commercial value of our
business as it does not fully recognise
the impact of future profit expectations of
long-term policies.
EcV is derived from Solvency II Own Funds
and recognises the impact of future profit
expectations from existing business.
Cash generation is used by the group as a
measure of assessing how much dividend
potential has been generated, subject to
ensuring other constraints are managed.
Group cash generation is calculated as the
movement in the group’s surplus own funds
above the group’s internally required capital,
as determined by applying the group’s capital
management policy, which has Solvency II
rules at its heart.
Divisional cash generation represents the
movement in surplus own funds above local
capital management policies within the three
operating divisions of Chesnara. Divisional
cash generation is used as a measure
of how much dividend potential a division
has generated, subject to ensuring other
constraints are managed.
Further details on p31 to 33
Further details on p38 to 39
Further details on p37
10
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SECTION A
OPERATIONAL AND OTHER PERFORMANCE MEASURES
I(cid:566)(cid:3)(cid:387)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:637)(cid:577)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:260)(cid:457)(cid:613)(cid:577)(cid:616)(cid:637)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:4)(cid:442)(cid:442)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:3)(cid:520)(cid:566)(cid:442)(cid:546)(cid:653)(cid:449)(cid:457)(cid:624)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:624)(cid:520)(cid:449)(cid:457)(cid:616)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)
(cid:387)(cid:624)(cid:624)(cid:457)(cid:624)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:546)(cid:546)(cid:3)(cid:577)(cid:505)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:543)(cid:457)(cid:688)(cid:3)(cid:624)(cid:637)(cid:387)(cid:543)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:624)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:3)(cid:449)(cid:520)(cid:387)(cid:508)(cid:616)(cid:387)(cid:564)(cid:3)(cid:441)(cid:457)(cid:546)(cid:577)(cid:677)(cid:3)(cid:624)(cid:653)(cid:564)(cid:564)(cid:387)(cid:616)(cid:520)(cid:624)(cid:457)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)
(cid:387)(cid:449)(cid:577)(cid:613)(cid:637)(cid:457)(cid:449)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:577)(cid:653)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:260)(cid:457)(cid:613)(cid:577)(cid:616)(cid:637)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:4)(cid:442)(cid:442)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:1245)
KEY STAKEHOLDERS
l
r
e
d
o
h
y
c
i
l
o
P
r
o
t
s
e
v
n
I
l
s
r
o
t
a
u
g
e
R
*
r
e
n
t
r
a
p
s
s
e
n
i
s
u
B
Measure
Customer
service
levels
Broker
satisfaction
Policy
investment
performance
Industry
performance
assessments
Funds under
management
Policy count
Total
shareholder
returns
New business
profitability
New business
market share
Gearing ratio
Knowledge,
skills and
experience of
the Board of
Directors
What is it and why is it important?
e
g
a
P
How well we service our customers is of paramount importance and so through various means
we aim to assess customer service levels. The business reviews within the Report and Accounts
refer to a number of indicators of customer service levels.
24-29
Broker satisfaction is important because they sell new policies, provide ongoing service to their
customers and influence book persistency. We include several measures within the Report and
Accounts, including direct broker assessment ratings for Movestic and general assessment of
how our brands fare in industry performance awards in the Netherlands.
26-29
This is a measure of how the assets are performing that underpin policyholder returns. It is
important as it indicates to the customer the returns that their contributions are generating.
24-29
This is a comparative measure of how well our investments are performing against the rest of
the industry, which provides valuable context to our performance.
24-29
This shows the value of the investments that the business manages. This is important
because scale influences operational sustainability in run-off books and operational efficiency
in growing books. Funds under management are also a strong indicator of fee income.
26-27
Policy count is the number of policies that the group manages on behalf of customers. This is
important to show the scale of the business, particularly to provide context to the rate at which
the closed-book business is maturing. In our open businesses, the policy count shows the net
impact of new business versus policy attrition.
This includes dividend growth and yield and shows the return that an investor is generating
on the shares that they hold. It is highly important as it shows the success of the business in
translating its operations into a return for shareholders.
This shows our ability to write profitable new business which increases the value of the group.
This is an important indicator given one of our core objectives is to ‘enhance value through
profitable new business’.
This shows our success at writing new business relative to the rest of the market and is
important context for considering our success at writing new business against our target
market shares.
The gearing is a ratio of debt to IFRS net assets and shows the extent to which the business is
funded by external debt versus internal resources. The appropriate use of debt is an efficient
source of funding but in general Chesnara seeks to avoid becoming overly dependent on
permanent debt on the balance sheet.
This is a key measure given our view that the quality, balance and effectiveness of the Board of
Directors has a direct bearing on delivering positive outcomes to all stakeholders.
5
40
26-29
26-29
40
50-51
* For the purposes of this key performance indicator assessment business partners refers to major suppliers and outsource partners.
Key:
Primary interest
Secondary interest
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
11
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OVERVIEW
CHAIRMAN’S STATEMENT
I’m pleased to report a further
3% growth in the proposed
annual dividend.
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PETER MASON
CHAIRMAN
12
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec A_Overview_AW_Stg7.indd 12
04/04/2019 12:39
SECTION A
Against a backdrop of continuing political uncertainty, economic volatility
with a net adverse outcome, and during a period of significant operational
development, the Chesnara business model has held up well.
I will now report on how we have delivered against our three strategic
objectives in a little more detail:
Adverse economic conditions have an immediate, but potentially temporary
impact, on Economic Value. Solvency and cash generation are less affected
in the short term and hence our ability to continue our dividend track record
has not been impacted.
01
MAXIMISE VALUE FROM EXISTING
BUSINESS
Divisional cash generation of £63.9m.
See pages 24 to 29 for further information.
At the heart of Chesnara’s proposition as a reliable income stock, the UK
business has continued to generate sufficient cash to fund the Chesnara
dividend and the recent trend of Movestic and Waard making meaningful
positive cash contributions continues. In contrast Scildon has generated
a negative cash result of £17.8m primarily as a result of investment valuation
losses on various corporate and government bonds. This does not impact our
view regarding the future cash generation potential of the business. The group
cash generation provides 157% coverage of the total annual dividend.
As we have previously reported, Scildon remains in transition and this is
reflected in its short term financial results. The successful launch of a new
mortgage term assurance product during May has contributed to a modest
improvement in new business volumes. Although the increase in new
business volumes was reassuring, the fact that the new business operation
only made modest profits serves to highlight the importance of successfully
completing the Scildon improvement initiatives.
The financial resilience of the established business units creates a strong
foundation to support the continued improvement programme in Scildon.
The headline results for 2018 are generally lower by comparison to 2017. The
2017 results were unusually strong due to a combination of non-recurring
items (including the completion of the acquisition of Legal & General
Nederland) and highly beneficial economic conditions. The 2018 IFRS result
of £27.0m includes a loss of £15.5m from economic conditions compared to
a corresponding economic profit of £30.9m in 2017. In addition, the 2017
result included a £20.3m gain on the acquisition of Legal and General
Nederland. Excluding the investment market driven impacts and the one off
acquisition gain, the underlying IFRS results are more consistent year on
year. Whilst the IFRS results are worthy of note in my statement, it is my
view that they are not the most meaningful measure for the purpose of
assessing the performance of the company and hence my focus within the
Chairman’s Statement is on solvency, cash generation and Economic Value.
The IFRS results are analysed in more detail on page 36.
In addition to funding an attractive dividend strategy, we have a long-term
objective to protect the post dividend Economic Value of the group. This
means that over time we aim to create value at least to the level of the
annual dividend. Due to the sensitivity of the Economic Value to key
investment market variables (see our sensitivity analysis on page 33), it can
be particularly difficult to meet this Economic Value protection objective in
periods where conditions are adverse as has been the case during 2018.
The combination of a £49.7m economic loss, £22.8m of operating losses
and the payment of £30.4m of dividends are the primary drivers in a
reduction in total Economic Value from £723.1m at the beginning of the year
to a closing value of £626.1m.
When assessed in terms of levels of cash generated in the year we have, with
the exception of Scildon, delivered broadly in line with expectations. £29.0m
of cash emerged from the UK division (excluding £5.7m which is currently
restricted within the with-profits fund) during the period which, together with
£26.8m of previously constrained surplus released from the with-profits fund,
resulted in total cash significantly in excess of total annual dividends. Movestic
has increased its level of surplus resulting in a further £18.1m of cash
generation. Scildon has reported negative cash generation of £17.8m. This is
primarily due to the impact of a downward valuation on its fixed interest
investments. The Scildon result in the year does not impact our view regarding
the future cash generation potential of the business.
Economic Value in the period has been more affected by economic conditions
with total value falling by £97.0m. The majority of the loss is directly due to
economic conditions. Operating losses of £22.8m including the impact of
the strengthening of Scildon mortality assumptions, have also contributed to
the reduction. Foreign exchange losses of £5.8m have emerged in the period,
largely as a result of a weakening of Swedish krona. These factors, coupled
with the payment of £30.4m of dividends have resulted in a 13.4% reduction
in EcV since the start of the year.
Operational resilience is a vital factor with regards to our ability to protect and
service our customers. We have therefore invested heavily on improving
operational resilience across all aspects of the business and our assessment
is that the operational resilience and security of the business has improved
significantly during the year.
02
ACQUIRE LIFE AND PENSIONS
BUSINESSES
We continue to see activity in our preferred
markets and are well positioned to take
advantage of any future opportunities.
See page 30 for further information.
THE OUTLOOK REMAINS POSITIVE. ACQUISITION
ACTIVITY CONTINUES TO TAKE PLACE IN OUR
TARGET MARKETS, WITH OPPORTUNITIES
CONTINUING TO EMERGE.
During the year we finalised arrangements to form a broader debt syndicate
and this, together with increases in solvency surplus, means we are in a strong
position to fund future acquisitions where they meet our assessment criteria.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
13
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OVERVIEW
CHAIRMAN’S STATEMENT(CONTINUED)
03
ENHANCE VALUE THROUGH
PROFITABLE NEW BUSINESS
Increase in business volumes results in total
new business profits of £10.6m.
See pages 26 to 29 for further information.
Chesnara writes new business in both Sweden and the Netherlands. The
ultimate aim is to create sufficient annual profits, either through returns on the
existing business, or through writing new business, to replace the proportion
of Economic Value lost by way of dividend payments. Movestic continues to
deliver within its target profit range with a profit for the year of £8.9m. This
represents a reduction compared to 2017 mainly due to adopting a more prudent
assessment of the profitability of increments to existing policies. Profits
from new contracts remain broadly consistent with 2017.
Despite improved new business volumes, Scildon are not currently
generating sufficient new business profits with a total profit of £1.7m. This is
in line with our expectation at this stage and the need to drive profitability
improvements over the coming years was factored into our acquisition price.
A provision for the improvement programme has been made. During 2018 the
focus has been on setting strong foundations and ensuring a clarity of direction.
Whilst certain early operational enhancements have been delivered, the scale
of the change to date has not been sufficient to have a marked impact on
new business profits. During 2019 we intend to deliver sufficient organisational
and process change to have a material impact on the cost base and to deliver
a step change in how we interact with advisors.
SOLID NEW BUSINESS PROFITS HAVE EMERGED
FROM MOVESTIC IN A CHALLENGING MARKET.
SCILDON’S NEW BUSINESS OPERATION IS NOT
GENERATING SUFFICIENT PROFIT AND THE FOCUS
OVER 2019 IS TO ADDRESS THIS ISSUE.
The successful launch of a new mortgage term assurance product is a
first positive step on our Scildon improvement plan although we recognise
that we will only see the full potential from products when they are
supported by highly efficient processes and a lower cost organisation.
Solvency
The group continues to show a robust solvency position, with a solvency ratio
of 158% at 31 December 2018 (31 December 2017: 146%). A large contributing
factor to this increase is a £26.8m release of capital from the UK’s with-profits
funds, which positively benefitted own funds in the period. This was subject
to FCA approval. The closing solvency position is stated after recognising the
£20.2m cost of the proposed final dividend.
Regulation and governance
IFRS 17
Our programme has progressed well in the year, with our immediate focus being
on delivering an impact assessment. This deals with an initial early view on
the technical application of the standard to the group and its associated financial
and operational impacts. We completed our initial impact assessment in Q3 and
have now transitioned to the delivery phase. We have previously provided for
the cost of delivering the programme within our actuarial expense reserves.
From an operational and risk management perspective, the proposed one year
implementation delay is helpful but it is expected that there will be additional
costs. These too have been provided for in the 2018 results.
We continue to be of the view that IFRS 17 should not have any significant
bearing on the commercial assessment of Chesnara, with our expectation that
capital management decision making will continue to be driven by regulatory
solvency and Economic Value as opposed to our IFRS results and position.
Regulatory compliance
Compliance with regulation remains a priority for the group. We have continued
to maintain a positive and constructive relationship with regulatory bodies across
the three territories. During the period we have delivered our GDPR readiness
programmes, for the new rules which were effective from 25 May 2018.
On 19 September 2018 the FCA announced that it had closed its investigation,
into whether CA had failed to meet the standards expected of it regarding the
fair treatment of long-standing customers. As expected, no further action has
resulted from the investigation.
Governance framework
We continue to place great importance on ensuring our risk and governance
system is fit for purpose. Work has continued to progress on ensuring that
Scildon’s risk and governance monitoring and reporting routines are in line with
the wider group’s.
14
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION A
AT CHESNARA WE HAVE ALWAYS MANAGED OUR BUSINESS IN A RESPONSIBLE WAY AND HAVE
A STRONG SENSE OF ACTING IN A FAIR MANNER, GIVING FULL REGARD TO THE RELATIVE INTERESTS
OF ALL STAKEHOLDERS.
Corporate purpose
We assess our corporate purpose by considering eight aspects of our
business and by looking at the business from the perspective of all
stakeholders.
OUR VIEW IS THAT CHESNARA FULFILS A POSITIVE
CORPORATE PURPOSE FOR ALL KEY STAKEHOLDERS.
Outlook and Brexit
1. Business model
– Our acquisition strategy is built upon long-term commitments to any markets
we operate in. Our consolidation model therefore offers a genuine solution
to the challenges certain insurance markets face.
Chesnara is in a good position to continue its delivery against its strategic
objectives, which in turn fund our well established dividend strategy. The
ability to generate cash in less economically beneficial conditions, as has
been the case during 2018, clearly demonstrates this.
2. The products and services we provide
– We help protect people and their dependants through the provision of life,
health and disability cover or by providing savings and pensions which help
customers with their financial needs in the future. We seek to provide
customers and their advisers with helpful and reliable support.
WE HELP PROTECT PEOPLE AND THEIR
DEPENDANTS THROUGH THE PROVISION OF LIFE,
HEALTH AND DISABILITY COVER OR BY PROVIDING
SAVINGS AND PENSIONS WHICH HELP CUSTOMERS
WITH THEIR FINANCIAL NEEDS IN THE FUTURE.
3. Sustainability
– Driven in part by consumer demand, especially in our Swedish and Dutch
operations, there is a continued positive shift towards an increased focus of
sustainable fund investments.
– The nature of our business is such that in general we have a relatively low
carbon footprint.
4. Shareholder proposition
– Investors, especially in a low interest rate environment do have a genuine
need for income and hence our investor proposition, track record and
responsible approach provides an investment opportunity for individuals
seeking sustainable equity based income.
5. Taxation
– As detailed in our tax strategy, we adopt a responsible and open approach
to taxation and, as a consequence, pay the appropriate taxes throughout
the group.
6. Staff
– We provide high quality jobs with good working conditions both directly and
through outsourced arrangements.
7. Suppliers and partners
– We seek mutually respectful and sustainable relationships with our suppliers.
We believe that supplier relationships only work in the long-term if the terms
and conditions are mutually beneficial. Our instinct and natural preference is
to maintain established long-term supplier relationships where they remain
commercially competitive and operationally viable.
8. Local community
– In the UK our investment and continued commitment to the North West
and Preston in particular creates high quality financial services roles outside
of London.
– All divisions support local community initiatives to the extent deemed
appropriate given our financial responsibilities as a PLC.
In particular, the UK business remains a robust source of cash, with additional
potential to take management actions to enhance the core cash if required.
Movestic now has the scale to continue contributing to the cash position.
Scildon has surplus capital and despite the negative cash emerging during
the period, is also expected to be cash generative, in the absence of adverse
economic conditions.
We now have sufficient scale and presence in both the UK and the Netherlands
to continue our focus on acquisition activity in those territories in a disciplined
manner. We also remain open to opportunities in Sweden particularly where
they provide scale benefits. We would consider new territories but the benefits
would need to outweigh the inherent challenge of adding another regulatory
environment into our business model. Our balance sheet has further capacity
for debt having completed a debt syndication process during the year,
we have significant levels of surplus capital. This, together with operational
capacity, means we remain well positioned to act should an opportunity arise
that meets our stringent price and risk profile criteria.
Movestic has become an established profitable new business operation. They
have made meaningful steps in improving the organisational effectiveness
and efficiency of the business including some major automation initiatives,
which have resulted in a notable reduction in the cost base. They are in a
good position to deliver further digitalisation plans. We recognise that current
new business profits from Scildon are not sufficient. However, the fact that
we have recorded a modest profit calculated on a suitably stringent basis of
assessment, means we retain our view that Scildon has the potential to create
meaningful new business profits. 2019 will be a critical year regarding the
delivery of material change to improve profits.
The structure of the group, with established regulated entities in several
European countries, together with the fact we do not trade or share resource
across territories, means I remain of the view that whatever the outcome
from the Brexit negotiations, we expect it to have little direct impact on our
business model.
From an investment markets perspective equity markets have generally
risen since the end of the year, and spreads on bonds have narrowed. Both
of these factors are positive drivers of Economic Value for the group.
In light of the above I remain confident that Chesnara is well positioned to
continue to provide value to policyholders and shareholders.
Peter Mason
Chairman
28 March 2019
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
15
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SECTION B:
STRATEGIC
REPORT
16
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18 Overview of our strategy, culture
& values and business model
20 Our strategy
22 Our culture & values
24 Business review
31 Capital management
34 Financial review
40 Financial management
42 Risk management
46 Corporate and social responsibility
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17
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STRATEGIC REPORT
O(cid:345)E(cid:260)(cid:345)IE(cid:346)(cid:3)O(cid:121)(cid:3)OU(cid:260)(cid:3)(cid:268)T(cid:260)(cid:4)TE(cid:123)(cid:357)(cid:1239)(cid:3)CU(cid:184)TU(cid:260)E(cid:3)(cid:1390)(cid:3)
VALUES AND BUSINESS MODEL
O(cid:653)(cid:616)(cid:3)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:457)(cid:508)(cid:688)(cid:3)(cid:505)(cid:577)(cid:442)(cid:653)(cid:624)(cid:457)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:449)(cid:457)(cid:546)(cid:520)(cid:676)(cid:457)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:577)(cid:3)(cid:442)(cid:653)(cid:624)(cid:637)(cid:577)(cid:564)(cid:457)(cid:616)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:3)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:457)(cid:508)(cid:688)(cid:3)(cid:520)(cid:624)(cid:3)(cid:449)(cid:457)(cid:546)(cid:520)(cid:676)(cid:457)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:387)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:566)
(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3) (cid:564)(cid:577)(cid:449)(cid:457)(cid:546)(cid:3) (cid:653)(cid:566)(cid:449)(cid:457)(cid:616)(cid:613)(cid:520)(cid:566)(cid:566)(cid:457)(cid:449)(cid:3) (cid:441)(cid:688)(cid:3) (cid:387)(cid:3) (cid:616)(cid:577)(cid:441)(cid:653)(cid:624)(cid:637)(cid:3) (cid:616)(cid:520)(cid:624)(cid:543)(cid:3) (cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:508)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3) (cid:505)(cid:616)(cid:387)(cid:564)(cid:457)(cid:677)(cid:577)(cid:616)(cid:543)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:577)(cid:653)(cid:616)(cid:3) (cid:457)(cid:624)(cid:637)(cid:387)(cid:441)(cid:546)(cid:520)(cid:624)(cid:515)(cid:457)(cid:449)(cid:3)
(cid:442)(cid:653)(cid:546)(cid:637)(cid:653)(cid:616)(cid:457)(cid:3)(cid:1390)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:624)(cid:1245)
OUR BUSINESS MODEL
Key
stakeholders
R
REGULATORS
C
CUSTOMERS
I
INVESTORS
Stakeholder
objectives
Financial stability and
regulatory compliance
Fair outcomes
Competitive return
Cash generation and Economic Value growth
Division
UK
NETHERLANDS
SWEDEN
Operating
company
Strategic
objectives
Culture
& values
Countrywide
Assured
01
02
Waard
Group
01
02
Scildon
01
03
Movestic
01
02
03
Read more on p24
Read more on p28
Read more on p28
Read more on p26
(cid:260)(cid:457)(cid:624)(cid:613)(cid:577)(cid:566)(cid:624)(cid:520)(cid:441)(cid:546)(cid:457)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:1272)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:546)(cid:546)(cid:3)(cid:577)(cid:505)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:624)(cid:637)(cid:387)(cid:543)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)
OUR STRATEGIC OBJECTIVES
01
02
03
MAXIMISE THE VALUE FROM
EXISTING BUSINESS
ACQUIRE LIFE AND
PENSIONS BUSINESSES
ENHANCE VALUE THROUGH
PROFITABLE NEW BUSINESS
Managing our existing customers
fairly and efficiently is core to
delivering our overall strategic aims.
Acquiring and integrating companies
into our business model is key to
continuing our growth journey.
Writing profitable new business
supports the growth of our group
and helps mitigate the natural
run-off of our book.
18
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION B
01
V A L U E F ROM EXISTING BUSIN
E
S
S
E
X I M I S
A
M
A
C
Q
U
I
R
E
L
I
F
E
A
N
D
02
P
E
N
S
I
O
N
S
B
U
SIN
E
S
SES
MAINTAIN
ADEQUATE
FINANCIAL
RESOURCES
FAIR
TREATMENT
OF CUSTOMERS
PROVIDE A
COMPETITIVE
RETURN TO
SHAREHOLDERS
ROBUST
REGULATORY
COMPLIANCE
S
S
E
N
I
S
U
B
W
E
N
E
L
B
A
FIT
O
R
H P
03
G
E T H R O U
U
L
A
E V
E N H A N C
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
19
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STRATEGIC REPORT
OUR STRATEGY
STRATEGIC OBJECTIVE WHY THIS MAT TERS
HOW WE DELIVER OUR
BUSINESS MODEL
MA XIMISE VALUE
FROM EXISTING
BUSINESS
The existing books of policies are the
principal source of cash generation
and are hence at the heart of the
investment case for our shareholders.
A centralised governance oversight and corporate
management team ensure robust and consistent
governance across the group. Operating autonomy
is delivered to the divisions to ensure we benefit
from our strong divisional management teams. The
UK business adopts an outsourced business model.
Core operations are not outsourced in Sweden or the
Netherlands because it would not suit the business
models in those territories.
01
ACQUIRE LIFE
(cid:1390)(cid:3)(cid:256)EN(cid:268)ION(cid:268)(cid:3)
BUSINESSES
02
ENHANCE VALUE
THROUGH
PROFITABLE NEW
BUSINESS
03
Well considered and appropriately
priced acquisitions maintain the
effectiveness of the operating model,
create a source of value enhancement
and sustain the longer-term cash
generation potential of the group.
– Identify potential deals through an effective network
of advisers and industry associates.
– We assess deals applying well established criteria
which consider the impact on cash generation
and Economic Value under best estimate and
stressed scenarios.
– We work cooperatively with regulators.
– The financial benefits are viewed in the context
of the impact the deal will have on the enlarged
group’s risk profile.
– Transaction risk is minimised through stringent
risk-based due diligence procedures and the senior
management team’s acquisition experience and
positive track record.
– We fund deals with debt, equity or cash depending
on the size and cash flows of each opportunity.
The primary focus of our operations is
to ensure we manage the existing
policy base in an efficient and compliant
manner. That said, the Chesnara financial
model supports modest incremental
value generation through writing new
business. New business profits are an
important and welcome source of regular
value growth which supplements the
growth delivered from our existing policy
base and periodic acquisitions.
Our two operating subsidiaries that are open to new
business are Movestic in Sweden and Scildon in the
Netherlands. Movestic primarily focuses on unit-linked
pensions and savings business, distributed largely
through IFAs, and has a profitability model based
upon realistic market shares. Scildon sells protection
products, individual savings and group pensions
contracts via a broker-led distribution model, and as
with Movestic, new business operations assume
realistic market shares. For both open businesses,
we believe that to achieve higher volumes would
require a pricing strategy that may compromise
the keen focus on ensuring the business we write
is profitable.
20
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SECTION B
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HOW WE MEASURE DELIVERY
Cash
generation
Cash generated by the existing business
is an important measure for how the
business is performing. It is defined as
the movement in the surplus of capital
resources over capital requirements set by
the board. As such cash can be generated
by either profits arising in the period or a
reduction in capital requirements.
Value
optimisation
Value generation is measured by
reference to the movement in Economic
Value over the period.
Customer
outcomes
This is measured through monitoring:
– customer service metrics;
– policyholder fund performance against
industry and market expectations;
– customer complaint levels; and
– our compliance with regards to
regulatory conduct matters.
Cash
generation
Collectively our future acquisitions must
be suitably cash generative to continue to
fund the Chesnara dividend strategy.
Value
enhancement
Acquisitions are required to have a positive
impact on the Economic Value per
share under best estimate and certain
more adverse scenarios.
Customer
outcomes
Acquisitions must ensure we protect, or
ideally enhance, customer interests.
Risk appetite
Acquisitions should normally align with
the group’s documented risk appetite.
If a deal is deemed to sit outside our risk
appetite the financial returns must be
suitably compelling.
Value
enhancement
We measure the amount of Economic
Value added through selling new
contracts. The value added takes full
account of all costs incurred so as to
ensure the profit represents true
incremental value.
UPDATE
UK
Pages 24-25
Sweden
Pages 26-27
Netherlands
Pages 28-29
Page 30
RISKS:
WHAT CAN STOP US
MEETING THIS OBJECTIVE
RISKS:
WHAT CAN WE DO
ABOUT THIS
– Adverse investment market
– Where appropriate, active
conditions can result in lower
assets under management and
hence lower fee income from
unit-linked business. For products
with guarantees, this can increase
the cost of fulfilling the guarantees.
– Increased lapses on cash
generative / value enhancing
products.
– Loss of key brokers can result in
increases in the level of customers
moving to competitors.
– Regulatory change can potentially
impact the cash flows arising from
the existing business.
– Expenditure levels could exceed
those assumed.
– Foreign currency fluctuations can
impact the sterling value emerging
from overseas operations
– There is the risk that if a lack of
suitable acquisition opportunities
come to market at a realistic
valuation, the investment case for
Chesnara diminishes over time.
– There is the risk that we make an
inappropriate acquisition that
adversely impacts the financial
strength of the group.
– Our acquisition strategy includes
both UK and non-UK markets.
investment management with
the aim of delivering
competitive investment
returns for policyholders.
– Outsourcer service levels that
ensure strong customer
service standards.
– Expense assumptions are
deemed to be realistic and the
cost base is well controlled,
predictable and within direct
management influence.
– Close monitoring of
persistency levels and strong
customer service standards
help manage lapse rates and
ensure customers do not
unknowingly exit when it is not
in their interest to do so.
– Operating in three territories
increases our options thereby
reducing the risk that no further
value adding deals are done.
– A broader target market also
increases the potential for deals
that meet our strategic objectives.
– Flexibility over the timing of
subsequent divisional dividend
flows provide an element of
management control over the
sterling value of cash inflows.
– Each acquisition is supported by
a financial deal assessment
model which includes high quality
financial analysis. This is reviewed
and challenged by management
and the board, mitigating the risk
of a bad deal being pursued.
– The attractiveness of products
can be influenced by economic
conditions, politics and the media.
– In Sweden, continue to extend
the breadth of IFA support.
– Ensure high quality of service
Sweden
Pages 26-27
– New business volumes are
sensitive to the quality of service
to intermediaries and the end
customer.
– In Sweden, new business remains
relatively concentrated towards
several large IFAs.
– A competitive market puts
pressure on new sales margins.
to existing network of
intermediaries.
– Focus on other margin drivers
beyond product pricing, for
example the fund
management operation.
– In the Netherlands, enhance
our business processes and
product offering to be attractive
to brokers and consumers.
Netherlands
Pages 28-29
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
21
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STRATEGIC REPORT
OU(cid:260)(cid:3)CU(cid:184)TU(cid:260)E(cid:3)(cid:1390)(cid:3)(cid:345)(cid:4)(cid:184)UE(cid:268)
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MANAGEMENT FOR
THE BENEFIT OF ALL OF
OUR STAKEHOLDERS
FAIR TREATMENT
OF CUSTOMERS
PROVIDE A COMPETITIVE
RETURN TO OUR
SHAREHOLDERS
ROBUST REGULATORY
COMPLIANCE
Maintaining
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heart of good
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WHY IS IT IMPORTANT?
Risk taking is a key part of our business
model - taking the ‘right risks’ and
managing them well is essential to our
success. We achieve this by
understanding the key risk drivers of
the business plan and strategy, and by
making sure we monitor these risks
and take appropriate risk-based
decisions in a timely fashion, for the
benefit of all of our stakeholders.
The fair treatment of customers across
the group is our primary responsibility.
It is also important to the Chesnara
business strategy as it promotes stronger
relationships with our customers,
distributors and regulators. When applying
the terms of our customer contracts,
coupled with guidance and requirements
set out by our local regulators, we place
a high priority on taking account of the
fair treatment of our customers.
As a public company, it is imperative that
we offer an attractive investment
proposition. Given the majority of our
investors hold our shares in ‘income
funds’, it is important that we deliver an
attractive and sustainable dividend.
We also recognise the benefit of being
an investment that offers clarity and
consistency of performance.
Working constructively with our
regulators and complying with regulatory
requirements is imperative to the delivery
of our objectives. The regulators’ desire
for robust and responsible governance is
very much part of our culture and a
principal aim of the Chesnara directors.
22
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SECTION B
WHAT WE HAVE DONE
THE OUTCOMES
– Further aligned the governance within Scildon with that of the wider
group, including the appointment of John Deane to their Supervisory
Board and the appointment of a CRO.
– Continued to enhance our Own Risk and Solvency Assessments
(ORSAs), further supporting the group and divisions in making
informed risk-based decisions.
– Delivered our continuous improvement regime regarding how we
manage risk across the group, supported by our annual systems of
governance review.
– Strengthened controls reducing risk likelihood and impact of adverse
outcomes for shareholders and policyholders.
– Constructive dialogue with regulators across the different territories in
which the group operates.
– Closure of the FCA Investigation into the treatment of long standing
customers.
– Continued improvement in the understanding of the group’s Solvency II
balance sheet, which provides a stronger linkage between risk, capital
and strategy aiding more risk-based decision-making.
– Across the group, we have continued to deliver a good standard of
customer service.
– Generally low level of complaints across the group has continued.
– Improved customer communications, supporting better
– The UK division is implementing its customer strategy in support of
customer outcomes.
regulatory guidelines and during 2018 delivered a new customer website
and enhanced its customer communications. The UK’s administrative
outsource service partners have delivered within stringent service level
requirements.
– Service standards in Sweden remain strong, as evidenced by external
surveys of brokers undertaken by independent organisations.
– Unit-linked policy returns remain competitive based on both fund
benchmarks and external unit-linked policy performance surveys.
– Where complaints do arise across the group, we continue to manage them
in accordance with best regulatory practice.
– We closely monitor any regulatory developments to ensure we continue
to treat our customers fairly in accordance with regulatory requirements.
– Service standards and customer outcomes in Sweden mean we
continue to meet our targets for market share range.
– In the Netherlands, Scildon has again received an award from
Afdiz, the Dutch broker organisation. In 2018, the business
was awarded ‘Best Occupational Pension Insurer’ and was also
rated second for term insurance.
– Continued our dividend strategy of increasing our dividend each year,
even during turbulent investment market conditions.
– Maintained a robust solvency position in all divisions and at group level
which supports the continued dividend strategy.
– Dividend track record continues, with 3% dividend growth in 2018.
– Over the past 5 years, £134.6m of dividends have been paid.
– Maintenance of robust levels of solvency throughout the group and all
– Ongoing constructive relationships with UK, Swedish and
divisions throughout the year.
Dutch regulators.
– Continued to place a high priority on compliance and maintaining an open
– Continued adherence to internal governance policies and principles.
dialogue with our regulators.
– During the year the FCA announced that it had closed its investigation,
without further action, into whether Countrywide Assured had failed to
meet the standards expected of it regarding the fair treatment of
long-standing customers.
– Ensured we have complied with the FCA’s senior managers and
certifications regime, which came into force from 10 December 2018.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
23
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STRATEGIC REPORT
(cid:57)U(cid:268)INE(cid:268)(cid:268)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)U(cid:182)
T(cid:515)(cid:457)(cid:3) U(cid:182)(cid:3) (cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3) (cid:520)(cid:624)(cid:3) (cid:613)(cid:616)(cid:520)(cid:566)(cid:442)(cid:520)(cid:613)(cid:387)(cid:546)(cid:546)(cid:688)(cid:3) (cid:564)(cid:387)(cid:449)(cid:457)(cid:3) (cid:653)(cid:613)(cid:3) (cid:577)(cid:505)(cid:3) C(cid:577)(cid:653)(cid:566)(cid:637)(cid:616)(cid:688)(cid:677)(cid:520)(cid:449)(cid:457)(cid:3) (cid:4)(cid:624)(cid:624)(cid:653)(cid:616)(cid:457)(cid:449)(cid:3) (cid:613)(cid:546)(cid:442)(cid:1239)(cid:3) (cid:387)(cid:3) (cid:546)(cid:520)(cid:505)(cid:457)(cid:3) (cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3) (cid:442)(cid:577)(cid:564)(cid:613)(cid:387)(cid:566)(cid:688)(cid:3) (cid:637)(cid:515)(cid:387)(cid:637)(cid:3) (cid:520)(cid:624)(cid:3) (cid:520)(cid:566)(cid:3) (cid:616)(cid:653)(cid:566)(cid:3) (cid:577)(cid:505)(cid:505)(cid:1245)(cid:3)
T(cid:515)(cid:457)(cid:3) (cid:442)(cid:577)(cid:564)(cid:613)(cid:387)(cid:566)(cid:688)(cid:3) (cid:515)(cid:387)(cid:624)(cid:3) (cid:1111)(cid:1116)(cid:1116)(cid:1239)(cid:1109)(cid:1109)(cid:1109)(cid:3) (cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:520)(cid:457)(cid:624)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:520)(cid:637)(cid:624)(cid:3) (cid:577)(cid:613)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3) (cid:387)(cid:616)(cid:457)(cid:3) (cid:613)(cid:616)(cid:457)(cid:449)(cid:577)(cid:564)(cid:520)(cid:566)(cid:387)(cid:566)(cid:637)(cid:546)(cid:688)(cid:3) (cid:577)(cid:653)(cid:637)(cid:624)(cid:577)(cid:653)(cid:616)(cid:442)(cid:457)(cid:449)(cid:1239)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:577)(cid:676)(cid:457)(cid:616)(cid:624)(cid:457)(cid:457)(cid:566)(cid:3) (cid:441)(cid:688)(cid:3) (cid:387)(cid:3) (cid:442)(cid:457)(cid:566)(cid:637)(cid:616)(cid:387)(cid:546)(cid:3)
(cid:508)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:637)(cid:457)(cid:387)(cid:564)(cid:1245)
BACKGROUND INFORMATION
INITI(cid:4)TI(cid:345)E(cid:268)(cid:3)(cid:1390)(cid:3)(cid:256)(cid:260)O(cid:123)(cid:260)E(cid:268)(cid:268)(cid:3)IN(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)
C(cid:4)(cid:256)IT(cid:4)(cid:184)(cid:3)(cid:1390)(cid:3)
VALUE
MANAGEMENT
– As a closed book, the division creates value
through managing the following key value
drivers: costs; policy attrition; investment return;
and reinsurance strategy.
– In general, surplus regulatory capital emerges
as the book runs off. The level of required
capital is closely linked to the level of risk to
which the division is exposed. Management’s
risk-based decision-making process seeks
to continually manage and monitor the balance
of making value enhancing decisions whilst
maintaining a risk profile in line with the board’s
risk appetite.
– At the heart of maintaining value is ensuring
that the division is governed well from a
regulatory and customer perspective.
– Cash generation of £55.8m emerged during the year despite
volatile equity markets, including £26.8m arising from a transfer
of surplus capital from the company’s with-profits funds
following approval by the Financial Conduct Authority.
– Proposed final dividend to Chesnara of £59.0m.
– Looking through the impact of dividends, the EcV of the division
reduced by £8m since the start of the year, largely as a result
of the fall in equity markets in 2018.
– IFRS pre-tax profits of £28.2m have been made in the period.
CUSTOMER
OUTCOMES
– Treating customers fairly is one of our primary
responsibilities. We seek to do this by having
effective customer service operations together
with competitive fund performance whilst
giving full regard to all regulatory matters.
This supports our aim to ensure policyholders
receive good returns, appropriate
communication, and service in line with
customer expectations.
– On 19 September 2018 the FCA announced that it had closed its
investigation, without further action, into whether Countrywide
Assured (CA) had failed to meet the standards expected of it
regarding the fair treatment of long-standing customers.
– The division’s customer strategy implementation plan has
continued to be progressed during the year. Key items of
delivery have included:
• Reviewing key event communications with customers and
making sure they meet the expected standards. This work
will continue into 2019.
• Updating the CA website to improve the accessibility of
information that customers may wish to refer to. A second
phase roll-out to provide more information on fund unit
prices and performance, as well as enhanced information on
savings and protection products, was progressed during
2018 and went live in 2019.
– The business has continued its programme to stay in touch with
customers through its ‘goneaways’ programme.
– Good customer services standards have been maintained
throughout the year.
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GOVERNANCE
– Maintaining effective governance and
– The division has started a programme to enhance its operational
a constructive relationship with regulators
underpins the delivery of the division’s
strategic plans.
– Having robust governance processes provides
management with a platform to deliver the
other aspects of the business strategy. As a
result, a significant proportion of management’s
time and attention continues to be focused on
ensuring that both the existing governance
processes, coupled with future developments,
are delivered.
resilience following the Bank of England’s paper entitled
‘Building the UK financial sector’s operational resilience’ which
was issued in July 2018.
– The division’s IFRS 17 programme commenced, with the first
phase involving an impact assessment. This work has been
utilised to scope the delivery phase of the plan, which has now
commenced.
– Positive engagement with all regulators has continued during
the year.
– The General Data Protection Regulation (GDPR) project was
completed prior to the rules coming into force on 25 May 2018.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
01
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SECTION B
T(cid:515)(cid:457)(cid:3)(cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:515)(cid:387)(cid:624)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:520)(cid:566)(cid:653)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:505)(cid:577)(cid:442)(cid:653)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:449)(cid:457)(cid:546)(cid:520)(cid:676)(cid:457)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:442)(cid:577)(cid:616)(cid:457)(cid:3)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:457)(cid:508)(cid:520)(cid:442)(cid:3)(cid:577)(cid:441)(cid:538)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)
(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:457)(cid:505)(cid:505)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:546)(cid:688)(cid:1239)(cid:3)(cid:505)(cid:577)(cid:442)(cid:653)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:442)(cid:653)(cid:624)(cid:637)(cid:577)(cid:564)(cid:457)(cid:616)(cid:3)(cid:577)(cid:653)(cid:637)(cid:442)(cid:577)(cid:564)(cid:457)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:566)(cid:624)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:520)(cid:624)(cid:3)(cid:508)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:457)(cid:449)(cid:3)(cid:677)(cid:457)(cid:546)(cid:546)(cid:1245)
FUTURE PRIORITIES
KPIs
– As a closed book operation, a key priority for the division
is to continue to monitor expenses closely, especially in
light of the ever-demanding regulatory environment in
which the company operates.
– Continue to consider investment strategy of the division,
including the mix of assets we invest in and also the
operating model used to deliver investment management.
– The division will continue to support the group in
delivering its acquisition strategy in the UK.
Economic Value
£m
Reported value
Cumulative dividends
65.0
95.5
125.5
157.5
271.8
297.3
232.2
239.6
255.5
214.7
2014
2015
2016
2017
2018
Cash generation
£m
2018 value reduced as a result of
investment market conditions towards
the end of the year.
– The division’s customer strategy implementation
Policyholder fund performance
50.9
2014
42.5
2015
21.3
2016
34.5
2017
55.8
2018
Cash generation of £55.8m, which
includes a one-off surplus transfer from
the with-profits funds, continues to
support the group’s dividend strategy.
CA pension managed
CWA balanced managed pension
S&P managed pension
Benchmark – ABI mixed inv 40%-85% shares
programme is expected to come to a close in early
2020, with the programme transferring the updated
processes into a business as usual environment. Key
items that are planned to be delivered in 2019 include:
• Implementing the vast majority of the updated
customer communications, most notably annual
statements, retirement communications, and the
remaining transfers and surrender letters.
• Continue the cycle of seeking to make contact with
customers who have not provided us with their
most recent contact information. This will include
writing to all customers who we believe we have
traced to new addresses.
– 2019 will focus on delivering the division’s operational
resilience plans following the Bank of England’s
discussion paper that was issued in 2018.
– The division will continue with its IFRS 17
implementation plan, noting that the standard is subject
to further review by the IASB. At this stage these
plans include producing a balance sheet valuation under
IFRS 17 valuation rules.
2018
9.8%
9.5%
13.6%
9.5%
(5.5)%
(4.9)%
(7.8)%
(6.2%)
2017
Our main managed funds continue to generally perform well against their
benchmarks although the S&P managed pension fund experienced a disappointing
end to the year as a result of its higher relative exposure to equities, which
fell during the year. The S&P performance over a longer-term period compares
favourably to benchmark.
SOLVENCY RATIO: 191%
191%
49.5
(59.0)
130%
38.6
88.1
31 Dec 18
surplus
(pre-div)
31 Dec 17
surplus
Surplus
generation
2018
dividend
31 Dec 18
surplus
Solvency remains robust.
The surplus generated in
the period increases the
solvency position from 130%
to 191%. After the dividend,
due to be paid during 2019,
the ratio is 130%.
130%
29.1
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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STRATEGIC REPORT
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(cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:387)(cid:676)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:624)(cid:577)(cid:546)(cid:653)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:441)(cid:616)(cid:577)(cid:543)(cid:457)(cid:616)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:520)(cid:624)(cid:3)(cid:677)(cid:457)(cid:546)(cid:546)(cid:1272)(cid:616)(cid:387)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:520)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:616)(cid:577)(cid:543)(cid:457)(cid:616)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:653)(cid:566)(cid:520)(cid:637)(cid:688)(cid:1245)(cid:3)
BACKGROUND INFORMATION
INITI(cid:4)TI(cid:345)E(cid:268)(cid:3)(cid:1390)(cid:3)(cid:256)(cid:260)O(cid:123)(cid:260)E(cid:268)(cid:268)(cid:3)IN(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)
C(cid:4)(cid:256)IT(cid:4)(cid:184)(cid:3)(cid:1390)(cid:3)
VALUE
MANAGEMENT
– Movestic creates value predominantly by
– Cash of £19.4m has been generated, on constant exchange rates
generating growth in the unit linked Assets
under Management (AuM). AuM growth is
dependent upon positive client cash flows
and positive investment performance. Capital
surplus is a factor of both the value and
capital requirements and hence surplus can
also be optimised by effective management
of capital.
(£18.1m post foreign exchange retranslation).
– IFRS profit of £9.3m.
– Assets under management resilient despite investment market
drop in the period, on constant exchange rates.
– The transfer market remains intense. Movestic reflects the market
trend with transfers in at a similar level to outgoing transfers.
– The division has implemented an operational change programme,
designed to improve efficiencies and reduce costs within the
business and hence combat the impact of price pressure.
– The Swedish krona has weakened against sterling by 3.2% during
the year, resulting in retranslation losses being reported in EcV
and cash generation. During 2017 the Swedish krona strengthened
by 0.6%.
– Equity markets developed negatively during the fourth quarter
resulting in a negative investment return for the full year.
CUSTOMER
OUTCOMES
– Movestic provides personalised long-term
– Policyholder average investment return of -6.0% in the year
savings, insurance policies and occupational
pensions for individuals and business owners.
We believe that recurring independent financial
advice increases the likelihood of a solid and
well-planned financial status, hence we are
offering our products and services through
advisors, licenced brokers or digitally.
(2017: +8.2%), ahead of the Swedish stock market return of -7.7%.
– Fees have been lowered in Movestic’s funds to strengthen its
customer proposition.
– Movestic was elected as one of the unit linked providers in
the procurement of the collective agreement ITP, where 2 million
clients have their occupational pension solution. The offering
was made available on 1 October and was combined with our
digital investment advisory tool MAIA. This is the first time
that kind of solution was made available for this group of clients.
It should be noted that this represents low margin business.
GOVERNANCE
– Movestic operates to exacting regulatory
– The General Data Protection Regulation (GDPR) project was
standards and adopts a robust approach to
risk management.
– Maintaining strong governance is a critical
platform to delivering the various value-
enhancing initiatives planned by the division.
completed prior to the rules coming into force on 25 May 2018.
– Movestic has successfully implemented the first phase of
the Insurance Distribution Directive (IDD), which applied from
1 October 2018.
– The IFRS 17 project has progressed well, with the initial impact
assessment study delivered during Q4.
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PROFITABLE
NEW
BUSINESS
– As an ‘open’ business, Movestic not only adds
value from sales but as it gains scale, it will
become increasingly cash generative which
will fund further growth or contribute towards
the group’s dividend strategy. Movestic has a
clear sales focus and targets a market share
of 6.5%-10.0% of the advised occupational
pension market. This focus ensures we are able
to adopt a profitable pricing strategy.
– Movestic continues to operate within its target market range.
– Annual premium equivalent of new contracts sold increased by 3%
compared with 2017, although gross margin rates have deteriorated
slightly, reflecting the pricing pressures that exist in the market.
– Overall profits from new contracts have remained consistent with
2017 despite price pressure. A reassessment of the profitability
of increments to existing policies has however driven a reduction
in overall new business profit.
– Movestic are redesigning their organisation for a digital world
to increase business efficiency and reduce cost. As part of this
process outsourcing of some IT operations capability was
completed in the year.
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04/04/2019 12:43
SECTION B
(cid:195)(cid:577)(cid:676)(cid:457)(cid:624)(cid:637)(cid:520)(cid:442)(cid:3)(cid:515)(cid:387)(cid:624)(cid:3)(cid:449)(cid:457)(cid:546)(cid:520)(cid:676)(cid:457)(cid:616)(cid:457)(cid:449)(cid:3)(cid:387)(cid:3)(cid:624)(cid:637)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)(cid:624)(cid:457)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:616)(cid:457)(cid:624)(cid:653)(cid:546)(cid:637)(cid:624)(cid:3)(cid:387)(cid:442)(cid:616)(cid:577)(cid:624)(cid:624)(cid:3)(cid:543)(cid:457)(cid:688)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:564)(cid:457)(cid:637)(cid:616)(cid:520)(cid:442)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:515)(cid:577)(cid:677)(cid:624)(cid:3)(cid:616)(cid:457)(cid:624)(cid:520)(cid:546)(cid:520)(cid:457)(cid:566)(cid:442)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:3)(cid:566)(cid:457)(cid:508)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
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(cid:508)(cid:616)(cid:577)(cid:677)(cid:637)(cid:515)(cid:3)(cid:387)(cid:624)(cid:3)(cid:387)(cid:3)(cid:616)(cid:457)(cid:624)(cid:653)(cid:546)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:442)(cid:546)(cid:520)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:720)(cid:577)(cid:677)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:520)(cid:566)(cid:653)(cid:457)(cid:624)(cid:3)(cid:637)(cid:577)(cid:3)(cid:624)(cid:653)(cid:613)(cid:613)(cid:577)(cid:616)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:442)(cid:515)(cid:520)(cid:457)(cid:676)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:387)(cid:564)(cid:441)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:624)(cid:442)(cid:387)(cid:546)(cid:457)(cid:1245)(cid:3)
T(cid:515)(cid:457)(cid:3)(cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:677)(cid:520)(cid:546)(cid:546)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:520)(cid:566)(cid:653)(cid:457)(cid:3)(cid:637)(cid:577)(cid:3)(cid:505)(cid:577)(cid:442)(cid:653)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)IT(cid:3)(cid:624)(cid:637)(cid:616)(cid:457)(cid:387)(cid:564)(cid:546)(cid:520)(cid:566)(cid:520)(cid:566)(cid:508)(cid:3)(cid:613)(cid:546)(cid:387)(cid:566)(cid:624)(cid:1239)(cid:3)(cid:677)(cid:515)(cid:520)(cid:442)(cid:515)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:387)(cid:566)(cid:637)(cid:520)(cid:442)(cid:520)(cid:613)(cid:387)(cid:637)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:441)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:3)(cid:457)(cid:505)(cid:718)(cid:442)(cid:520)(cid:457)(cid:566)(cid:442)(cid:520)(cid:457)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)
(cid:520)(cid:564)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:441)(cid:616)(cid:577)(cid:543)(cid:457)(cid:616)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:616)(cid:520)(cid:457)(cid:566)(cid:442)(cid:457)(cid:1245)
FUTURE PRIORITIES
KPIs ALL COMPAR ATIVES HAVE BEEN PRESENTED USING 2018 EXCHANGE R ATES
– Continue the journey of digitising and automating
processes, with a view to improving both efficiency
and control.
– Continue to develop more digitised and individualised
1.9
customer proposition and experience.
– Provide a predictable and sustainable dividend
to Chesnara.
Growth in assets under management
£bn
2.8
2.4
2.1
0.2
(0.2)
2.8
2014
2015
2016
2017
Net client
cashflow
Investment
growth
2018
9.1
9.3
9.3
Economic Value
£m
Cumulative dividends
Reported value
2.7
5.4
IFRS profit
£m
7.5
3.7
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
145.3
183.8
220.4
240.3
227.4
– Continue to develop new solutions and tools to support
Broker assessment rating
the brokers’ value-enhancing customer proposition.
– Continue to deliver compliance with the IDD.
The IDD seeks to improve consumer protection
and transparency within the distribution of
insurance-based products.
– Deliver IFRS 17 implementation plans.
– Continue to focus on writing new business within the
target range.
– Ongoing digitalisation of processes to improve
customer and broker experience.
– Focus on increasing brand awareness.
POLICYHOLDER AVERAGE
INVESTMENT RETURN:
(6.0)%
((cid:268)(cid:346)EDI(cid:268)(cid:137)(cid:3)(cid:268)TOC(cid:182)(cid:3)(cid:195)(cid:4)(cid:260)(cid:182)ET(cid:3)((cid:1116)(cid:1245)(cid:1116))(cid:1360))
3.6
3.7
3.8
3.7
3.8
2014
2015
2016
2017
2018
SOLVENCY RATIO: 176%
12.1
176%
(2.9)
174%
153%
78.8
31 Dec 17
surplus*
Surplus
generation
Occupational pension
market share %
8.3%
7.6%
6.6%
Solvency remains strong at 176%.
Solvency surplus of £12.1m has
been generated in the period.
After the dividend, due to be paid
during 2019, the ratio is 174%.
*As previously reported.
90.9
31 Dec 18
surplus
(pre-div)
88.0
2018
dividend
31 Dec 18
surplus
New business profit
£m
Market shares have
been restated to
better reflect the
market excluding
increments. On
the restated base
our target range
becomes 6.5%
to 10.0%.
6.3
8.7
6.3
11.7
8.9
2016
2017
2018
2014
2015
2016
2017
2018
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
27
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 27
04/04/2019 12:43
STRATEGIC REPORT
(cid:57)U(cid:268)INE(cid:268)(cid:268)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)NET(cid:137)E(cid:260)(cid:184)(cid:4)ND(cid:268)
O(cid:653)(cid:616)(cid:3) D(cid:653)(cid:637)(cid:442)(cid:515)(cid:3) (cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3) (cid:442)(cid:577)(cid:566)(cid:624)(cid:520)(cid:624)(cid:637)(cid:624)(cid:3) (cid:577)(cid:505)(cid:3) (cid:637)(cid:677)(cid:577)(cid:3) (cid:624)(cid:457)(cid:613)(cid:387)(cid:616)(cid:387)(cid:637)(cid:457)(cid:3) (cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:457)(cid:624)(cid:1250)(cid:3) (cid:268)(cid:442)(cid:520)(cid:546)(cid:449)(cid:577)(cid:566)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:346)(cid:387)(cid:387)(cid:616)(cid:449)(cid:1245)(cid:3) (cid:268)(cid:442)(cid:520)(cid:546)(cid:449)(cid:577)(cid:566)(cid:1239)(cid:3) (cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:449)(cid:3) (cid:520)(cid:566)(cid:3) (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1239)(cid:3) (cid:520)(cid:624)(cid:3) (cid:387)(cid:566)(cid:3) (cid:577)(cid:613)(cid:457)(cid:566)(cid:3)
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(cid:441)(cid:616)(cid:387)(cid:566)(cid:449)(cid:3) (cid:520)(cid:566)(cid:3) (cid:637)(cid:515)(cid:457)(cid:3) D(cid:653)(cid:637)(cid:442)(cid:515)(cid:3) (cid:449)(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3) (cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:520)(cid:441)(cid:653)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3) (cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3) (cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3) (cid:564)(cid:387)(cid:616)(cid:543)(cid:457)(cid:637)(cid:1245)(cid:3) (cid:346)(cid:387)(cid:387)(cid:616)(cid:449)(cid:3) (cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:624)(cid:3) (cid:442)(cid:1110)(cid:1109)(cid:1109)(cid:1239)(cid:1109)(cid:1109)(cid:1109)(cid:3) (cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:520)(cid:457)(cid:624)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:520)(cid:624)(cid:3) (cid:520)(cid:566)(cid:3)
(cid:616)(cid:653)(cid:566)(cid:577)(cid:505)(cid:505)(cid:1239)(cid:3)(cid:505)(cid:577)(cid:442)(cid:653)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:505)(cid:718)(cid:442)(cid:520)(cid:457)(cid:566)(cid:637)(cid:3)(cid:387)(cid:449)(cid:564)(cid:520)(cid:566)(cid:520)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:457)(cid:687)(cid:520)(cid:624)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:441)(cid:577)(cid:577)(cid:543)(cid:3)(cid:577)(cid:505)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:1245)(cid:3)
BACKGROUND INFORMATION
INITI(cid:4)TI(cid:345)E(cid:268)(cid:3)(cid:1390)(cid:3)(cid:256)(cid:260)O(cid:123)(cid:260)E(cid:268)(cid:268)(cid:3)IN(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)
C(cid:4)(cid:256)IT(cid:4)(cid:184)(cid:3)(cid:1390)(cid:3)
VALUE
MANAGEMENT
CUSTOMER
OUTCOMES
– Both Scildon and Waard have a
– During 2018, Waard and Scildon paid dividends to Chesnara of £12.9m
common aim to make capital available
to the Chesnara group to fund further
acquisitions or to contribute to the
dividend funding. Whilst their aims are
common, the dynamics by which the
businesses add value differ:
• Waard is in run-off and has the benefit
that the capital requirements reduce
in-line with the attrition of the book.
• As an open business, Scildon’s
capital position does not benefit
from book run-off. It therefore adds
value and creates surplus capital
through writing new business and
by efficient operational management
and capital optimisation.
and £21.7m. Further combined distributions of £8.4m are due in 2019 in
respect of 2018.
– Including the impact of foreign exchange, Scildon has reported an EcV
loss of £30.0m with Waard delivering a profit of £2.3m. The loss in
Scildon is primarily driven by adverse asset valuation movements from
widening credit spreads on corporate and certain government bonds
together with updated mortality assumptions to reflect the latest
industry data.
– Cash utilisation of £10.0m, representing a £7.8m gain from Waard primarily
due to SCR reductions, offset by a cash loss of £17.8m from Scildon.
– IFRS profit of £1.7m reflects a £2.8m profit in Waard offset by a £1.1m
loss in Scildon.
– Progressed a focused plan for Scildon to drive improvements in new
business development, cost management and organisational structure.
– Aligned some functions between the two Dutch businesses to provide
operational efficiencies.
– Great importance is placed on
– Updated the Scildon service desk to enhance the ‘customer journey’
providing customers with high quality
service and positive outcomes.
– Whilst the ultimate priority is the end
customer, Scildon also see the brokers
who distribute their products as being
customers and hence developing
processes to best support their needs
is a key focus.
for IFAs and consumers.
– Scildon has again received an award from Afdiz, the Dutch broker
organisation. In 2018, the business was awarded ‘Best Occupational
Pension Insurer’ and was rated second for term insurance.
– The annual performance research for consumers shows
high scores.
GOVERNANCE
– Waard and Scildon operate in a
– Scildon has aligned its governance and risk management framework
regulated environment and comply
with rules and regulations from both a
prudential and financial conduct point
of view.
to Chesnara practices.
– Scildon strengthened its governance framework during 2018 through
changes in structure and personnel.
– The IFRS 17 project is underway for both companies.
– Implemented GDPR, in line with regulatory requirements, in both
companies.
I
I
S
S
E
N
S
U
B
G
N
I
T
S
X
E
M
O
R
F
E
U
L
A
V
E
S
M
X
A
M
I
I
01
E
L
B
A
T
I
F
O
R
P
H
G
U
O
R
H
T
E
U
L
A
V
E
C
N
A
H
N
E
03
03
I
S
S
E
N
S
U
B
W
E
N
PROFITABLE
NEW BUSINESS
– Scildon primarily sells protection and
individual savings contracts via a
broker-led distribution model. The aim
is to deliver meaningful value growth
from a realistic market share. Having
realistic aspirations regarding volumes
means we are able to adopt a
profitable pricing strategy. New
business also helps the business
maintain scale and hence contributes
to unit cost management.
– Scildon generated new business profits of £1.7m. This is in line with
expectations and shows marginal increases since acquisition but it is not
currently generating sufficient new business profits and this is therefore a
focus of our improvement plans.
– As part of those plans, Scildon successfully launched a new mortgage term
product in 2018, which was well received by the market.
– A Scildon management team is in place which is strategically aligned with
the group, including the appointment of a new Finance Director and interim
Chief Operating Officer.
– Market share for the core protection business is within the 5.0%-10.0%
target range but we have further work to do to strengthen the proposition
and reduce costs.
– The number of policies increased by 4% over the year.
– Scildon updated the group pension offering to maximise value transfers
and premium levels.
28
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 28
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SECTION B
2018 has seen positives for the Dutch division, including dividend payments to Chesnara from both Scildon and
Waard with further dividends to be received during 2019. Waard continues to deliver in line with expectations and
the integration of Scildon into the group has continued in line with its improvement plan, with key steps taken
including key organisational changes and the launch of its new mortgage term product. A senior management
(cid:637)(cid:457)(cid:387)(cid:564)(cid:3)(cid:520)(cid:624)(cid:3)(cid:566)(cid:577)(cid:677)(cid:3)(cid:520)(cid:566)(cid:3)(cid:613)(cid:546)(cid:387)(cid:442)(cid:457)(cid:3)(cid:677)(cid:515)(cid:520)(cid:442)(cid:515)(cid:3)(cid:520)(cid:624)(cid:3)(cid:564)(cid:577)(cid:616)(cid:457)(cid:3)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:457)(cid:508)(cid:520)(cid:442)(cid:387)(cid:546)(cid:546)(cid:688)(cid:3)(cid:387)(cid:546)(cid:520)(cid:508)(cid:566)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:387)(cid:442)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:637)(cid:387)(cid:543)(cid:457)(cid:566)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)
2018 have not been realised in the results thus far and as previously highlighted, there remains further work to do
which is our focus for 2019. Economic conditions in 2018 have impacted results; however, these results do not have
(cid:387)(cid:566)(cid:688)(cid:3)(cid:441)(cid:457)(cid:387)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:577)(cid:566)(cid:508)(cid:577)(cid:520)(cid:566)(cid:508)(cid:3)(cid:676)(cid:520)(cid:457)(cid:677)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:613)(cid:577)(cid:637)(cid:457)(cid:566)(cid:637)(cid:520)(cid:387)(cid:546)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:268)(cid:442)(cid:520)(cid:546)(cid:449)(cid:577)(cid:566)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:1245)
FUTURE PRIORITIES
KPIs ALL COMPARATIVES HAVE BEEN PRESENTED USING 2018 EXCHANGE RATES
– Continue dividends from both businesses to support
the group dividend.
– Continuation of the Scildon improvement plan which
will strengthen future cash generation and value
growth. The plans include:
• Process and value for money improvements, such
as increased levels of ‘straight through’ processing;
• Assessment of IT infrastructure to ensure it is able
to facilitate efficient processes through a simplified
approach with reduced delivery risk; and
• Continual assessment of the business model to
ensure an optimal balance between returns
generated versus solvency capital requirements.
Scildon Economic Value
£m
Reported value
Cumulative dividends
36.8
74.4
74.4
96.6
272.2
244.0
226.6
223.5
171.1
2014
2015
2016
2017
2018
Scildon’s EcV has been impacted in the year
as a result of adverse market conditions,
in particular the widening of spreads. The
business has a track record of delivering
surplus growth which has enabled dividend
distributions to its parent company and
paid its first dividend to Chesnara in 2018(cid:1616)
– Continuing to enhance and develop Scildon’s existing
processes, customer experiences and the underlying
infrastructure.
– Engage with brokers to support the development of
our processes in conjunction with their requirements.
– Regular customer assessment, with the outcome used
to improve Scildon’s service quality.
Client satisfaction rating
7.3
7.5
7.4
7.6
7.7
2014
2015
2016
2017
2018
– The focus during 2019 is to further embed the
governance and risk management framework.
– Deliver IFRS 17 implementation plans.
SOLVENCY RATIO SCILDON: 210% SOLVENCY RATIO WAARD: 665%
231%
(19.6)
*As previously reported.
The charts on the right show that solvency is strong in
both businesses. Scildon has reported a reduction in surplus
during 2018, largely due to increasing spreads reducing
asset values. Waard has generated surplus capital of £5.7m.
After the dividends, due to be paid during 2019, solvency
ratios are 203(cid:1743) and 624(cid:1743) for Scildon and (cid:225)aard respectively(cid:1616)
210%
(5.2)
203%
106.4
31 Dec 17
surplus*
Surplus
generation
86.8
31 Dec 18
surplus
(pre-div)
5.7
665%
(3.2)
483%
81.7
38.2
43.9
624%
40.7
2018
dividend
31 Dec 18
surplus
31 Dec 17
surplus*
Surplus
generation
31 Dec 18
surplus
(pre-div)
2018
dividend
31 Dec 18
surplus
– Management actions are planned as part of the
Scildon term assurance market share %
improvement plans to generate a more commercially
meaningful level of new business profit.
– An objective of the improvement programme is to
deliver cost reductions whilst strengthening the
proposition and maintaining market share.
Scildon new business profit
£m
2.0
1.9
1.7
0.1
5.0
6.6
5.9
7.3
7.6
(3.6)
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
29
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STRATEGIC REPORT
02
(cid:57)U(cid:268)INE(cid:268)(cid:268)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)(cid:4)C(cid:258)UI(cid:260)E(cid:3)(cid:184)I(cid:121)E(cid:3)(cid:1390)(cid:3)(cid:256)EN(cid:268)ION(cid:268)(cid:3)(cid:57)U(cid:268)INE(cid:268)(cid:268)E(cid:268)
(cid:346)(cid:457)(cid:546)(cid:546)(cid:3)(cid:442)(cid:577)(cid:566)(cid:624)(cid:520)(cid:449)(cid:457)(cid:616)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:613)(cid:616)(cid:520)(cid:387)(cid:637)(cid:457)(cid:546)(cid:688)(cid:3)(cid:613)(cid:616)(cid:520)(cid:442)(cid:457)(cid:449)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:564)(cid:387)(cid:520)(cid:566)(cid:637)(cid:387)(cid:520)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:505)(cid:505)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:577)(cid:613)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:564)(cid:577)(cid:449)(cid:457)(cid:546)(cid:1239)(cid:3)(cid:442)(cid:616)(cid:457)(cid:387)(cid:637)(cid:457)(cid:3)(cid:387)(cid:3)
(cid:624)(cid:577)(cid:653)(cid:616)(cid:442)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:457)(cid:566)(cid:515)(cid:387)(cid:566)(cid:442)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:653)(cid:624)(cid:637)(cid:387)(cid:520)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:613)(cid:577)(cid:637)(cid:457)(cid:566)(cid:637)(cid:520)(cid:387)(cid:546)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1245)
HOW WE DELIVER OUR ACQUISITION STRATEGY
– Identify potential deals through an effective network of advisers and
industry associates, utilising both group and divisional management
expertise as appropriate.
– We primarily focus on acquisitions in the UK and Netherlands, although
will consider other territories should the opportunity arise.
– We assess deals applying well established criteria which consider the
impact on cash generation and Economic Value under best estimate and
stressed scenarios.
HOW WE ASSESS DEALS
– We work cooperatively with regulators.
– The financial benefits are viewed in the context of the impact the deal will
have on the enlarged group’s risk profile.
– Transaction risk is minimised through stringent risk-based due diligence
procedures and the senior management team’s acquisition experience and
positive track record.
– We fund deals with a combination of debt, equity or cash depending on the
size and cash flows of each opportunity.
Cash
generation
Value
optimisation
Customer
outcomes
Risk
appetite
– Collectively our future acquisitions must be suitably cash generative to continue to fund the Chesnara dividend strategy.
– Acquisitions are required to have a positive impact on the Economic Value per share under best estimate and certain
more adverse scenarios.
– Acquisitions must ensure we protect, or ideally enhance, customer interests.
– Acquisitions should normally align with the group’s documented risk appetite. If a deal is deemed to sit outside our risk appetite
the financial returns must be suitably compelling.
RISKS
WHAT WE CAN DO ABOUT THIS
– There is the risk that if a lack of suitable acquisition opportunities come to
– Operating in three territories increases our options thereby reducing the risk
market at a realistic valuation, the investment case for Chesnara diminishes
over time.
that no further value adding deals are done.
– A broader target market also increases the potential for deals that meet our
– There is the risk that we make an inappropriate acquisition that adversely
strategic objectives.
impacts the financial strength of the group.
– Our acquisition strategy includes both UK and non-UK markets.
– Flexibility over the timing of subsequent divisional dividend flows provide
an element of management control over the sterling value of cash inflows.
– Each acquisition is supported by a financial deal assessment model which
includes high quality financial analysis. This is reviewed and challenged by
management and the board,mitigating the risk of a bad deal being pursued.
ACQUISITION OUTLOOK
– In the UK, in recent times we have seen a gradual increase in closed
book market activity which, in our view, is driven in part at a global level by
regulatory developments and, at a company level, strategic developments.
We expect these drivers to continue to be relevant going forward.
– Regarding the Netherlands, we have also seen a gradual increase in
market activity which we are well positioned to take advantage of, given
our scale and presence. Again, regulatory and strategic developments
are the drivers, and we expect these themes to continue into the future.
– We continue to assess opportunities within Western Europe that are
outside of Chesnara’s current territories. All opportunities and territories
considered are assessed on the basis that these do not compromise
the well-established Chesnara acquisition assessment model, as well as
ensuring that these fit within Chesnara’s governance framework and
that they are able to support our strategy and business model. There has
been a reasonable level of market activity in Western Europe.
– The environment in which European life insurance companies operate
continues to increase in complexity. For example, ‘IFRS 17 Insurance
Contracts’ was issued in 2017, which is a fundamental overhaul of the
way in which insurance contracts are accounted for. We believe this
additional complexity will potentially drive further consolidation as
institutions seek to remove operational complexity and potentially release
capital or generate funds from capital intensive life and pension businesses.
– Chesnara is a well-established life and pensions consolidator with a proven
track record. Our financial foundations are strong, we have an established
and stringent acquisition assessment model, and we continue to have strong
support from shareholders and lending institutions to progress our acquisition
strategy. We believe our operating model has the flexibility to accommodate
a wide range of potential target books. Our good network of contacts in
the adviser community, who understand the Chesnara acquisition model,
ensures we are aware of most viable opportunities in the UK and Western
Europe. With this in mind, we are confident that we are well positioned
to continue the successful acquisition track record in the future.
– In April 2018 we converted our existing debt arrangement with RBS into
a syndicated facility. This will provide access to higher levels of debt
financing from a wider panel of lenders, which in turn will enable us to
fulfill our appetite of financing future deals up to the maximum levels
of gearing set out in our debt and leverage policy, without being restricted
by the lending capacity of one individual institution. This facility enables
Chesnara to access an increased level of funds efficiently, which in turn
supports our acquisition strategy.
30
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION B
C(cid:4)(cid:256)IT(cid:4)(cid:184)(cid:3)(cid:195)(cid:4)N(cid:4)(cid:123)E(cid:195)ENT(cid:3)(cid:1235)(cid:3)(cid:268)O(cid:184)(cid:345)ENC(cid:357)(cid:3)II
WHAT IS SOLVENCY AND CAPITAL SURPLUS?
(cid:1269)(cid:3) (cid:268)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)(cid:520)(cid:624)(cid:3)(cid:387)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:515)(cid:577)(cid:677)(cid:3)(cid:564)(cid:653)(cid:442)(cid:515)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:577)(cid:564)(cid:613)(cid:387)(cid:566)(cid:688)(cid:3)(cid:457)(cid:687)(cid:442)(cid:457)(cid:457)(cid:449)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:546)(cid:457)(cid:676)(cid:457)(cid:546)(cid:3)(cid:577)(cid:505)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)(cid:520)(cid:637)(cid:3)(cid:520)(cid:624)(cid:3)(cid:616)(cid:457)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:515)(cid:577)(cid:546)(cid:449)(cid:1245)
(cid:1269)(cid:3) T(cid:515)(cid:457)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:577)(cid:564)(cid:613)(cid:387)(cid:566)(cid:688)(cid:3)(cid:520)(cid:624)(cid:3)(cid:616)(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:387)(cid:624)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:1286)O(cid:677)(cid:566)(cid:3)(cid:121)(cid:653)(cid:566)(cid:449)(cid:624)(cid:1287)(cid:3)(cid:1263)O(cid:121)(cid:1264)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:637)(cid:515)(cid:520)(cid:624)(cid:3)(cid:520)(cid:624)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:442)(cid:442)(cid:577)(cid:616)(cid:449)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)
(cid:616)(cid:653)(cid:546)(cid:457)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:268)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)II(cid:3)(cid:616)(cid:457)(cid:508)(cid:520)(cid:564)(cid:457)(cid:1245)
(cid:1269)(cid:3) T(cid:515)(cid:457)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)(cid:616)(cid:457)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:520)(cid:624)(cid:3)(cid:387)(cid:546)(cid:624)(cid:577)(cid:3)(cid:449)(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:268)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)II(cid:3)(cid:616)(cid:653)(cid:546)(cid:457)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:616)(cid:520)(cid:564)(cid:387)(cid:616)(cid:688)(cid:3)(cid:616)(cid:457)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:520)(cid:624)(cid:3)(cid:616)(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:387)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)
(cid:624)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)(cid:616)(cid:457)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:1263)(cid:268)C(cid:260)(cid:1264)(cid:1245)
(cid:1269)(cid:3)(cid:3)(cid:268)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)(cid:520)(cid:624)(cid:3)(cid:457)(cid:687)(cid:613)(cid:616)(cid:457)(cid:624)(cid:624)(cid:457)(cid:449)(cid:3)(cid:387)(cid:624)(cid:3)(cid:457)(cid:520)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:387)(cid:3)(cid:616)(cid:387)(cid:637)(cid:520)(cid:577)(cid:1238)(cid:3)OF/SCR %(cid:1250)(cid:3)(cid:577)(cid:616)(cid:3)(cid:387)(cid:624)(cid:3)(cid:387)(cid:566)(cid:3)(cid:387)(cid:441)(cid:624)(cid:577)(cid:546)(cid:653)(cid:637)(cid:457)(cid:3)(cid:624)(cid:653)(cid:616)(cid:613)(cid:546)(cid:653)(cid:624)(cid:1238)(cid:3)OF less SCR(cid:1245)
SOLVENCY
SURPLUS
CASH
GENERATION
Subject to ensuring other constraints are managed, surplus capital is a useful proxy measure for
liquid resources available to fund items such as dividends, acquisitions or business investment.
As such, Chesnara defines cash generation as the movement in surplus, above management
buffers, during the period.
MORE ABOUT OWN FUNDS
MORE ABOUT THE CAPITAL REQUIREMENT
WHAT ARE OWN FUNDS?
WHAT IS CAPITAL REQUIREMENT?
A valuation which reflects the net assets of the company and includes a
value for future profits expected to arise from in-force policies.
The Solvency Capital Requirement can be calculated using a ‘standard
formula’ or ‘internal model’. Chesnara adopts the ‘standard formula’.
The Own Funds valuation is deemed to represent a
commercially meaningful figure with the exception of:
Contract boundaries
Solvency II rules do not allow for the recognition of future cash flows
on certain policies despite a high probability of receipt.
Risk margin
The Solvency II rules require a ‘risk margin’ liability which is deemed
to be above the realistic cost.
Restricted with profit surpluses
Surpluses in the group’s with-profit funds are not recognised in
Solvency II Own Funds despite their commercial value.
We define Economic Value (EcV) as being the Own Funds adjusted for
the items above. As such our Own Funds and EcV have many common
characteristics and tend to be impacted by the same factors.
Transitional measures, introduced as part of the long-term guarantee
package when Solvency II was introduced, are available to temporarily
increase Own Funds. Chesnara does not take advantage of such measures.
The standard formula requires capital to be
held against a range of risk categories.
The chart to the right shows the categories
and their relative weighting for Chesnara:
Total market risk
Counterparty default risk
Total life underwriting risk
Total health underwriting risk
Operational risk
There are three levels of capital requirement:
Minimum dividend paying requirement
The board sets a minimum solvency level above the SCR which means
a more prudent level is applied when making dividend decisions.
Solvency capital requirement
Amount of capital required to withstand a 1 in 200 event. The SCR
acts as an intervention point for supervisory action including cancellation
or the deferral of distributions to investors.
Minimum capital requirement (MCR)
The MCR is between 45% and 25% of the SCR. At this point
Chesnara would need to submit a recovery plan which if not effective
within 3 months may result in authorisation being withdrawn.
HOW DO OWN FUNDS CHANGE?
HOW DOES THE SCR CHANGE?
Own Funds (and EcV) are sensitive to economic conditions. In general,
positive equity markets and increasing yields lead to OF growth and vice
versa. Other factors that improve Own Funds include writing profitable
new business, reducing the expense base and improvements to lapse rates.
Given the largest component of Chesnara’s SCR is market risk, changes
in investment mix or changes in the overall value of our assets has the
greatest impact on the SCR. For example, equity assets require more capital
than low risk bonds. Also, positive investment growth in general creates
an increase in SCR. Book run-off will tend to reduce SCR but this will be
partially offset by an increase as a result of new business.
CHESNARA GROUP OWN FUNDS
CHESNARA GROUP SCR
£m
553
615
31 Dec 2018
31 Dec 2017
Group solvency
ratio
Group solvency
surplus
£m
31 Dec 2018
31 Dec 2017
158%
146%
£202.4m
£193.4m
350
422
31 Dec 2018
31 Dec 2017
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
31
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04/04/2019 12:43
STRATEGIC REPORT
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)C(cid:4)(cid:256)IT(cid:4)(cid:184)(cid:3)(cid:195)(cid:4)N(cid:4)(cid:123)E(cid:195)ENT(cid:3)(cid:1235)(cid:3)(cid:268)O(cid:184)(cid:345)ENC(cid:357)(cid:3)II(cid:3)(CONTINUED)
(cid:346)(cid:457)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:677)(cid:457)(cid:546)(cid:546)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:520)(cid:624)(cid:457)(cid:449)(cid:3)(cid:387)(cid:637)(cid:3)(cid:441)(cid:577)(cid:637)(cid:515)(cid:3)(cid:387)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:653)(cid:441)(cid:624)(cid:520)(cid:449)(cid:520)(cid:387)(cid:616)(cid:688)(cid:3)(cid:546)(cid:457)(cid:676)(cid:457)(cid:546)(cid:1239)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:677)(cid:457)(cid:3)(cid:515)(cid:387)(cid:676)(cid:457)(cid:3)(cid:566)(cid:577)(cid:637)(cid:3)(cid:653)(cid:624)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:688)(cid:3)(cid:457)(cid:546)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:546)(cid:577)(cid:566)(cid:508)(cid:1272)(cid:637)(cid:457)(cid:616)(cid:564)(cid:3)
(cid:508)(cid:653)(cid:387)(cid:616)(cid:387)(cid:566)(cid:637)(cid:457)(cid:457)(cid:3)(cid:613)(cid:387)(cid:442)(cid:543)(cid:387)(cid:508)(cid:457)(cid:1245)
SOLVENCY POSITION
SOLVENCY SURPLUS MOVEMENT
£m
Chesnara
(cid:123)(cid:616)(cid:577)(cid:653)(cid:613)
158%
168
35
146%
151
42
553
350
615
422
£m
14.3
5.2
(20.4)
49.5
193.4
(7.9)
(0.8)
(31.0)
202.4
Divisional movement - £48.6m
31 Dec 2018
31 Dec 2017
Group
surplus
31 Dec 2017
CA
Movestic Waard
Scildon Chesnara/
consol adj
Exchange
rates
Dividends
Group
surplus
31 Dec 2018
Surplus: The solvency position of the group has improved, from 146% to
158%. The group now has £168.0m of surplus over and above the internal
capital management policy, compared to £151.2m at the end of 2017. The
growth in surplus has arisen from a reduction in capital requirements, which
have fallen more than the reduction in Own Funds.
Own Funds: Own Funds have fallen by £62.6m. This is driven by falls in equity
markets during the year, in particular during Q418, which had a significant impact
on Movestic and CA. In addition, rising spreads have reduced the value of the
bond holdings, which particularly affects Scildon. The depreciation of the Swedish
krona has also caused a reduction in the sterling value of the Swedish business.
Dividends: The closing solvency position is stated after deducting the
£20.2m proposed dividend (31 December 2017: £19.6m), and also reflects
the payment of an interim dividend of £10.8m.
SCR: The SCR has fallen by £72.2m this year. The key movements underlying
this are reductions in equity risk, spread risk, currency risk and lapse risk.
The graphs below present a divisional view of the solvency position which may differ to the position of the individual insurance company(ies) within that division. Note that prior year figures have
been restated using 31 December 2018 exchange rates.
UK
£m
130%
13
26
130%
10
19
126
97
167
128
31 Dec 2018
31 Dec 2017
NETHERLANDS –
WAARD
£m
Surplus: £9.8m above board’s capital
management policy.
SWEDEN
Dividends: The solvency position is
stated after deducting £59.0m
proposed dividend (2017: £32.0m).
Own Funds: Increased by £18.0m
(pre-dividend) due to the transfer of
£26.8m capital from WP funds, partially
offset by negative economic variances.
SCR: Reduced by £31.5m, driven by
market risk falls. Equity risk has reduced,
due to equity market falls (which also
has knock-on impacts on currency and
lapse risk). Spread risk also reduced
due to falls in corporate bond exposure
and improvements in asset data.
£m
174%
153%
64
24
47
29
207
119
221
144
31 Dec 2018
31 Dec 2017
Surplus: £32.9m above board’s
capital management policy.
NETHERLANDS –
SCILDON
Dividends: The solvency position is
stated after deducting £3.2m
proposed dividend (2017: £13.0m).
£m
624%
483%
48
33
8
8
49
29
10
10
31 Dec 2018
31 Dec 2017
Own Funds: Positive growth of
£3.5m (pre-dividend), due to
expected returns and changes in
assumed mortality rates.
SCR: Reduced by £2.2m, due to a
reduction in counterparty default risk
following Chesnara dividend payment,
which reduced cash holdings, and
reduced underwriting risk following
change in demographic assumptions.
203%
2
79
231%
25
82
161
79
190
82
31 Dec 2018
31 Dec 2017
KEY
Own Funds (Post Div)
SCR
Buffer
Surplus above buffer
32
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
Surplus: £64.2m above board’s
capital management policy.
Dividends: The solvency position is
stated after deducting £2.9m proposed
dividend (2017: £2.8m).
Own Funds: Reduced by £17.8m
(pre-dividend). Driven by falls in
investment returns (in particular
equities during Q4), strengthening of
assumptions (operating expense and
transfer rates) and the loss in GBP
caused by the relative depreciation of
the Swedish krona against sterling.
SCR: Capital requirements have fallen
by £25.0m. Market risk has fallen, driven
by the equity market falls during the year.
Surplus: £2.5m above board’s capital
management policy.
Dividends: The solvency position is
stated after deducting £5.2m
proposed dividend (2017: £22.2m).
Own Funds: Reduction of £21.8m
(pre-dividend), principally due to rising
spreads and strengthening of the
mortality assumptions.
SCR: Decreased by £2.3m. Spread
risk has fallen (due to rising spreads
reducing corporate bond values) and
lapse risk has reduced (due to higher
mortality assumptions reducing profits).
This is offset to some extent by
increases in currency risk and mortality
risk, in addition to changing tax rates
having an adverse impact on capital
requirements.
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 32
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SECTION B
C(cid:4)(cid:256)IT(cid:4)(cid:184)(cid:3)(cid:195)(cid:4)N(cid:4)(cid:123)E(cid:195)ENT(cid:3)(cid:1235)(cid:3)(cid:268)EN(cid:268)ITI(cid:345)ITIE(cid:268)
T(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3)(cid:624)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:387)(cid:566)(cid:3)(cid:441)(cid:457)(cid:3)(cid:387)(cid:505)(cid:505)(cid:457)(cid:442)(cid:637)(cid:457)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:387)(cid:3)(cid:566)(cid:653)(cid:564)(cid:441)(cid:457)(cid:616)(cid:3)(cid:577)(cid:505)(cid:3)(cid:505)(cid:387)(cid:442)(cid:637)(cid:577)(cid:616)(cid:624)(cid:3)(cid:577)(cid:676)(cid:457)(cid:616)(cid:3)(cid:637)(cid:520)(cid:564)(cid:457)(cid:1245)(cid:3)(cid:4)(cid:624)(cid:3)(cid:387)(cid:3)(cid:442)(cid:577)(cid:566)(cid:624)(cid:457)(cid:615)(cid:653)(cid:457)(cid:566)(cid:442)(cid:457)(cid:1239)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3)E(cid:442)(cid:345)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)
(cid:442)(cid:387)(cid:624)(cid:515)(cid:3) (cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:1239)(cid:3) (cid:441)(cid:577)(cid:637)(cid:515)(cid:3) (cid:577)(cid:505)(cid:3) (cid:677)(cid:515)(cid:520)(cid:442)(cid:515)(cid:3) (cid:387)(cid:616)(cid:457)(cid:3) (cid:449)(cid:457)(cid:616)(cid:520)(cid:676)(cid:457)(cid:449)(cid:3) (cid:505)(cid:616)(cid:577)(cid:564)(cid:3) (cid:637)(cid:515)(cid:457)(cid:3) (cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3) (cid:624)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3) (cid:442)(cid:387)(cid:546)(cid:442)(cid:653)(cid:546)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:1239)(cid:3) (cid:387)(cid:616)(cid:457)(cid:3) (cid:387)(cid:546)(cid:624)(cid:577)(cid:3) (cid:624)(cid:457)(cid:566)(cid:624)(cid:520)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3) (cid:637)(cid:577)(cid:3) (cid:637)(cid:515)(cid:457)(cid:624)(cid:457)(cid:3) (cid:505)(cid:387)(cid:442)(cid:637)(cid:577)(cid:616)(cid:624)(cid:1245)
The diagram below provides some insight into the immediate and longer-term impact of certain sensitivities that the group is exposed to, covering solvency,
cash generation and Economic Value. As can be seen, EcV tends to take the ‘full force’ of adverse conditions whereas cash generation is often protected in the
short-term and, to a certain extent, in the longer-term due to compensating impacts on our required capital.
Solvency surplus
Cash generation
EcV
Impacts
Sensitivity scenario
Immediate impact
5 year impact
Immediate impact
20% sterling appreciation
25% equity fall
25% equity rise
10% equity fall
10% equity rise
1% interest rate rise
50bps credit spread rise
25bps swap rate fall
10% mass lapse
10% expense rise
+ 1% inflation rise
10% mortality increase
INSIGHT*
£0m to £15m
£15m to £30m
£30m to £50m
£50m to £90m
£90m to £140m
KEY
Positive impact
Negative impact
20% sterling appreciation
A material sterling appreciation reduces the translated value of surplus in our
overseas divisions, and hence has an immediate impact on the group’s
solvency surplus and available cash. It also reduces the value of projected
Own Funds growth in our overseas divisions and also reduces the value of
overseas investments in CA.
Equity sensitives
The equity fall sensitivities cause both the Own Funds and SCR to fall, as the
value of the funds exposed to risk is lower. The reduction in SCR is smaller
than Own Funds, resulting in an immediate impact on surplus. Conversely, in
an equity rise, the Own Funds and SCR both rise. The extent to which the
SCR increase offsets the Own Funds movement depends on the stress
applied. The impacts are not symmetrical due to the use of management
actions and differences in the application of tax depending on the direction of
the stress. The EcV impacts are more intuitive as they are more directly linked
to the Own Funds impact. CA and Movestic contribute the most due to their
large amounts of unit-linked business.
1% interest rate rise
An interest rate rise is generally positive across the group. CA, Movestic
and Scildon all contribute towards the total group cash generation impact.
50bps credit spread rise
A credit spread rise has an adverse impact on surplus and future cash
generation, particularly in Scildon due to the corporate bond holdings that
form part of the asset portfolios backing non-linked insurance liabilities. The
impact on the other divisions is less severe.
25bps swap rate fall
This sensitivity measures the impact of a fall in the swap discount curve with
no change in the value of assets. The result is that liability values increase in
isolation. The most material impacts are on CA and Scildon due to the size of
the non-linked book.
10% mass lapse
This sensitivity has a small impact on surplus as the reduction in Own Funds is
largely offset by the SCR fall. However, with fewer policies on the books there
is less potential for future profits. The division most affected is Movestic; the
loss in future fee income following a mass lapse hits Own Funds by more than
the associated reduction in SCR.
10% expense rise + 1% inflation rise
The expense sensitivity hits the solvency position immediately as the increase
in future expenses and inflation is capitalised into the balance sheet.
10% mortality increase
This sensitivity has an adverse impact on surplus and cash generation,
particularly for Scildon due to their term products.
*BASIS OF PREPARATION ON REPORTING
Although it is not a precise exercise, the general aim is that the sensitivities
modelled are deemed to be broadly similar (with the exception that the
10% equity movements are naturally more likely to arise) in terms of
likelihood. Whilst the sensitivities provide a useful guide, in practice, how
our results react to changing conditions is complex and the exact level of
impact can vary due to the interactions of events and starting position.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
33
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 33
04/04/2019 12:43
STRATEGIC REPORT
(cid:121)IN(cid:4)NCI(cid:4)(cid:184)(cid:3)(cid:260)E(cid:345)IE(cid:346)
T(cid:515)(cid:457)(cid:3)(cid:543)(cid:457)(cid:688)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:520)(cid:566)(cid:449)(cid:520)(cid:442)(cid:387)(cid:637)(cid:577)(cid:616)(cid:624)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:387)(cid:3)(cid:616)(cid:457)(cid:720)(cid:457)(cid:442)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:515)(cid:577)(cid:677)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:515)(cid:387)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:505)(cid:577)(cid:616)(cid:564)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:3)(cid:449)(cid:457)(cid:546)(cid:520)(cid:676)(cid:457)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:637)(cid:515)(cid:616)(cid:457)(cid:457)(cid:3)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:457)(cid:508)(cid:520)(cid:442)(cid:3)
(cid:577)(cid:441)(cid:538)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:624)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)(cid:3)(cid:616)(cid:457)(cid:624)(cid:653)(cid:546)(cid:637)(cid:624)(cid:3)(cid:616)(cid:457)(cid:720)(cid:457)(cid:442)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:520)(cid:564)(cid:613)(cid:387)(cid:442)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:637)(cid:688)(cid:3)(cid:505)(cid:387)(cid:546)(cid:546)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:577)(cid:566)(cid:449)(cid:3)(cid:613)(cid:616)(cid:520)(cid:442)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:624)(cid:624)(cid:653)(cid:616)(cid:457)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:677)(cid:387)(cid:624)(cid:3)(cid:677)(cid:520)(cid:637)(cid:566)(cid:457)(cid:624)(cid:624)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)
(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:1245)(cid:3)
I(cid:121)(cid:260)(cid:268)(cid:3)(cid:256)(cid:260)E(cid:1267)T(cid:4)(cid:356)(cid:3)(cid:256)(cid:260)O(cid:121)IT(cid:3)
£27.0M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1117)(cid:1118)(cid:1245)(cid:1115)M
TOT(cid:4)(cid:184)(cid:3)CO(cid:195)(cid:256)(cid:260)E(cid:137)EN(cid:268)I(cid:345)E(cid:3)INCO(cid:195)E
£23.7M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1117)(cid:1115)(cid:1245)(cid:1118)M
Further detail on page 36
50.6
28. 2
What is it?
Presentation of the results in accordance with International Financial
Reporting Standards (IFRS) aims to recognise the profit arising from the
longer-term insurance and investment contracts over the life of the policy.
Highlights
£m
CA
Movestic
Waard
Scildon
2018
2017
Group
& consol
adj
Profit on
acquisition
Taxation
Forex
& other*
Why is it important?
IFRS profit is a statutory measure used both internally and by our external
stakeholders in assessing the performance of the business. IFRS profit is
an indicator of how we are performing against our stated strategic objective
of ‘maximising value from the existing business’ and can also be impacted
by one-off gains arising from delivering against our stated objective of
‘acquiring life and pensions businesses’. Whilst the IFRS results form the
core of reporting and hence retain prominence as a key financial performance
metric, there is a general acceptance that the IFRS results in isolation do
not adequately recognise the wider financial performance of a typical life
and pensions business.
Risks
The IFRS profit can be affected by a number of our principal risks and
uncertainties as set out on pages 42 to 45. In particular, volatility in equity
markets and bond yields can result in volatility in the IFRS pre-tax profit, and
foreign currency fluctuations can affect total comprehensive income. The
IFRS results of Scildon are potentially relatively volatile, in part, due to the
different approach used by the division for valuing assets and liabilities, as
permitted under IFRS 4.
18.4
20. 3
9. 3
9.8
3. 5
5. 2
_
8. 5
(0. 5)
(1.1)
(12 .9)(14.7)
(3.0)
(11. 2)
*includes other comprehensive income
– IFRS pre-tax profit of £27.0m is significantly lower than in the prior year,
owing largely to economic losses in the closing months of 2018 and the
profit on the acquisition of Scildon that was reported in 2017.
– The performance in CA is the major contributor to the group result.
– Operating profits of £42.5m are the foundation of the result, demonstrating
the resilience and stability of the underlying business, offset in part by
economic losses, driven by markets conditions.
– Total comprehensive income includes a small foreign exchange loss of
£0.8m (2017: £8.3m gain) predominantly relating to sterling’s appreciation
against the Swedish krona.
(cid:123)(cid:260)OU(cid:256)(cid:3)C(cid:4)(cid:268)(cid:137)(cid:3)(cid:123)ENE(cid:260)(cid:4)TION(cid:3)
£47.8M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1111)(cid:1117)(cid:1245)(cid:1115)M
DI(cid:345)I(cid:268)ION(cid:4)(cid:184)(cid:3)C(cid:4)(cid:268)(cid:137)(cid:3)(cid:123)ENE(cid:260)(cid:4)TION
£63.9M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1117)(cid:1115)(cid:1245)(cid:1116)M
Further detail on page 37
What is it?
Cash generation is calculated as being the movement in surplus own funds
over the internally required capital. The internally required capital is
determined with reference to the group’s capital management policies,
which have Solvency II rules at their heart. Cash generation is used by the
group as a measure of assessing how much dividend potential has been
generated, subject to ensuring other constraints are managed.
Highlights
£m
18.1
55.8
7.8
(17.8)
63.9
(16.1)
47.8
Why is it important?
Cash generation is a key measure, because it is the net cash flows to Chesnara
from its life and pensions businesses which support Chesnara’s dividend-paying
capacity and acquisition strategy. Cash generation can be a strong indicator of
how we are performing against our stated objective of ‘maximising value from
the existing business’. However, our cash generation is always managed in the
context of our stated value of maintaining strong solvency positions within the
regulated entities of the group.
Risks
The ability of the underlying regulated subsidiaries within the group to
generate cash is affected by a number of our principal risks and uncertainties
as set out on pages 42 to 45. Whilst cash generation is a function of the
regulatory surplus, as opposed to the IFRS surplus, they are impacted by
similar drivers, and therefore factors such as yields on fixed interest securities
and equity and property performance contribute significantly to the level of
cash generation within the group.
UK
Sweden
Netherlands
Waard
Netherlands
Scildon
Divisional
cash
generation
Other group
activities
Group cash
generation
Divisional cash generation
– Significant cash generation from the UK, with strong contributions again
from Movestic and Waard. Adverse economic conditions were the primary
basis for the reduction in Scildon’s Own Funds and subsequent negative
cash result.
– The result includes the non-recurring benefit of a £26.8m capital transfer
from restricted with profit funds in the UK.
Group cash generation
– Total group cash generation includes the impact of other group activities,
primarily the impact of group expenses on own funds and changes to
capital requirements upon consolidation of divisions.
– Group cash generation in 2017 included the negative impact of the
completion of the Legal & General Nederland acquisition (£55.3m).
34
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 34
05/04/2019 10:58
SECTION B
T(cid:515)(cid:457)(cid:624)(cid:457)(cid:3)(cid:637)(cid:677)(cid:577)(cid:3)(cid:613)(cid:387)(cid:508)(cid:457)(cid:624)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:449)(cid:457)(cid:3)(cid:387)(cid:3)(cid:1286)(cid:624)(cid:566)(cid:387)(cid:613)(cid:624)(cid:515)(cid:577)(cid:637)(cid:1287)(cid:3)(cid:577)(cid:505)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:543)(cid:457)(cid:688)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:564)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:457)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:577)(cid:564)(cid:457)(cid:3)(cid:520)(cid:566)(cid:624)(cid:520)(cid:508)(cid:515)(cid:637)(cid:3)(cid:520)(cid:566)(cid:637)(cid:577)(cid:3)(cid:677)(cid:515)(cid:387)(cid:637)(cid:1287)(cid:624)(cid:3)(cid:449)(cid:616)(cid:520)(cid:676)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:577)(cid:653)(cid:637)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:520)(cid:566)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)(cid:1245)(cid:3)(cid:121)(cid:653)(cid:616)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:387)(cid:566)(cid:387)(cid:546)(cid:688)(cid:624)(cid:520)(cid:624)(cid:3)(cid:442)(cid:387)(cid:566)(cid:3)(cid:441)(cid:457)(cid:3)(cid:505)(cid:577)(cid:653)(cid:566)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)(cid:613)(cid:387)(cid:508)(cid:457)(cid:624)(cid:3)(cid:1112)(cid:1115)(cid:3)(cid:637)(cid:577)(cid:3)(cid:1112)(cid:1118)(cid:1245)
ECONO(cid:195)IC(cid:3)(cid:345)(cid:4)(cid:184)UE(cid:3)(EC(cid:345))(cid:3)
£626.1M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1116)(cid:1111)(cid:1112)(cid:1245)(cid:1110)M
Further detail on page 39
What is it?
Economic Value (EcV) was introduced following the introduction of Solvency II at the start of
2016, with EcV being derived from Solvency II Own Funds. Conceptually, EcV is broadly similar
to EEV in that both reflect a market-consistent assessment of the value of existing insurance
business, plus adjusted net asset value of the non-insurance business within the group.
Highlights
£m
723.1
(60.9)
(30.4)
(5.8)
626.1
Why is it important?
EcV aims to reflect the market-related value of in-force business and net assets of the
non-insurance business and hence is an important reference point by which to assess
Chesnara’s value. A life and pensions group may typically be characterised as trading at a
discount or premium to its Economic Value. Analysis of EcV provides additional insight into
the development of the business over time.
The EcV development of the Chesnara group over time can be a strong indicator of how we
have delivered to our strategic objectives, in particular the value created from acquiring life
and pensions businesses and enhancing our value through writing profitable new business.
It ignores the potential of new business to be written in the future (the franchise value of our
Swedish and Dutch businesses) and the value of the company’s ability to acquire further
businesses.
Risks
The Economic Value of the group is affected by economic factors such as equity and
property markets and yields on fixed interest securities. In addition, the EcV position of the
group can be materially affected by exchange rate fluctuations. For example a 20.0%
weakening of the Swedish krona and euro against sterling would reduce the EcV of the group
by 14.7%, based on the composition of the group’s EcV at 31 December 2018.
2017
Group EcV
EcV
earnings
Dividends
Forex
2018
Group EcV
– EcV fell by 13.4% to £626.1m during the year.
– Of this reduction, £60.9m was attributable to an earnings loss,
primarily a consequence of adverse economic conditions with
falling equity values and widening bond spreads. However,
an adverse operating result has also contributed to the loss.
– The movement in EcV since the start of the year includes
the impact of the payment of the final 2017 and interim
2018 dividends.
– Foreign exchange losses arising on re-translating of the
Dutch and Swedish divisions have contributed to the overall
reduction, primarily representing the strengthening of sterling
against the Swedish krona since the start of the year.
ECV EARNINGS
£(60.9)M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1110)(cid:1112)(cid:1118)(cid:1245)(cid:1114)M (includes £65.4m gain on acquisition)
Further detail on page 38
What is it?
In recognition of the longer-term nature of the group’s insurance and investment contracts,
supplementary information is presented that provides information on the Economic Value of
our business.
Highlights
£m
Underlying operating earnings
(0.0)
Material other operating items
(22.8)
The principal underlying components of the Economic Value earnings are:
– The expected return from existing business (being the effect of the unwind of the rates used
to discount the value in-force);
Economic earnings
(49.7)
– Value added by the writing of new business;
– Variations in actual experience from that assumed in the opening valuation;
– The impact of restating assumptions underlying the determination of expected cash flows; and
– The impact of acquisitions.
Why is it important?
By recognising the market-related value of in-force business (in-force value), a different
perspective is provided in the performance of the group and on the valuation of the business.
Economic Value earnings are an important KPI as they provide a longer-term measure of the
value generated during a period. The EcV earnings of the group can be a strong indicator of
how we have delivered against all three of our core strategic objectives.
This includes new business profits generated from writing profitable new business, EcV profit
emergence from our existing businesses, and the Economic Value impact of acquisitions.
Risks
Other
11.7
Total EcV earnings
(60.9)
– An EcV loss of £60.9m was incurred during the year.
– The underlying operating performance was nil, with
positive mortality experience offset by adverse expense
and lapse results.
– Material other operating items primarily relates to the
strengthening of mortality assumptions in Scildon.
– Economic losses represent the largest component of the
The EcV earnings of the group can be affected by a number of factors, including those
EcV loss, driven by equity falls and rising spreads.
highlighted within our principal risks and uncertainties and sensitivities analysis as set out on
pages 42 to 45. In addition to the factors that affect the IFRS pre-tax profit and cash generation
of the group, the EcV earnings can be more sensitive to other factors such as the expense
base and persistency assumptions. This is primarily due to the fact that assumption changes
in EcV affect our long-term view of the future cash flows arising from our books of business.
– EcV earnings in the prior year benefitted from a one off gain
of £65.4m arising as a result of the completion of the
acquisition of Legal & General Nederland.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
35
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 35
04/04/2019 12:43
STRATEGIC REPORT
(cid:121)IN(cid:4)NCI(cid:4)(cid:184)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)I(cid:121)(cid:260)(cid:268)
I(cid:121)(cid:260)(cid:268)(cid:3)(cid:256)(cid:260)E(cid:1267)T(cid:4)(cid:356)(cid:3)(cid:256)(cid:260)O(cid:121)IT(cid:3)
£27.0M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1117)(cid:1118)(cid:1245)(cid:1115)M
IFRS TOTAL COMPREHENSIVE INCOME
£23.7M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1117)(cid:1115)(cid:1245)(cid:1118)M
Executive summary
The group IFRS results reflect the natural dynamics of the segments of the
group, which can be characterised in three major components:
(1) Stable core: At the heart of surplus, and hence cash generation, are the
core CA (excluding the S&P book) and Waard Group segments. The
requirements of these books are to provide a predictable and stable platform
for the financial model and dividend strategy. As closed books, the key is to
sustain this income source as effectively as possible. The IFRS results below
show that the stable core continues to deliver against these requirements.
2) Variable element: Included within the CA segment is the S&P book.
This can bring an element of short-term earnings volatility to the group, with
the results being particularly sensitive to investment market movements due
to product guarantees. The IFRS results of Scildon are potentially relatively
volatile although this is, in part, due to reserving methodology rather than
‘real world’ value movements.
(3) Growth operation: The long-term financial models of Movestic and
Scildon are based on growth, with levels of new business and premiums
from existing business being targeted to more than offset the impact of
policy attrition, leading to a general increase in assets under management
and, hence, management fee income.
IFRS results The financial dynamics of Chesnara, as described above, are
reflected in the following IFRS results:
CA
Movestic
Waard Group
Scildon
Chesnara
Consolidation adjustments
Profit before tax and profit on acquisition
Profit on acquisition
Profit before tax
Tax
Profit after tax
Foreign exchange translation differences
Other comprehensive income
Total comprehensive income
2018
£m
28.2
9.3
3.5
(1.1)
(5.5)
(7.4)
27.0
–
27.0
(2.9)
24.1
(0.8)
0.3
23.7
Note
1
2
3
4
5
6
6
7
2017
£m
50.6
9.8
5.2
18.4
(12.1)
(2.6)
69.3
20.3
89.6
(11.2)
78.4
8.3
0.2
86.9
Note 1. The CA segment result remains strong but is lower than 2017. The year on year
movement emerges within the more variable S&P book. This is mainly reflective of the
positive economic factors in 2017 which have not been repeated in the current period,
resulting in overall economic profits being circa £23m lower year on year. Operating profits
of £27.1m are in line with the prior year. Within the operating profit total there is a £4.3m
profit as a result of a general improvement in UK mortality tables.
Note 2. Movestic continues to contribute positively to the overall group IFRS result despite
a small reduction in profits when compared to the same period in 2017. Lower investment
returns due to adverse market factors, together with a fall in the profits generated by its
associate, Modernac, were the main drivers.
Note 3. The Waard Group result is in line with expectations, with profits emerging in line
with the run-off book profile.
Note 4. Scildon’s IFRS loss for the year of £1.1m compares with a profit of £18.4m in the
prior year. Scildon has delivered a strong operating profit driven mainly by positive
mortality experience. Within the Netherlands new mortality tables suggest less positive
future mortality improvements, this however, because of our reserving policy (see note 31)
has no impact on the IFRS results. The operating profit is more than offset by economic
losses of £16.5m, largely driven by the widening of credit spreads which have caused
valuation losses in its bond portfolio.
Operating profit
Economic profit
Profit before tax and profit on acquisition
Profit on acquisition
Profit before tax
Tax
Profit after tax
Foreign exchange
Other comprehensive income
Total comprehensive income
2018
£m
42.5
(15.5)
27.0
–
27.0
(2.9)
24.1
(0.8)
0.3
23.7
Note
8
9
6
7
2017
£m
38.4
30.9
69.3
20.3
89.6
(11.2)
78.4
8.3
0.2
86.9
Analysis of IFRS total comprehensive income (£m)
31 Dec 18 - £23.7m
31 Dec 17 - £86.9m
42.5
38.4
30.9
20.3
_
(0.8)
(2.9)
(15.5)
Operating
Economic
(cid:3) (cid:3)(cid:168)(cid:568)(cid:530)(cid:737)(cid:590)(cid:3)(cid:530)(cid:519)(cid:3)
acquisition
of LGN
Tax
Forex
8.3
(11.2)
Note 5. The Chesnara result largely represents holding company expenses. The current
year loss is significantly lower than last year largely due to 2017 including larger one off
items such as foreign exchange loss of £2.6m coupled with the impact of providing for the
group’s IFRS 17 programme.
Note 6. Consolidation adjustments relate to items such as the amortisation of intangible
assets. These are higher than last year largely due to the full year impact of the Scildon
acquisition and an adjustment to the impairment of acquisition costs within Movestic.
The prior year results also reported a one off gain of £20.3m arising on the acquisition
of LGN.
Note 7. Sterling strengthened against the Swedish krona in the period, resulting in a
small exchange loss in 2018.
Note 8. The IFRS operating result demonstrates the stability of the underlying business.
Product based income and favourable movements in operating experience in the UK,
were offset slightly by the marginal strengthening of expense reserves to support future
developments. Strong premium growth and higher fund rebates, offset by unfavourable
claims experience in the year supported the Movestic operating result. Both the Waard
Group and Scildon have reported solid operating results.
Note 9. Economic profit represents the components of the earnings that are directly driven
by movements in economic variables. During 2018, the economic result is mainly driven
by the impact on Scildon of widening credit spreads, whereas 2017 benefitted from
positive equity market growth which has not been witnessed in the same period in 2018.
36
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 36
04/04/2019 12:43
SECTION B
(cid:121)IN(cid:4)NCI(cid:4)(cid:184)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)C(cid:4)(cid:268)(cid:137)(cid:3)(cid:123)ENE(cid:260)(cid:4)TION
GROUP CASH GENERATION
£47.8M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:3)(cid:1331)(cid:1111)(cid:1117)(cid:1245)(cid:1115)M
DIVISIONAL CASH GENERATION
£63.9M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1117)(cid:1115)(cid:1245)(cid:1116)M
(cid:268)(cid:520)(cid:508)(cid:566)(cid:520)(cid:718)(cid:442)(cid:387)(cid:566)(cid:637)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:520)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)U(cid:182)(cid:3)(cid:515)(cid:387)(cid:624)(cid:3)(cid:449)(cid:616)(cid:520)(cid:676)(cid:457)(cid:566)(cid:3)(cid:387)(cid:3)(cid:637)(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:387)(cid:546)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:616)(cid:457)(cid:624)(cid:653)(cid:546)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:1331)(cid:1115)(cid:1112)(cid:1245)(cid:1118)(cid:564)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:1239)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:624)(cid:653)(cid:613)(cid:613)(cid:577)(cid:616)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)
(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:520)(cid:441)(cid:653)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3) (cid:505)(cid:616)(cid:577)(cid:564)(cid:3) (cid:195)(cid:577)(cid:676)(cid:457)(cid:624)(cid:637)(cid:520)(cid:442)(cid:3) (cid:387)(cid:566)(cid:449)(cid:3) (cid:346)(cid:387)(cid:387)(cid:616)(cid:449)(cid:1245)(cid:3) C(cid:387)(cid:624)(cid:515)(cid:3) (cid:520)(cid:624)(cid:3) (cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:637)(cid:457)(cid:449)(cid:3) (cid:505)(cid:616)(cid:577)(cid:564)(cid:3) (cid:520)(cid:566)(cid:442)(cid:616)(cid:457)(cid:387)(cid:624)(cid:457)(cid:624)(cid:3) (cid:520)(cid:566)(cid:3) (cid:637)(cid:515)(cid:457)(cid:3) (cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3) (cid:624)(cid:577)(cid:546)(cid:676)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3) (cid:624)(cid:653)(cid:616)(cid:613)(cid:546)(cid:653)(cid:624)(cid:1239)(cid:3) (cid:677)(cid:515)(cid:520)(cid:442)(cid:515)
(cid:520)(cid:624)(cid:3)(cid:616)(cid:457)(cid:613)(cid:616)(cid:457)(cid:624)(cid:457)(cid:566)(cid:637)(cid:457)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:687)(cid:442)(cid:457)(cid:624)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)(cid:515)(cid:457)(cid:546)(cid:449)(cid:3)(cid:577)(cid:676)(cid:457)(cid:616)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:1287)(cid:624)(cid:3)(cid:520)(cid:566)(cid:637)(cid:457)(cid:616)(cid:566)(cid:387)(cid:546)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)(cid:566)(cid:457)(cid:457)(cid:449)(cid:624)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:624)(cid:457)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)(cid:616)(cid:457)(cid:508)(cid:653)(cid:546)(cid:387)(cid:637)(cid:577)(cid:616)(cid:688)(cid:3)
(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)(cid:616)(cid:457)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:1239)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:520)(cid:566)(cid:442)(cid:546)(cid:653)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:387)(cid:546)(cid:3)(cid:1286)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:653)(cid:505)(cid:505)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:1245)(cid:3)
GROUP
– Sufficient group cash has been generated in the year to cover the cost of
last year’s dividend.
– The overall increase in group cash year on year is a factor of several material
items. The 2017 result includes the impact of the completion of the Legal &
General Nederland (Scildon) acquisition which, in line with expectations,
resulted in a £55.3m negative impact on cash generation. A £26.8m release
from the with-profit funds has driven a sizeable increase in UK cash in
2018. In the opposite direction there has been a £34m adverse year on year
movement in Scildon’s cash generation. Much of the movement is due to the
fact that economic conditions had a positive impact on Own Funds in
2017 whereas in 2018 falling bond values resulted in Own Funds losses of
over £20m. A strengthening of mortality assumptions also had an adverse
impact in 2018.
– Other group activities reflect group expenses and the impact of consolidation
routines, specifically movements in capital requirements determined at a
group level. From a capital requirement perspective, this is driven by movements
in required capital at a Chesnara holding company level coupled with
consolidation adjustments. At a Chesnara holding company level, additional
capital is principally required to be held for the currency risk associated with
the Movestic, Scildon and Waard Group surplus assets.
2018 £m
UK
Sweden
Netherlands – Waard Group
Scildon
Divisional cash generation
Other group activities
Impact of LGN acquisition
Group cash generation
Movement in
Own Funds
Movement in
management’s capital
requirement
Forex
impact
Cash
generated
Cash
generated
2017 £m
18.0
(10.7)
3.0
(23.5)
(13.2)
(13.6)
(26.8)
37.8
30.1
4.6
6.2
78.6
(3.6)
75.0
–
(1.3)
0.2
(0.4)
(1.4)
1.0
(0.4)
55.8
18.1
7.8
(17.8)
63.9
(16.1)
–
47.8
34.5
24.9
11.1
16.2
86.7
(2.7)
(55.3)
28.6
UK
SWEDEN
– The UK has continued to deliver substantial cash generation in 2018, following
– Sweden generated £18.1m of cash for the year, due to a fall in the level of
significant reductions in capital requirements.
required capital.
– Own Funds (OF) growth includes the benefit of a £26.8m release of restricted
surplus from the with-profit funds. A further £5.7m of surplus capital exists
within the with-profit funds that has not been recognised in the results.
– Own Funds suffered from the decline in equity markets in the second half of
2018, with lower fund values and investment returns resulting in a reduction
of £10.7m at the year end.
– Underlying Own Funds performance was hampered by investment markets
in the later stages of the year, with widening spreads having a negative
impact on Own Funds.
– The fall in equity markets also had a positive effect on cash generation due
to the subsequent reduction in required capital through lower equity and mass
lapse risk.
– This was supported by further reductions in equity risk and spread risk,
following the capital transfer.
NETHERLANDS – WAARD
– The Waard Group has continued to supply stable cash generation, with
positive movements in both Own Funds and capital requirements.
– The growth in Own Funds was primarily a consequence of lower mortality
experience and subsequent reductions in assumed mortality lapse rates.
– Falls in lapse risk and counterparty default risk underpin the reduction in the
capital requirement.
– Conversely, the fall in investment markets also created a significant positive
cash impact. With equity values decreasing, the level of capital the business
was required to hold also fell substantially, primarily through lower equity
risk exposure and diminished lapse risk.
– SEK depreciation against sterling resulted in an exchange loss of £1.3m.
NETHERLANDS – SCILDON
– Scildon has reported a cash loss in the year, owing to a reduction in Own Funds.
– The steep widening of spreads in the second half of the year compounded
the valuation losses on Italian bonds reported earlier in 2018, driving down the
value of Own Funds.
– Own Funds also include the impact of strengthening mortality assumptions
in the year.
– Capital requirements moved favourably to partially offset the reduction in Own
Funds. Investment market conditions had a positive impact with exposure
to spread risk and equity risk shrinking materially in the second half of the year.
This also drove significant favourable movements in lapse risk.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
37
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STRATEGIC REPORT
(cid:121)IN(cid:4)NCI(cid:4)(cid:184)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)EC(cid:345)(cid:3)E(cid:4)(cid:260)NIN(cid:123)(cid:268)
ECV EARNINGS
£(60.9)M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1110)(cid:1112)(cid:1118)(cid:1245)(cid:1114)M*
(cid:1229)(cid:520)(cid:566)(cid:442)(cid:546)(cid:653)(cid:449)(cid:457)(cid:624)(cid:3)(cid:1331)(cid:1115)(cid:1114)(cid:1245)(cid:1113)(cid:564)(cid:3)(cid:508)(cid:387)(cid:520)(cid:566)(cid:3)(cid:577)(cid:566)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)
T(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3)E(cid:442)(cid:345)(cid:3)(cid:457)(cid:387)(cid:616)(cid:566)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:616)(cid:457)(cid:720)(cid:457)(cid:442)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:515)(cid:387)(cid:546)(cid:546)(cid:457)(cid:566)(cid:508)(cid:520)(cid:566)(cid:508)(cid:3)
(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:564)(cid:387)(cid:616)(cid:543)(cid:457)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:515)(cid:387)(cid:676)(cid:457)(cid:3)(cid:441)(cid:457)(cid:457)(cid:566)(cid:3)(cid:677)(cid:520)(cid:637)(cid:566)(cid:457)(cid:624)(cid:624)(cid:457)(cid:449)(cid:1239)(cid:3)
(cid:520)(cid:566)(cid:442)(cid:546)(cid:653)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:546)(cid:3)(cid:505)(cid:387)(cid:546)(cid:546)(cid:3)(cid:520)(cid:566)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:637)(cid:688)(cid:3)(cid:613)(cid:616)(cid:520)(cid:442)(cid:457)(cid:624)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:258)(cid:1113)(cid:1245)
Note 1. Economic conditions: The EcV result is sensitive to investment
market conditions. Some of the key investment market conditions in the
year are as follows:
– The FTSE All share index has decreased by 13.0% (12 months to 31 Dec 2017:
increased by 9.0%);
– The Swedish OMX all share index has decreased by 7.7% (12 months to
31 Dec 2017: increased by 5.7%);
– The Netherland AEX all share index has decreased by 11.6% (12 months to
31 Dec 2017: increased by 11.7%); and
– 10 year UK gilt yields have increased from 1.26% to 1.32%.
Analysis of the EcV result in the period by earnings source:
Expected movement in period
New business
Operating experience variances
Operating assumption changes
Other operating variances
Total underlying operating
earnings
Material other operating items
Total operating earnings
Economic experience variances
Economic assumption changes
Total economic earnings
Other non-operating variances
Risk margin movement
Gain on acquisition
Tax
Total EcV earnings
31 Dec
2018
£m
(0.8)
10.6
(9.0)
–
(0.8)
–
(22.8)
(22.8)
(50.3)
0.6
(49.7)
1.5
(1.9)
–
12.0
(60.9)
Analysis of the EcV result in the year by business segment:
UK
Sweden
Netherlands
Gain on acquisition
Group and group adjustments
EcV earnings before tax
Tax
EcV earnings after tax
31 Dec
2018
£m
(11.0)
(11.6)
(35.6)
–
(14.8)
(72.9)
12.0
(60.9)
31 Dec
2017
£m
0.2
12.4
1.2
(3.6)
0.7
10.8
(19.2)
(8.4)
86.4
2.2
88.6
1.0
4.0
65.4
(11.1)
139.5
31 Dec
2017
£m
54.5
24.0
21.8
65.4
(15.1)
150.6
(11.1)
139.5
Note
Note 2. Operating experience variances: These reflect where the results
have emerged differently to what was assumed. The reported experience loss
of £9.0m for 2018 is made up of a number of smaller positive and adverse
variances, including less fee income for Movestic, some adverse lapse
experience in Scildon coupled with some adverse expense experience across
the group.
2
3
1
4
Note
5
6
7
8
9
Note 3. Material other operating items: This includes operating items in
the year that are individually material and have therefore been separately
analysed to aid an understanding of the operating result. In accordance with
local practice Scildon adopt centrally defined mortality tables. Whilst there
is no reason to believe this creates prudence, it is worthy to note that the
resultant strengthening of reserves (with an adverse profit impact of £13.2m)
is at odds with recent experience of mortality profits on the Scildon book.
The remainder of the total relates to model enhancements regarding
quantifying risk margins in Scildon (£3.8m) and how we recognise certain
future central recurring costs (£5.8m).
Note 4. Gain on acquisition of LGN: The acquisition of LGN in April 2017
resulted in a ‘day 1’ gain of £65.4m, representing the difference between
the purchase price of £137.6m and the EcV of LGN at the point of acquisition
of £203.0m.
Note 5. UK: The UK sustained a pre-tax loss of £11.0m in the year. Economic
losses suffered in the second half of 2018 shape the result, with a full year
economic loss of £15.0m. Falling equity markets in the later stages of the year
were the key factor behind the reported loss. Solid operating earnings of £4.8m
were driven by favourable movements in both future expense and mortality
assumptions. This was supported by lower than expected rates of attrition
across the books of business, resulting in higher assumed future fee income.
Note 6. Sweden: Movestic reported an £11.6m loss for the year, with the
result significantly hampered by investment market conditions in the tail
end of 2018. Economic losses of £12.8m, predominantly arising in Q4, were
the consequence of falling equities and offset operational gains through
new business. This was reflected by the closing policyholder average
investment return of (6.0)% (2017: +8.2%), though this remains ahead of
the average Swedish stock market return of (7.7)%. New business profits of
£8.9m reflect the combination of increased sales volumes (both transfers
and single premiums) but lower average margin rates versus prior year. This
was partially offset by adverse movement in future fund management fee
and fund rebate assumptions in line with industry expectations.
Note 7. Netherlands: Our Dutch division has reported a pre-tax loss of
£35.6m for 2018. Investment market volatility, primarily a significant widening
of bond spreads, underpin economic losses of £21.6m in Scildon. The total
pre-tax loss of £38.8m also includes £17.0m of exceptional items, relating to
one-off mortality assumption and modelling changes. Waard delivered
earnings of £3.2m owing, for the most part, to favourable mortality experience
and subsequent impact of a reduction in assumed mortality rates.
Note 8. Group: This component includes costs incurred at group level,
dividend payments and the impact of consolidation activities, with a loss
reported for the year.
Note 9. Tax: The business is reporting a tax credit of £12.0m in the year.
This is driven by a combination of current tax on the loss for the period and
movements in deferred tax relating to group level activities.
38
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 38
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SECTION B
(cid:121)IN(cid:4)NCI(cid:4)(cid:184)(cid:3)(cid:260)E(cid:345)IE(cid:346)(cid:3)(cid:1235)(cid:3)EC(cid:345)
ECV
£626.1M (cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:1238)(cid:3)(cid:1331)(cid:1116)(cid:1111)(cid:1112)(cid:1245)(cid:1110)M
EcV to Solvency II
£m
626.1
(37.9)
(9.8)
(5.7)
(20.2)
552.6
2018 Group
EcV
Risk
margin
Contract
boundaries
Own Funds
restrictions
Dividends
2018 SII
Own Funds
Our reported EcV is based on a Solvency II assessment of the value of the
business, but adjusted for certain items where it is deemed that Solvency II does
not reflect the commercial value of the business. The above waterfall shows
the key difference between EcV and SII, with explanations for each item below.
Risk margin: Solvency II rules require a significant ‘risk margin’ which is
held on the Solvency II balance sheet as a liability, and this is considered to
be materially above a realistic cost. We therefore reduce this margin for risk
for EcV valuation purposes from being based on a 6% cost of capital to a
3.25% cost of capital.
Contract boundaries: Solvency II rules do not allow for the recognition of
future cash flows on certain in-force contracts, despite the high probability of
receipt. We therefore make an adjustment to reflect the realistic value of the
cash flows under EcV.
Ring-fenced fund restrictions: Solvency II rules require a restriction to be
placed on the value of certain ring-fenced funds. These restrictions are reversed
for EcV valuation purposes as they are deemed to be temporary in nature.
Dividends: The proposed final dividend of £20.2m is recognised for SII
regulatory reporting purposes. It is not recognised within EcV until it is
actually paid.
T(cid:515)(cid:457)(cid:3)E(cid:442)(cid:577)(cid:566)(cid:577)(cid:564)(cid:520)(cid:442)(cid:3)(cid:345)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)C(cid:515)(cid:457)(cid:624)(cid:566)(cid:387)(cid:616)(cid:387)(cid:3)(cid:616)(cid:457)(cid:613)(cid:616)(cid:457)(cid:624)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:624)(cid:457)(cid:566)(cid:637)(cid:3)
(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:505)(cid:653)(cid:637)(cid:653)(cid:616)(cid:457)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:687)(cid:520)(cid:624)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:1239)(cid:3)
(cid:613)(cid:546)(cid:653)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:387)(cid:449)(cid:538)(cid:653)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:566)(cid:577)(cid:566)(cid:1272)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)
(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:520)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1245)(cid:3)E(cid:442)(cid:345)(cid:3)(cid:520)(cid:624)(cid:3)(cid:387)(cid:566)(cid:3)(cid:520)(cid:564)(cid:613)(cid:577)(cid:616)(cid:637)(cid:387)(cid:566)(cid:637)(cid:3)(cid:616)(cid:457)(cid:505)(cid:457)(cid:616)(cid:457)(cid:566)(cid:442)(cid:457)(cid:3)
(cid:613)(cid:577)(cid:520)(cid:566)(cid:637)(cid:3)(cid:441)(cid:688)(cid:3)(cid:677)(cid:515)(cid:520)(cid:442)(cid:515)(cid:3)(cid:637)(cid:577)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:624)(cid:624)(cid:3)C(cid:515)(cid:457)(cid:624)(cid:566)(cid:387)(cid:616)(cid:387)(cid:1287)(cid:624)(cid:3)(cid:520)(cid:566)(cid:637)(cid:616)(cid:520)(cid:566)(cid:624)(cid:520)(cid:442)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:1245)
Value movement: 1 Jan 2018 to 31 Dec 2018
£m
723.1
(60.9)
(30.4)
(5.8)
626.1
2017 Group
EcV
EcV
earnings
Dividends
Forex
2018 Group
EcV
EcV earnings: A loss of £60.9m has been reported for the year. The
primary driver of this are the significant economic losses arising from
economic conditions in the second half of the year. This was compounded
by a small number of individually material adverse operating items incurred
in the year. Further detail can be found on page 38.
Dividends: Under EcV, dividends are recognised in the period in which they
are paid. Dividends of £30.4m were paid during the period, being the final
dividend from 2017 and the 2018 interim dividend.
Foreign exchange: The EcV of the group suffered a foreign exchange loss
in the period, a consequence of the sterling appreciation against the
Swedish krona.
EcV by segment at 31 Dec 2018
£m
214.7
227.4
223.7
UK
Sweden
Netherlands
(39.7)
Other group
activities
The above chart shows that the EcV of the group is diversified across
its different markets, demonstrating that we are well-balanced and not
over-exposed to one particular geographic market.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
39
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 39
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STRATEGIC REPORT
FINANCIAL MANAGEMENT
T(cid:515)(cid:457)(cid:3) (cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3) (cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3) (cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3) (cid:505)(cid:616)(cid:387)(cid:564)(cid:457)(cid:677)(cid:577)(cid:616)(cid:543)(cid:3) (cid:520)(cid:624)(cid:3) (cid:449)(cid:457)(cid:624)(cid:520)(cid:508)(cid:566)(cid:457)(cid:449)(cid:3) (cid:637)(cid:577)(cid:3) (cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:449)(cid:457)(cid:3) (cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:688)(cid:3) (cid:505)(cid:577)(cid:616)(cid:3) (cid:387)(cid:546)(cid:546)(cid:3) (cid:624)(cid:637)(cid:387)(cid:543)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1239)(cid:3) (cid:677)(cid:515)(cid:520)(cid:546)(cid:457)(cid:3) (cid:564)(cid:457)(cid:457)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)
(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:442)(cid:637)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1239)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:616)(cid:457)(cid:508)(cid:653)(cid:546)(cid:387)(cid:637)(cid:577)(cid:616)(cid:624)(cid:1245)
The following diagram illustrates the aims, approach and outcomes from the financial management framework:
T(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:505)(cid:616)(cid:387)(cid:564)(cid:457)(cid:677)(cid:577)(cid:616)(cid:543)(cid:3)(cid:520)(cid:624)(cid:3)(cid:449)(cid:457)(cid:624)(cid:520)(cid:508)(cid:566)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:449)(cid:457)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:688)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:387)(cid:546)(cid:546)(cid:3)(cid:624)(cid:637)(cid:387)(cid:543)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1239)(cid:3)
(cid:677)(cid:515)(cid:520)(cid:546)(cid:457)(cid:3)(cid:564)(cid:457)(cid:457)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:442)(cid:637)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1239)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:616)(cid:457)(cid:508)(cid:653)(cid:546)(cid:387)(cid:637)(cid:577)(cid:616)(cid:624)(cid:1245)(cid:3)(cid:4)(cid:442)(cid:442)(cid:577)(cid:616)(cid:449)(cid:520)(cid:566)(cid:508)(cid:546)(cid:688)(cid:3)(cid:677)(cid:457)(cid:3)(cid:387)(cid:520)(cid:564)(cid:3)(cid:637)(cid:577)(cid:1238)
OBJECTIVES
Maintain solvency
targets.
Meet the dividend
expectations of
shareholders.
Optimise the
gearing ratio to
ensure an efficient
capital base.
Maintain the group
as a going concern.
Ensure there is
sufficient liquidity
to meet obligations
to policyholders,
debt financiers and
creditors.
I(cid:566)(cid:3)(cid:577)(cid:616)(cid:449)(cid:457)(cid:616)(cid:3)(cid:637)(cid:577)(cid:3)(cid:564)(cid:457)(cid:457)(cid:637)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:577)(cid:441)(cid:546)(cid:520)(cid:508)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:677)(cid:457)(cid:3)(cid:457)(cid:564)(cid:613)(cid:546)(cid:577)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:653)(cid:566)(cid:449)(cid:457)(cid:616)(cid:637)(cid:387)(cid:543)(cid:457)(cid:3)(cid:387)(cid:3)(cid:566)(cid:653)(cid:564)(cid:441)(cid:457)(cid:616)(cid:3)(cid:577)(cid:505)(cid:3)(cid:564)(cid:457)(cid:637)(cid:515)(cid:577)(cid:449)(cid:624)(cid:1245)(cid:3)T(cid:515)(cid:457)(cid:624)(cid:457)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:442)(cid:457)(cid:566)(cid:637)(cid:616)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:1238)(cid:1238)
HOW WE DELIVER TO OUR OBJECTIVES
1. Monitor and control
risk and solvency
2. Longer-term
projections
3. Responsible
investment
management
4. Management
actions
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OUTCOMES
1. Solvency
2. Shareholder
3. Capital structure
returns
4. Liquidity and
policyholder
returns
5. Maintain the
group as a going
concern
Group solvency
ratio 158%.
2016-2018
TSR 18.41%.
Gearing ratio
of 15.6%.
2018 dividend
yield 5.4%.
This does not include the
financial reinsurance within
the Swedish business.
Based on average 2018
share price and full year 2018
dividend of 20.67p.
Group remains a
going concern.
(see page 41)
Policyholders’
reasonable
expectations
maintained.
Asset liability
matching
framework
operated effectively
in the year.
Sufficient liquidity
in the Chesnara
holding company.
40
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SECTION B
OUTCOMES FROM IMPLEMENTING OUR FINANCIAL MANAGEMENT OBJECTIVES
1. Capital structure
The group is funded by a combination of share capital, retained
earnings and debt finance, with the debt gearing (excluding financial
reinsurance in Sweden) being 15.6% at 31 December 2018 (19.8% at
31 December 2017).
The level of debt that the board is prepared to take on is driven by the
group’s ‘Debt and leverage policy’ which incorporates the board’s risk
appetite in this area.
Over time, the level of gearing within the group will change, and is a
function of:
– funding requirements for future acquisitions (i.e. debt, equity and internal
financial resources); and
– repayment of existing debt that was used to fund previous acquisitions.
As referred to above, acquisitions are funded through a combination of
debt, equity and internal cash resources. The ratios of these three
funding methods vary on a deal-by-deal basis and are driven by a number
of factors including, but not limited to:
– size of the acquisition;
– current cash resources of the group;
– current gearing ratio and the board’s risk tolerance limits for additional
debt;
– expected cash generation profile and funding requirements of the
existing subsidiaries and potential acquisition;
– future financial commitments; and
– regulatory rules.
In addition to the above, Movestic uses a financial reinsurance
arrangement to fund its new business operation.
2. Maintain the group as a going concern
The directors have considered the ability of the group to continue on a
going concern basis. As such the board has performed an assessment
as to whether the group can meet its liabilities as they fall due for a
period of at least 12 months from which the Report and Accounts have
been signed.
In performing this work, the board has considered the current cash
position of the group and company, coupled with the group’s and
company’s expected cash generation as highlighted in its recent
business plan, which covers a 3 year period. The business plan
considers the financial projections of the group and its subsidiaries on
both a base case and a range of stressed scenarios, covering projected
IFRS, EcV and solvency. These projections also focus on the cash
generation of the life insurance divisions and how these flow up into the
Chesnara parent company balance sheet, with these cash flows being
used to fund debt repayments, shareholder dividends and the head
office function of the parent company.
The information set out on page 32 indicates a strong solvency position
as at 31 December 2018 as measured at both the divisional and group
levels. As well as being well-capitalised the group also has a healthy
level of cash reserves to be able to meet its debt obligations as they
fall due, and does not rely on the renewal or extension of bank facilities
to continue trading. The group’s subsidiaries do, however, rely on cash
flows from the maturity or sale of fixed interest securities which match
certain obligations to policyholders, which brings with it the risk of bond
default. In order to manage this risk we ensure that our bond portfolio
is actively monitored and well diversified. Other significant counterparty
default risk relates to our principal reinsurers. We monitor their financial
position and are satisfied that any associated credit default risk is low.
In light of the above information, the board has concluded that the
group and company has a reasonable expectation that the group and
company have adequate resources to continue in operational existence
for the foreseeable future, and, as stated in the Directors Report on
page 86, the Financial Statements have continued to be prepared on a
going concern basis.
3. Assessment of prospects
An understanding of the group’s strategy and business model is central
to assessing its prospects, and details can be found on pages 18 to 21.
Core books within our overall portfolio provide a level of more stable
earnings, hence making the overall business and financial model
more resilient to potential adverse movements on the books with
more volatile earnings. In addition, in the short-term, solvency and
cash are less affected by economic conditions which has a positive
impact regarding confidence levels in our dividend paying capacity.
Our strategy of maximising value from our existing business, acquiring life
and pensions businesses and enhancing value through profitable new
business, is designed to support long-term and sustainable cash generation.
We assess our prospects on a regular basis through our financial planning
process. Our 3 year medium-term group business plan forecasts
the group’s profitability, cash generation, economic value and solvency
position and is reviewed by the board during the year.
The business plan is built from the bottom up forecasts of each of
our business segments, supplemented by items managed at group
level and assumptions to be used in the basis of preparation. The
performance of the group and our business segments against these
forecasts is monitored quarterly through a series of quarterly business
reviews performed by the group executive and internal management
information which is reviewed by the board.
The group also makes investments, such as life and pensions business
acquisitions and longer-term business development programmes that
have a business case beyond our core 3 year planning horizon.
Significant expenditure of this nature is subject to a detailed business
case being prepared and approved by the board.
4. Longer-term viability statement
In accordance with provision C.2.2 of the 2016 revision of the UK
Corporate Governance Code, the directors have assessed the prospect
of the company over a longer period than the 12 months required by
the going concern provision. The board conducted this review for a
period of 3 years because the group’s business plan covers a 3 year
period and includes an assessment of group cash generation and group
solvency margins over that time period.
The group business plan considers the group’s cash flows, the group’s
ability to remain above target solvency levels and other key financial
measures over the period, assuming continuation of the group’s
established dividend payment strategy. These metrics are subject to
scenario analysis representing the principal risks to which the group is
most sensitive, both individually and in unison. Where appropriate this
analysis is carried out to evaluate the potential impact of adverse
economic and other experience effects, including, but not limited to:
– Equity market declines;
– Reduction in yield curves;
– Credit spread rise;
– Swap rate fall;
– Adverse mortality and lapse experience;
– Adverse expense experiences;
– Reduced new business volumes; and
– Adverse exchange rate experience.
Other than the fact that Brexit could impact the investment markets to
which our results are sensitive (see sensitivities on page 33) we
consider that our operating model is relatively unaffected by Brexit. We
do not trade across borders nor do we share resource between our
European businesses. Each division operates to autonomous local
regulatory frameworks and we believe we have the flexibility to change
our regulatory structure if Brexit results in an inefficient regulatory
structure of the organisation.
Based on the results of this analysis, the directors have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the 3 year period of their
assessment.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
41
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 41
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STRATEGIC REPORT
RISK MANAGEMENT
(cid:195)(cid:387)(cid:566)(cid:387)(cid:508)(cid:520)(cid:566)(cid:508)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:3)(cid:520)(cid:624)(cid:3)(cid:387)(cid:3)(cid:543)(cid:457)(cid:688)(cid:3)(cid:613)(cid:387)(cid:616)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:564)(cid:577)(cid:449)(cid:457)(cid:546)(cid:1245)(cid:3)(cid:346)(cid:457)(cid:3)(cid:387)(cid:442)(cid:515)(cid:520)(cid:457)(cid:676)(cid:457)(cid:3)(cid:637)(cid:515)(cid:520)(cid:624)(cid:3)(cid:441)(cid:688)(cid:3)(cid:653)(cid:566)(cid:449)(cid:457)(cid:616)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:564)(cid:457)(cid:616)(cid:508)(cid:520)(cid:566)(cid:508)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:624)(cid:3)
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HOW WE MANAGE RISK
RISK
MANAGEMENT
SYSTEM
T(cid:515)(cid:457)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:688)(cid:624)(cid:637)(cid:457)(cid:564)(cid:3)(cid:624)(cid:653)(cid:613)(cid:613)(cid:577)(cid:616)(cid:637)(cid:624)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:520)(cid:449)(cid:457)(cid:566)(cid:637)(cid:520)(cid:718)(cid:442)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:1239)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:624)(cid:624)(cid:564)(cid:457)(cid:566)(cid:637)(cid:1239)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:616)(cid:457)(cid:613)(cid:577)(cid:616)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:505)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:624)(cid:3)
(cid:387)(cid:546)(cid:577)(cid:566)(cid:508)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:442)(cid:577)(cid:577)(cid:616)(cid:449)(cid:520)(cid:566)(cid:387)(cid:637)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:442)(cid:577)(cid:566)(cid:577)(cid:564)(cid:520)(cid:442)(cid:387)(cid:546)(cid:3)(cid:387)(cid:613)(cid:613)(cid:546)(cid:520)(cid:442)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:616)(cid:457)(cid:624)(cid:577)(cid:653)(cid:616)(cid:442)(cid:457)(cid:624)(cid:3)(cid:637)(cid:577)(cid:3)(cid:564)(cid:577)(cid:566)(cid:520)(cid:637)(cid:577)(cid:616)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:577)(cid:546)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)
(cid:613)(cid:616)(cid:577)(cid:441)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:1251)(cid:577)(cid:616)(cid:3)(cid:520)(cid:564)(cid:613)(cid:387)(cid:442)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:449)(cid:676)(cid:457)(cid:616)(cid:624)(cid:457)(cid:3)(cid:577)(cid:653)(cid:637)(cid:442)(cid:577)(cid:564)(cid:457)(cid:624)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:520)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:577)(cid:387)(cid:616)(cid:449)(cid:1287)(cid:624)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:3)(cid:387)(cid:613)(cid:613)(cid:457)(cid:637)(cid:520)(cid:637)(cid:457)(cid:3)(cid:577)(cid:616)(cid:3)(cid:637)(cid:577)(cid:3)(cid:564)(cid:387)(cid:687)(cid:520)(cid:564)(cid:520)(cid:624)(cid:457)(cid:3)
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I
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STRATEGY
POLICIES
PROCESSES
REPORTING
The risk management strategy contains the objectives and
principles of risk management, the risk appetite, risk preferences
and risk tolerance limits.
The risk management policies implement the risk management
strategy and provide a set of principles (and mandated
activities) for control mechanisms that take into account the
materiality of risks.
The risk management processes ensure that risks are
identified, measured/assessed, monitored and reported
to support decision making.
The risk management reports deliver information on the material
risks faced by the business and evidence that principal risks are
actively monitored and analysed and managed against risk appetite.
RISK
PROCESSES
(cid:260)(cid:520)(cid:624)(cid:543)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:442)(cid:457)(cid:624)(cid:624)(cid:457)(cid:624)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)(cid:387)(cid:613)(cid:613)(cid:546)(cid:520)(cid:457)(cid:449)(cid:3)(cid:387)(cid:637)(cid:3)(cid:387)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1239)(cid:3)(cid:449)(cid:520)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:387)(cid:546)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:653)(cid:566)(cid:520)(cid:637)(cid:3)(cid:546)(cid:457)(cid:676)(cid:457)(cid:546)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)
(cid:387)(cid:616)(cid:457)(cid:3)(cid:449)(cid:577)(cid:442)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:520)(cid:566)(cid:3)(cid:387)(cid:3)(cid:624)(cid:457)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:441)(cid:577)(cid:387)(cid:616)(cid:449)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:520)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:457)(cid:387)(cid:442)(cid:515)(cid:3)(cid:442)(cid:387)(cid:637)(cid:457)(cid:508)(cid:577)(cid:616)(cid:688)(cid:3)(cid:577)(cid:505)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:1245)
Chesnara adopts the ‘three lines of defence’ model across the group taking into
account size, nature and complexity, with a single set of risk and governance principles
applied consistently across the business.
In all divisions we maintain processes for identifying, evaluating and managing all
material risks faced by the group, which are regularly reviewed by the divisional
and group Audit & Risk Committees. Our risk assessment processes have regard to
the significance of risks, the likelihood of their occurrence and take account of the
controls in place to manage them. The processes are designed to manage the risk
profile within the board’s approved risk appetite.
Group and divisional 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. The results, conclusions and any recommended actions
are included within divisional and group ORSA Reports to the relevant boards. There
is a strong correlation between these adverse events and the risks identified in ’Principal
risks and uncertainties’ (see pages 43 to 45). The outcome of this testing provides
context against which the group can assess whether any changes to its risk appetite
or to its management processes are required.
cision
e
D
I d entify
A
s
s
e
s
s
Policies &
Governance
M
a
t
r
o
p
e
nage Monitor R
42
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LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 42
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SECTION B
CHESNARA RISK PREFERENCES
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(cid:616)(cid:520)(cid:624)(cid:543)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:546)(cid:457)(cid:1245)
PRINCIPAL RISKS AND UNCERTAINTIES
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(cid:260)(cid:520)(cid:624)(cid:543)(cid:3)C(cid:577)(cid:564)(cid:564)(cid:520)(cid:637)(cid:637)(cid:457)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:616)(cid:520)(cid:566)(cid:442)(cid:520)(cid:613)(cid:387)(cid:546)(cid:3)(cid:616)(cid:520)(cid:624)(cid:543)(cid:624)(cid:3)(cid:505)(cid:387)(cid:442)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1239)(cid:3)(cid:520)(cid:566)(cid:442)(cid:546)(cid:653)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:577)(cid:624)(cid:457)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:677)(cid:577)(cid:653)(cid:546)(cid:449)(cid:3)(cid:637)(cid:515)(cid:616)(cid:457)(cid:387)(cid:637)(cid:457)(cid:566)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:564)(cid:577)(cid:449)(cid:457)(cid:546)(cid:1239)(cid:3)
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(cid:387)(cid:616)(cid:457)(cid:3)(cid:613)(cid:577)(cid:637)(cid:457)(cid:566)(cid:637)(cid:520)(cid:387)(cid:546)(cid:546)(cid:688)(cid:3)(cid:624)(cid:520)(cid:508)(cid:566)(cid:520)(cid:718)(cid:442)(cid:387)(cid:566)(cid:637)(cid:1245)(cid:3)
RISK MANAGEMENT • PRINCIPAL RISKS AND UNCERTAINTIES
RISK
IMPACT
CONTROL
Exposure to
financial losses
or value
reduction
arising from
adverse
movements in
investment
markets,
counterparty
defaults, or
through
inadequate
asset liability
matching
Market risk results from fluctuations in asset values,
foreign exchange rates and interest rates and has the
potential to affect the group’s ability to fund its
commitments to customers and other creditors, as
well as pay a return to shareholders.
Chesnara performs regular monitoring of movements in the market
and maintains matching programmes to ensure that exposure to any
mismatching is at an acceptable level, forecasting cash requirements
and adjusting investment management strategies to meet those
requirements.
Chesnara and each of its subsidiaries have obligations
to make future payments, which are not always
known with certainty in terms of timing or amounts,
prior to the payment date. This includes primarily the
payment of policyholder claims, reinsurance
premiums, debt repayments and dividends. The
uncertainty of timing and amounts to be paid gives
rise to potential liquidity risk, should the funds not be
available to make payment.
Other liquidity issues could arise from counterparty
failures/credit defaults, a large spike in the level of
claims or other significant unexpected expenses.
Chesnara seeks to limit the impacts of exposure to market risks by:
– Maintaining a well-diversified asset portfolio;
– Holding a significant amount of surplus in highly liquid ‘Tier 1’ assets
such as cash and gilts;
– Utilising a range of investment funds and managers to avoid
significant concentrations of risk;
– Having an established investment governance framework to provide
review and oversight of external fund managers;
– Carrying out regular liquidity forecasts and asset and liability
modelling; and
– Monitoring exchange rate movements. The group would consider the
cost/benefit of hedging the currency risk on cash flows when
appropriate.
In respect of a significant exposure to one major reinsurer, ReAssure
(formerly known as Guardian), the group has a floating charge over
the reinsurer’s related investment assets, which ranks the group
equally with ReAssure’s policyholders.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
43
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 43
04/04/2019 12:43
STRATEGIC REPORT
RISK MANAGEMENT • PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
RISK
IMPACT
CONTROL
Through the Risk Management Framework, regulatory risk is monitored
and scenario tests are performed to understand the potential impacts of
adverse political, regulatory or legal changes, along with consideration
of actions that may be taken to minimise the impact, should they arise.
Chesnara seeks to limit any potential impacts of regulatory change on
the business by:
– Having processes in place for monitoring changes, to enable timely
actions to be taken, as appropriate;
– Maintaining strong open relationships with all regulators;
– Being a member of the ABI and utilising other means of joint industry
representation;
– Performing internal reviews of compliance with regulations; and
– Utilising external specialist advice and assurance, when appropriate.
Chesnara will continue to monitor the outcome of Brexit including any
restructuring required to align to changes in the requirements of cross
border regulatory supervision. In extremis, Chesnara could consider
the re-domiciling of subsidiaries or legal restructure of the business,
should this result in a more commercially acceptable business model
in a changed operating environment.
Adverse
changes in
industry
practice/
regulation, or
inconsistent
application of
regulation
across
territories
Chesnara currently operates in four regulatory domains
(including Movestic’s asset management company in
Luxembourg) and is therefore exposed to inconsistent
application of regulatory standards across divisions,
such as the imposition of higher capital buffers over
and above regulatory minimum requirements. Potential
consequences of this risk for Chesnara is the
constraining of efficient and fluid use of capital within
the group, or creating a non-level playing field with
respect to future new business/acquisitions.
The jurisdictions which Chesnara operates in are
currently subject to significant change arising from
political, regulatory and legal change. These may
either be localised or may apply more widely,
following from EU-based regulation and law, or the
potential unwinding of this following the UK’s decision
to leave the EU.
The group is therefore exposed to the risk of:
– incurring one-off costs of addressing regulatory change
as well as any permanent increases in the cost base
in order to meet enhanced standards;
– erosion in value arising from pressure or enforcement
to reduce future policy charges;
– erosion in value arising from pressure or enforcement
to financially compensate for past practice; and
– regulatory fines or censure in the event that it is
considered to have breached standards, or fails to
deliver changes to the required regulatory standards
on a timely basis.
Failure to source
acquisitions that
meet Chesnara’s
criteria or the
execution of
acquisitions with
subsequent
unexpected
financial losses or
value reduction
The acquisition element of Chesnara’s growth strategy
is dependent on the availability of attractive future
acquisition opportunities. Hence, the business is
exposed to the risk of a reduction in the availability of
suitable acquisition opportunities within Chesnara’s
current target markets, for example arising as a result
of a change in competition in the consolidation market
or from regulatory change influencing the extent of
life company strategic restructuring.
Through the execution of acquisitions, Chesnara is
also exposed to the risk of erosion of value or financial
losses arising from risks inherent within businesses or
funds acquired which are not adequately priced for or
mitigated as part of the transaction.
Chesnara’s financial strength, strong relationships and reputation as a
‘safe hands acquirer’ via regular contact with regulators, banks and
target companies enables the company to adopt a patient and
risk-based approach to assessing acquisition opportunities. Operating
in multi-territories provides some diversification against the risk of
changing market circumstances in one of the territories.
Chesnara seeks to limit any potential unexpected impacts of
acquisitions by:
– Applying a structured board approved risk-based acquisition process
including CRO involvement in the due diligence process and deal
refinement processes;
– Having a management team with significant and proven experience in
mergers and acquisitions; and
– Adopting a cautious risk appetite and pricing approach.
Adverse
demographic
experience
compared with
assumptions
In the event that demographic experience (rates of
mortality, morbidity, persistency etc.) varies from the
assumptions underlying product pricing and
subsequent reserving, more or less profit will accrue
to the group.
If mortality or morbidity experience is higher than that
assumed in pricing contracts (I.e. more death and
sickness claims are made than expected), this will
typically result in less profit accruing to the group.
If persistency is significantly lower than that assumed
in product pricing and subsequent reserving, this will
typically lead to reduced group profitability in the
medium to long-term, as a result of a reduction in
future income arising from charges on those products.
The effects of this could be more severe in the case
of a one-off event resulting in multiple withdrawals
over a short period of time (a ‘mass lapse’ event).
Chesnara ensures close monitoring of persistency levels across all groups
of business to support best estimate assumptions and identify trends.
There is also partial risk diversification in that the group has a portfolio of
annuity contracts where the benefits cease on death.
Chesnara seeks to limit the impacts of adverse demographic experience by:
– Aiming to deliver good customer service and fair customer outcomes;
– Having effective underwriting techniques and reinsurance programmes,
including the application of ‘mass lapse reinsurance’, where appropriate;
– Carrying out regular investigations, and industry analysis, to support
best estimate assumptions and identify trends;
– Active investment management to ensure competitive policyholder
investment funds; and
– Maintaining good relationships with Brokers which is independently
measured via annual external surveys that considers Brokers attitude
towards different insurers.
44
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec B_Strategic_AW_Stg8.indd 44
04/04/2019 12:43
SECTION B
RISK
IMPACT
CONTROL
Significant
operational
failure /
business
continuity
event
The group and its subsidiaries are exposed to
operational risks which arise through daily activities
and running of the business. Operational risks may,
for example, arise due to technical or human errors,
failed internal processes, insufficient personnel
resources or fraud caused by internal or external
persons. As a result the group may suffer financial
losses, poor customer outcomes, reputational
damage, regulatory intervention or business plan
failure.
Part of the group’s operating model is to outsource
support activities to specialist service providers.
Consequently, a significant element of the
operational risk arises within its outsourced
providers.
The group perceives operational risk as an inherent part of the
day-to-day running of the business and understands that it can’t be
completely eliminated. However, the company’s objective is to always
control or mitigate operational risks, and to minimise the exposure
when it’s possible to do so in a convenient and cost effective way.
Chesnara seeks to reduce the impact and likelihood of operational
risk by:
– Monitoring of key performance indicators and comprehensive
management information flows;
– Effective governance of outsourced service providers including a
regular financial assessment. 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;
– Regular testing of business continuity plans;
– Promoting the sharing of knowledge and expertise; and
– Complementing internal expertise with established relationships
with external specialist partners.
All parts of the business have documented robust plans for
operational resilience covering:
– Alternate physical working locations;
– Data back-ups (with suitable network isolation);
– Alternate systems/applications;
– Crisis Management Team Terms of Reference; and
– Crisis communication strategies.
Expense
overruns and
unsustainable
unit cost
growth
IT/data
security
failures or
cyber crime
The company is exposed to expenses being higher
than expected as a result of one-off increases in the
underlying cost of performing key functions, or
through higher inflation of variable expenses.
For the closed funds, the group is exposed to the
impact on profitability of fixed and semi-fixed expenses,
in conjunction with a diminishing policy base.
For the companies open to new businesses, the group
is exposed to the impact of expense levels varying
adversely from those assumed in product pricing.
For all subsidiaries, the group maintains a regime of budgetary control:
– Movestic and Scildon assume growth through new business such that
the general unit cost trend is positive;
– The Waard Group pursues a low cost-base strategy using a designated
service company. The cost base is supported by service income from
third party customers;
– Countrywide Assured pursues a strategy of outsourcing functions
with charging structures such that the policy administration cost is
more aligned to the book’s run off profile; and
– The group has an ongoing expense management programme in place
to monitor and manage the overall expense base.
Cyber risk is a growing risk affecting all companies,
particularly those who are custodians of customer
data. The most pertinent risk exposure relates to
information security (i.e. protecting business sensitive
and personal data) and can arise from failure of
internal processes and standards, but increasingly
companies are becoming exposed to potential
malicious cyber attacks, organisation specific malware
designed to exploit vulnerabilities, phishing attacks
etc. The extent of Chesnara’s exposure to such
threats also includes third party service providers.
The potential impact of this risk includes financial
losses, inability to perform critical functions, disruption
to policyholder services, loss of sensitive data and
corresponding reputational damage or fines.
Chesnara seeks to limit the exposure and potential impacts from IT/
data security failures or cyber crime by:
– Embedding the Information Security Policy in all key operations and
development processes;
– Seeking ongoing specialist external advice, modifications to IT
infrastructure and updates as appropriate;
– Delivering regular staff training and attestation to the information
security Policy;
– Conducting penetration and vulnerability testing, including third party
service providers; and
– Having established Chesnara and supplier business continuity plans
which are regularly monitored and tested.
All entities within the Chesnara Group have invested in improving their
operational resilience during 2018. The nature of the developments vary
across the group, dependent on the existing processes and infrastructure
of the entity. Activities include:
– enhancements to preventative measures against external threats, and
monitoring of such threats arising;
– education and training of employees on information security;
– improvement to the documentation of our incident response and crisis
management protocol; and
– testing our resilience to external threats and the effectiveness of our
response/recovery in the event of incidents occurring.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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STRATEGIC REPORT
CORPORATE AND SOCIAL RESPONSIBILITY
(cid:195)(cid:387)(cid:543)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:3)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:520)(cid:441)(cid:653)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:637)(cid:577)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1239)(cid:3)
(cid:677)(cid:515)(cid:520)(cid:546)(cid:624)(cid:637)(cid:3)(cid:637)(cid:387)(cid:543)(cid:520)(cid:566)(cid:508)(cid:3)(cid:624)(cid:457)(cid:616)(cid:520)(cid:577)(cid:653)(cid:624)(cid:546)(cid:688)(cid:3)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:566)(cid:676)(cid:520)(cid:616)(cid:577)(cid:566)(cid:564)(cid:457)(cid:566)(cid:637)(cid:387)(cid:546)(cid:3)(cid:520)(cid:624)(cid:624)(cid:653)(cid:457)(cid:624)(cid:1245)
OUR MAIN OBJECTIVE IS TO ENSURE WE CONTINUE TO MANAGE THE BUSINESS RESPONSIBLY AND FOR
T(cid:137)E(cid:3)(cid:184)ON(cid:123)(cid:1267)TE(cid:260)(cid:195)(cid:3)(cid:57)ENE(cid:121)IT(cid:3)O(cid:121)(cid:3)(cid:4)(cid:184)(cid:184)(cid:3)(cid:268)T(cid:4)(cid:182)E(cid:137)O(cid:184)DE(cid:260)(cid:268)(cid:1239)(cid:3)INC(cid:184)UDIN(cid:123)(cid:3)OU(cid:260)(cid:3)CU(cid:268)TO(cid:195)E(cid:260)(cid:268)(cid:1239)(cid:3)(cid:268)(cid:137)(cid:4)(cid:260)E(cid:137)O(cid:184)DE(cid:260)(cid:268)(cid:1239)(cid:3)
E(cid:195)(cid:256)(cid:184)O(cid:357)EE(cid:268)(cid:1239)(cid:3)(cid:260)E(cid:123)U(cid:184)(cid:4)TO(cid:260)(cid:268)(cid:1239)(cid:3)OUT(cid:268)OU(cid:260)CE(cid:260)(cid:268)(cid:3)(cid:4)ND(cid:3)(cid:184)OC(cid:4)(cid:184)(cid:3)CO(cid:195)(cid:195)UNITIE(cid:268)(cid:1245)
Equal opportunities
Our people are our greatest assets. We recognise that to be able to meet the
expectations that we have set ourselves, we need to ensure, in a competitive
market, we continue to attract, promote and retain the best candidates. Our
approach is to be open, entrepreneurial and inclusive in how we operate.
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.
The table below shows the gender split of employees of the Chesnara group
split across different categories:
Directors of Chesnara plc
Senior management of the group
Heads of business units and group
functions
2018
2017
Male
Female Male
Female
5
7
16
2
2
7
5
7
20
2
2
6
Employees of the group
161
155
169
161
Total
189
166
201
171
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.
The company will make reasonable adjustments to give the disabled person
as much access to any services and ability to be employed, trained, or
promoted as a non-disabled person.
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.
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 2 days release on full pay each year where they can support a
local charity project of their choice.
The Hampton-Alexander Report recommends a board diversity target of
30% for FTSE 350 companies. Gender diversity forms an important part of the
board appointment process.
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.
Chesnara are committed to diversity and, over recent years, five out the eight
senior executive and non executive appointments have been filled by females.
Our group Audit & Risk Committee and group Remuneration Committee both
have female chairmen and Movestic is headed up by a female CEO.
Senior management includes employees other than group directors who
have the responsibility for planning, directing or controlling the activities of
the company, or a strategically significant part of the company. Chesnara have
only three members of staff who meet the Companies Act definition of senior
management. We therefore provide additional information in keeping with
the spirit of the company’s focus on diversity. We have provided additional
disclosures to cover the employees within the group. We have given
an analysis of diversity which shows ‘Heads of business units and group
functions’ separately from the remainder of employees within the group.
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. In addition, as multinational group, we actively
use video-conferencing throughout our interactions.
(cid:3)(cid:1286)OU(cid:260)(cid:3)(cid:256)EO(cid:256)(cid:184)E(cid:3)(cid:4)(cid:260)E(cid:3)OU(cid:260)(cid:3)(cid:123)(cid:260)E(cid:4)TE(cid:268)T(cid:3)(cid:4)(cid:268)(cid:268)ET(cid:268)(cid:1245)(cid:3)
WE RECOGNISE THAT TO BE ABLE TO MEET THE
EXPECTATIONS WE HAVE SET OURSELVES, WE
NEED TO ENSURE, IN A COMPETITIVE MARKET, WE
CONTINUE TO ATTRACT, PROMOTE AND RETAIN
T(cid:137)E(cid:3)(cid:57)E(cid:268)T(cid:3)C(cid:4)NDID(cid:4)TE(cid:268)(cid:1287)(cid:1245)
46
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION B
Whistleblowing
Across the group we have in place whistleblowing policies, which comply
with local regulatory requirements. In the UK the Audit & Risk Committee
Chairman is appointed as Whistleblowing Champion, whose responsibilities
meet the requirements of the Senior Insurance Managers Regime. Similar
arrangements are in operation within our overseas divisions.
Modern Slavery Act 2015
The Modern Slavery Act 2015 (Slavery Act) requires a commercial
organisation over a certain size to publish a slavery and human trafficking
statement for each financial year. This statement can be found on the
Chesnara plc website. Chesnara plc welcomes the act and with its
subsidiaries (together ‘Chesnara’) is committed to the eradication of human
trafficking and slavery. Slavery and human trafficking are abuses of a
person’s freedom and rights. We are totally opposed to such abuses in our
direct operations, our indirect operations and our supply chain as a whole.
The operating model of Chesnara’s UK business is directed towards
maintaining shareholder value by outsourcing all support activities to
professional specialists. The activities typically include policy administration,
systems management, accounting, actuarial and investment management.
This has been provided by long-term contracts held with only reputable
suppliers, and as these are significant, the responsibility of oversight has
remained with the central governance.
We consider that the greatest risk of slavery and human trafficking would
be in our supply chain where operational and managerial oversight is out
of our direct control and we expect our partners to operate in line with our
corporate values.
Anti-Bribery and Corruption Policy
Chesnara has in place an Anti-Bribery and Corruption Policy which is
reviewed annually or more frequently by exception. Its scope includes all
directors, employees and third-parties operating on its behalf and the
company has a zero tolerance to all such matters. Controls operated in the
period include the maintenance and review of a Gifts & Hospitality Register,
the disallowance of any political contributions or inducements and careful
consideration of any charitable donations. The internal financial control
environment acts as a further monitoring and prevention system. There were
no instances of bribery or corruption in the period.
(cid:3)(cid:1286)OU(cid:260)(cid:3)(cid:4)(cid:256)(cid:256)(cid:260)O(cid:4)C(cid:137)(cid:3)I(cid:268)(cid:3)TO(cid:3)(cid:57)E(cid:3)O(cid:256)EN(cid:1239)(cid:3)ENT(cid:260)E(cid:256)(cid:260)ENEU(cid:260)I(cid:4)(cid:184)(cid:3)
(cid:4)ND(cid:3)INC(cid:184)U(cid:268)I(cid:345)E(cid:3)IN(cid:3)(cid:137)O(cid:346)(cid:3)(cid:346)E(cid:3)O(cid:256)E(cid:260)(cid:4)TE(cid:1287)(cid:1245)
Greenhouse gas reporting
Disclosure of emissions
Global GHG emissions data for the year to 31 December 2018:
Emissions from:
Combustion of fuel and operation
of facilities (scope 1)
Electricity, heat, steam and cooling purchased
for own use (scope 2)
Travel (scope 3)
Company’s chosen intensity measurement =
tonnes of CO2e per square metre of office
space occupied
Emissions reported above normalised to per tonne of product output
Tonnes of CO2e
2018
2017
–
–
202.2
193.8
225.1
229.3
0.064
0.063
The emission figures above reflect the inclusion of Scildon from the date of
acquisition in April 2017. The increase in our total emissions in 2018
therefore reflects the full year impact of Scildon when compared with the
prior year. The overall measure for tonnes of CO2e per square metre of office
space has remained broadly in line with the prior year.
Methodology used to calculate emissions
We have followed the requirements of the GHG Protocol Corporate Accounting
and Reporting Standard (revised edition) and the Defra Carbon Trust conversion
factors to measure and report greenhouse gas emissions, as well as the
disclosure requirements in Part 7 of the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013. The financial control method,
which captures the sources that fall within our consolidated Financial Statements,
has been used. Although we operate an outsourced model in the UK, these
outsourcers do not work exclusively for the group and therefore it is not
deemed appropriate to include emissions outside of the group consolidated
Financial Statements. The group’s carbon reporting falls under three scopes as
shown in the table above
There are 29 company-leased vehicles in total across the group which are used
primarily for commuting and not business-related activities. Commuting mileage
is a personal expense of the employee and is not therefore included in the
consolidated Financial Statements.
Energy Saving Opportunity Scheme Regulations 2014
The company has also committed to fully engaging with the Energy Saving
Opportunity Scheme Regulations 2014 (ESOS). As part of the ESOS, the
company submitted and was externally assessed for the energy usage, in
the UK, for the period 31 December 2014 to 31 December 2015. Energy
usage examined was in relation to any energy consumed by the company,
lighting, heating, fuel to name a few. ESOS operates on a four year
compliance phase with the next reporting / compliance date being
December 2019.
Approved by the board on 28 March 2019 and signed on its behalf by
Peter Mason
Chairman
John Deane
Chief Executive Officer
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION C:
CORPORATE
GOVERNANCE
48
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50 Board profile and Board of Directors
52 Governance overview from the Chairman
54 Corporate Governance Report
58 Nomination & Governance
Committee Report
60 Directors’ Remuneration Report
80 Audit & Risk Committee Report
86 Directors’ Report
89 Directors’ Responsibilities Statement
LB5111 Chesnara 2018 Sec C_Gov AW_Stg8.indd 49
Amsterdam, Netherlands
49
49
04/04/2019 12:42
CORPORATE GOVERNANCE
BOARD PROFILE
AND BOARD OF DIRECTORS
One key role for the Chesnara Board of Directors is to provide leadership and maintain
the highest possible standards of corporate governance.
The skills, knowledge and experience of our board members ensure we continue to deliver against our strategic
(cid:577)(cid:441)(cid:538)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:624)(cid:1245)(cid:3)(cid:346)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:520)(cid:566)(cid:653)(cid:457)(cid:3)(cid:637)(cid:577)(cid:3)(cid:449)(cid:520)(cid:624)(cid:442)(cid:546)(cid:577)(cid:624)(cid:457)(cid:3)(cid:387)(cid:3)(cid:441)(cid:577)(cid:387)(cid:616)(cid:449)(cid:3)(cid:442)(cid:577)(cid:564)(cid:613)(cid:457)(cid:637)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:546)(cid:457)(cid:1239)(cid:3)(cid:387)(cid:624)(cid:3)(cid:624)(cid:653)(cid:564)(cid:564)(cid:387)(cid:616)(cid:520)(cid:624)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:616)(cid:520)(cid:508)(cid:515)(cid:637)(cid:1245)(cid:3)T(cid:515)(cid:520)(cid:624)(cid:3)(cid:624)(cid:653)(cid:564)(cid:564)(cid:387)(cid:616)(cid:688)(cid:3)(cid:520)(cid:624)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)
(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:577)(cid:616)(cid:457)(cid:3)(cid:442)(cid:577)(cid:564)(cid:613)(cid:457)(cid:637)(cid:457)(cid:566)(cid:442)(cid:520)(cid:457)(cid:624)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:515)(cid:387)(cid:676)(cid:457)(cid:3)(cid:441)(cid:457)(cid:457)(cid:566)(cid:3)(cid:520)(cid:449)(cid:457)(cid:566)(cid:637)(cid:520)(cid:718)(cid:457)(cid:449)(cid:3)(cid:387)(cid:624)(cid:3)(cid:441)(cid:457)(cid:520)(cid:566)(cid:508)(cid:3)(cid:543)(cid:457)(cid:688)(cid:3)(cid:637)(cid:577)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:577)(cid:387)(cid:616)(cid:449)(cid:3)(cid:449)(cid:520)(cid:624)(cid:442)(cid:515)(cid:387)(cid:616)(cid:508)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:616)(cid:457)(cid:624)(cid:613)(cid:577)(cid:566)(cid:624)(cid:520)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)
shows the collective score based on the current board make-up.
To provide further insight into the skills, knowledge and experience of each board member, the biographies below
(cid:624)(cid:515)(cid:577)(cid:677)(cid:3) (cid:637)(cid:515)(cid:457)(cid:3) (cid:624)(cid:613)(cid:457)(cid:442)(cid:520)(cid:718)(cid:442)(cid:3) (cid:387)(cid:616)(cid:457)(cid:387)(cid:624)(cid:3) (cid:577)(cid:505)(cid:3) (cid:624)(cid:613)(cid:457)(cid:442)(cid:520)(cid:387)(cid:546)(cid:520)(cid:624)(cid:564)(cid:3) (cid:457)(cid:387)(cid:442)(cid:515)(cid:3) (cid:564)(cid:457)(cid:564)(cid:441)(cid:457)(cid:616)(cid:3) (cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:449)(cid:457)(cid:624)(cid:1239)(cid:3) (cid:677)(cid:520)(cid:637)(cid:515)(cid:3) (cid:457)(cid:387)(cid:442)(cid:515)(cid:3) (cid:546)(cid:457)(cid:637)(cid:637)(cid:457)(cid:616)(cid:3) (cid:442)(cid:577)(cid:616)(cid:616)(cid:457)(cid:546)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3) (cid:637)(cid:577)(cid:3) (cid:637)(cid:515)(cid:457)(cid:3) (cid:442)(cid:577)(cid:564)(cid:613)(cid:457)(cid:637)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)
matrix on the right. Where a board member has a competency in blue this indicates a primary specialism. A light grey
colour indicates that this competency is a secondary specialism for that board member.
MIKE EVANS
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
(until 1 October 2018)
Mike stepped down from the Chesnara plc board effective
1 October 2018. Prior to this date he acted as Senior
Independent Director, a position he had held since May 2013,
and was a member of the Nomination & Governance,
Audit & Risk and Remuneration Committees.
THE BOARD
PETER MASON
CHAIRMAN
Non-Executive Chairman of the board, Peter is responsible
for the leadership of the board, setting the agenda and
ensuring the board’s effectiveness in all aspects of its role.
Appointment to the board: Appointed to the board in
March 2004 and as Chairman in January 2009.
Committee membership: Nomination & Governance
(Chairman) and a member of the Remuneration Committee.
Peter attends the Audit & Risk Committee by invitation.
Current directorships/business interests:
– Movestic Livförsäkring AB, Chairman
– Chesnara Holdings BV, Chairman
– Countrywide Assured plc, Chairman
– Countrywide Assured Life Holdings Limited, Chairman
Skills and experience:
A
B C D E
F G H I
JANE DALE
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
AND CHAIRMAN OF THE AUDIT & RISK COMMITTEE
JOHN DEANE
GROUP CHIEF EXECUTIVE
Appointment to the board: Appointed to the Chesnara plc
Appointment to the board: Appointed to the board in
board in May 2016 and as Chairman of the Audit & Risk
Committee in December 2016. Appointed as the board’s
Senior Independent Non-Executive Director in October 2018.
Committee membership: Audit & Risk and Nomination &
Governance.
Current directorships/business interests:
– Countrywide Assured plc, Chairman of the Audit & Risk
Committee
– Covea Insurance plc, Chairman of the Audit Committee
– Covea Life Limited, Chairman of the Audit Committee
– British Gas Services Limited, NED (resigned 31 December
2018)
– Bizspace Holdings Ltd, NED, Chairman of the Audit Committee
Skills and experience:
A
B D E
F
G H I
J
K
December 2014 and as Group Chief Executive in January 2015.
Career, skills and experience: John is a qualified Actuary
and has over 30 years experience in the life assurance
industry. John joined Century Life, a closed book acquisition
company in 1993. As CEO, he oversaw the creation of the
outsourcing company Adepta in 2000. He joined Old Mutual
plc in 2003 becoming their Corporate Development Director
later that year. In 2007 he joined the board of Royal London
with responsibility for its open businesses in the UK, Ireland
and Isle of Man.
Skills and experience:
A
B C D E
F
G H I
J
K
50
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SECTION C
BOARD KNOWLEDGE, SKILLS AND EXPERIENCE SUMMARY
KEY KNOWLEDGE/SKILL/EXPERIENCE
A
B
C
D
E
F
Chesnara company knowledge
Industry knowledge – UK
Industry knowledge - Sweden/Netherlands
Governance – actuarial
Governance – financial
Audit and risk management
G
Investment management
H
M & A and business development
I
J
K
Commercial management
Operational change management
Operational management
SUMMARY
• • • • • •
• • • • • • •
• • • •
• • • • • •
• • • • • •
• • • • • •
• • • • •
• • • • • • •
• • • • •
• • • • •
• • •
Annual assessment
(cid:442)(cid:577)(cid:566)(cid:718)(cid:616)(cid:564)(cid:624)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:577)(cid:653)(cid:616)(cid:3)(cid:441)(cid:577)(cid:387)(cid:616)(cid:449)(cid:3)
continues to hold
(cid:624)(cid:520)(cid:508)(cid:566)(cid:520)(cid:718)(cid:442)(cid:387)(cid:566)(cid:637)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:616)(cid:520)(cid:457)(cid:566)(cid:442)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)
the insurance sector and
also have a range of
specialisms which ensure
all aspects of our
(cid:442)(cid:577)(cid:564)(cid:613)(cid:457)(cid:637)(cid:457)(cid:566)(cid:442)(cid:688)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:546)(cid:457)(cid:3)(cid:387)(cid:616)(cid:457)(cid:3)
well covered.
In the above diagram a blue symbol represents the number of individuals with a primary specialism in that area, with a grey symbol reflecting a secondary area
of expertise. Where board members are not deemed to have a level of specialism regarding a specific competency they clearly contribute constructively to
those matters through their general level of board and business experience.
VERONICA OAK
NON-EXECUTIVE DIRECTOR, CHAIRMAN OF THE
REMUNERATION COMMITTEE
DAVID BRAND
NON-EXECUTIVE DIRECTOR
Appointment to the board: Appointed to the Chesnara plc
board in January 2013 and as Chairman of the Remuneration
Committee in May 2013.
Appointment to the board: Appointed to the Chesnara plc
board in January 2013 and as Chairman of the Movestic
Audit & Risk Committee in October 2015.
Committee membership: Nomination & Governance,
Audit & Risk and Remuneration.
Committee membership: Nomination & Governance, Audit
& Risk and Remuneration (the latter from September 2018).
Current directorships/business interests:
– Countrywide Assured plc, NED
– Hanley Economic Building Society, Chairman of the
Risk Committee
– Hanley Mortgage Services Limited, NED
– Hanley Financial Services Limited, NED
– Sanlam Investment Holdings Limited, NED
– Investment & Life Assurance Group Limited, NED
Current directorships/business interests:
– Countrywide Assured plc, NED
– Exeter Friendly Society, Chairman of the Audit Committee
and Investment Committee
– Exeter Cash Plan Holdings Limited, NED
– Exeter Cash Plan Limited, NED
– Movestic Livförsäkring AB, Chairman of the Audit
& Risk Committee
Skills and experience:
A
B H I
J
K
Skills and experience:
A
B C D
E
F
G H
DAVID RIMMINGTON
GROUP FINANCE DIRECTOR
MARK HESKETH
NON-EXECUTIVE DIRECTOR
Appointment to the board: Appointed as Group Finance
Director with effect from May 2013.
Appointment to the board: Appointed to the Chesnara plc
board in December 2018.
Career, skills and experience: David trained as a chartered
accountant with KPMG, has over 20 years’ experience in
financial management within the life assurance and banking
sectors and has delivered 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.
Skills and experience:
A
B C D E
F
H J
Committee membership: Nomination & Governance and
Audit & Risk.
Current directorships/business interests:
– Countrywide Assured plc, NED
– Stonebridge International Insurance Limited, NED
– Centre for Ageing Better, NED
– Bethany Christian Trust, NED
– Powza Limited, NED
Skills and experience:
B
D E
F
G H I
J
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
GOVERNANCE OVERVIEW
FROM THE CHAIRMAN
Good governance is the foundation
of how we operate.
Dear Shareholder,
On behalf of the board, I am very pleased to present our Corporate Governance Report for the year ended
31 December 2018.
I am delighted to be able to report that the board considers that the company has complied fully throughout
the year with the provisions of the UK Corporate Governance Code.
The board is accountable to our shareholders and wider stakeholders for generating and delivering
sustainable value through good management of the group’s business. The board plays a critical role in
(cid:457)(cid:566)(cid:624)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:637)(cid:577)(cid:566)(cid:457)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:1287)(cid:624)(cid:3)(cid:442)(cid:653)(cid:546)(cid:637)(cid:653)(cid:616)(cid:457)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:624)(cid:3)(cid:520)(cid:624)(cid:3)(cid:624)(cid:457)(cid:637)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:637)(cid:577)(cid:613)(cid:1245)(cid:3)I(cid:3)(cid:718)(cid:616)(cid:564)(cid:546)(cid:688)(cid:3)(cid:441)(cid:457)(cid:546)(cid:520)(cid:457)(cid:676)(cid:457)(cid:3)(cid:637)(cid:515)(cid:387)(cid:637)(cid:3)(cid:387)(cid:3)(cid:616)(cid:577)(cid:441)(cid:653)(cid:624)(cid:637)(cid:1239)(cid:3)
and effective, governance framework is essential to support management in delivering the company’s
strategy. We understand that good governance is fundamental to the effective management of the
business and its sustainability in both the short and the long-term.
This section of the Annual Report and Accounts sets out our governance policies and practices, and
includes details of how the company has, during 2018, applied the Code.
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SECTION C
Current balance of executive
and non-executive directors
Current gender diversity of
the board
Board tenure of NEDs
1
2
2
1
1
4
5
3
Chairman
Non-executive
Executive
Male
Female
Over 6 years
2-6 years
0-2 years
The board is cognisant of the corporate governance reforms and proposed changes in legislation that
are intended to encourage responsible corporate behaviour. The board is also mindful of the company’s
wider purpose, responsibilities and decision-making processes to a broader stakeholder group. In
delivering sustainable performance, the board is aware of the need to consider and engage with the
interests of its employees, customers and suppliers. In 2018, the board continued to engage with its
shareholders to promote effective governance through open and constructive two-way dialogue, and
we place great value on this engagement.
(cid:268)(cid:520)(cid:508)(cid:566)(cid:520)(cid:718)(cid:442)(cid:387)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:508)(cid:616)(cid:457)(cid:624)(cid:624)(cid:3)(cid:515)(cid:387)(cid:624)(cid:3)(cid:441)(cid:457)(cid:457)(cid:566)(cid:3)(cid:564)(cid:387)(cid:449)(cid:457)(cid:3)(cid:441)(cid:688)(cid:3)(cid:564)(cid:387)(cid:566)(cid:387)(cid:508)(cid:457)(cid:616)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:564)(cid:613)(cid:546)(cid:577)(cid:688)(cid:457)(cid:457)(cid:624)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:1245)(cid:3)(cid:346)(cid:457)(cid:3)(cid:616)(cid:457)(cid:564)(cid:387)(cid:520)(cid:566)(cid:3)(cid:564)(cid:520)(cid:566)(cid:449)(cid:505)(cid:653)(cid:546)(cid:3)
of the strong relationship between ethics and governance and the role the board plays in
demonstrating these. The group’s Governance Map, which sets out the governance approach and
framework, continues to be developed and embedded across all divisions of the business.
The Audit & Risk Committee undertook an external audit tender process in 2017 and the appointment
of Deloitte LLP received shareholder approval at the 2018 AGM.
T(cid:515)(cid:520)(cid:624)(cid:3)(cid:616)(cid:457)(cid:613)(cid:577)(cid:616)(cid:637)(cid:3)(cid:449)(cid:457)(cid:564)(cid:577)(cid:566)(cid:624)(cid:637)(cid:616)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)(cid:515)(cid:577)(cid:677)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:577)(cid:387)(cid:616)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:520)(cid:637)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:637)(cid:637)(cid:457)(cid:457)(cid:624)(cid:3)(cid:515)(cid:387)(cid:676)(cid:457)(cid:3)(cid:505)(cid:653)(cid:546)(cid:718)(cid:546)(cid:546)(cid:457)(cid:449)(cid:3)(cid:637)(cid:515)(cid:457)(cid:520)(cid:616)(cid:3)(cid:508)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)
responsibilities.
Peter Mason
Chairman
28 March 2019
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
CORPORATE GOVERNANCE REPORT
IT IS ESSENTIAL TO HAVE A WELL DESIGNED AND EFFECTIVE GOVERNANCE FRAMEWORK TO ENSURE
THAT STAKEHOLDERS’ INVESTMENTS ARE SAFEGUARDED.
The following statement, together with the Directors’ Remuneration Report on pages 62 to 79, the Nomination
& Governance Committee Report on pages 58 to 59, and the Audit & Risk Committee Report on pages 80 to 85
describes how the principles set out in the UK Corporate Governance Code 2016 (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 2018.
Compliance with the Code
The company has complied throughout the year with all of the relevant
provisions of the Code. The UK Corporate Governance Code is available at
www.frc.org.uk
The board
At 31 December 2018, the board comprised of a non-executive Chairman,
four other non-executive directors and two executive directors.
Biographical details of directors are given on pages 50 and 51 and a board
profile, which assesses the core competencies required to meet the group’s
strategic objectives, is provided on page 51. The board, which plans to meet
at least eight times during the year, has a schedule that 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 were also directors of Countrywide Assured plc, a
UK-based life and pensions subsidiary within the group;
ii) two directors of the company, being Messrs Mason and Deane, were also
directors of Chesnara Holdings BV throughout the year, whilst
Mr Evans was a director of Chesnara Holdings BV until his resignation
effective 1 October 2018; and
iii) four directors of the company, being Messrs Mason, Deane, Brand and
Rimmington, were also directors of Movestic Livförsäkring AB throughout
the year.
Under local legislation or regulation for all divisions of the group, the directors
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. The Prudential Regulation Authority is the group
supervisor and maintains oversight of all divisions of the group through the
college of supervisors.
The responsibilities that the board has delegated to the respective executive
management teams of the UK, Dutch 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 Group Chief Executive
The division of responsibilities between the Chairman of the board and the
Group Chief Executive 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 and supplying timely information, ensuring its effectiveness,
encouraging challenge from non-executive directors and setting its agenda.
The Chairman has no day-to-day involvement in the management of the group
The Group Chief Executive has direct charge of the group on a day-to-day
basis and is accountable to the board for the strategic, financial and operational
performance of the group.
Senior independent director
The board designated Jane Dale, who has been a non-executive board member
since May 2016, as the Senior Independent Director in October, following the
departure of Mike Evans, who had held the position throughout the year until
that point. The Senior Independent Director supports the Chairman in the
delivery of the board’s objectives and to ensure that the view of all shareholders
and stakeholders are conveyed to the board. Jane Dale 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. The Senior Independent Director also meets with the
non-executive directors, without the Chairman present, at least annually, and
conducts the annual appraisal of the Chairman’s performance and provides
feedback to the Chairman and the board on the outputs of that appraisal.
Directors and directors’ independence
The board considers that all non-executive directors are independent. The
Chairman was independent at the date of his appointment and that he was
free from any business or other relationship with the company which could
have materially influenced his judgement and he continues to represent a
strong source of advice and independent challenge. There are currently four
independent non-executive directors on the board: Jane Dale, Veronica Oak,
David Brand and Mark Hesketh.
Other than their fees and reimbursement of taxable expenses, which are
disclosed on page 63, the non-executive directors received no remuneration
from the company during the year. 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.
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,
knowledge and number that they are able to challenge the executive directors
and their views carry significant weight in the company’s decision making.
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,
their responsibilities and duties as contained within the group’s Governance
Map, which covers 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 updated on the group’s
business and on the competitive and regulatory environment in which it
operates. During the year, specific specialist areas of training have also been
provided to the board, in particular IFRS17. Through their membership of the
CA plc board, all of the directors who served during the period under review
have considerable knowledge and experience of the UK-based businesses
of the group. Similarly, Messrs Mason, Deane, Evans (to October 2018),
Brand and Rimmington, through their membership of the divisional
boards, between them have considerable knowledge and experience of
both the Swedish and Dutch based businesses of the group.
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SECTION C
The Company Secretary holds a register of interest, and a log of all potential
conflicts raised is maintained and updated. Whenever a director takes on
additional external responsibilities, the Chairman considers any potential
conflicts that may arise and whether or not the director continues to have
sufficient time to fulfil his or her duties. The board is empowered to authorise
potential conflicts and agree what measures, if any, are required to mitigate
or manage them. No new material conflicts of interest are noted in 2018.
Company secretary
Al Lonie is the Company Secretary and is responsible for advising the board,
through the Chairman, on all governance matters. The directors have access
to the advice and services of the company secretary. Al Lonie took over from
Zoe Kubiak as company secretary on 1 April 2018.
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.
Remuneration Committee
Full details of the composition and work of the Remuneration Committee
are provided on pages 60 to 61.
Audit & Risk Committee
Full details of the composition and work of the Audit & Risk Committee are
provided on pages 80 to 85.
Nomination & Governance Committee
Full details of the composition and work of the Nomination & Governance
Committee are provided on pages 58 to 59.
UK Corporate Governance Code 2018
This revised code applies to accounting periods beginning on or after
1 January 2019. It places greater emphasis on relationships between
companies, shareholders and stakeholders. It also promotes the importance
of establishing a corporate culture that is aligned with a company purpose,
business strategy, promotes integrity and values diversity. We have
undertaken a gap analysis against the revised code and delivered on a
number of actions to ensure that we meet the requirements of the new
code from its effective date of 1 January 2019, which will be reported
against in future periods.
THE BOARD DIRECTORS RECEIVE REGULAR
UPDATES AS WELL AS SPECIFIC SPECIALIST
AND REGULATORY TRAINING.
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 subsidiaries within the UK, Dutch and Swedish divisions. These
boards hold scheduled meetings, at least quarterly, which are serviced by
regular reports and information, which cover all of the key areas relevant to
the direction and operation of those subsidiary entities, including business
development, key projects, financial performance and position, actuarial
assumptions setting and results analysis, compliance, investments, operations,
customer care and communication, internal audit, all aspects of the risk function
and own risk and solvency assessment.
All divisional entities monitor risk management procedures, including the
identification, measurement and control of risk through the auspices of
a Audit & Risk Committee. These committees are accountable to and report
to their boards on a quarterly basis.
Annual reports are produced which cover an assessment of the capital
requirements of the life assurance subsidiaries, their financial condition and
a review of risk management and internal control systems.
Also, the divisions are required to submit a quarterly risk report and an annual
report on risk management and internal control systems.
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.
Board effectiveness and performance evaluation
As part of the annual performance, an internal effectiveness evaluation process
of the board and its committees was undertaken in the year. This was through
an anonymous questionnaire and individual meetings with each director to
obtain their views on what was working well and what could be improved.
The discussions were wide-ranging, covering how well the board operates,
the process of decision making, the balance between the focus on risk, fair
customer outcomes and running the business, the culture and dynamics of the
board ensuring its composition and that of its committees are aligned. In
addition, using similar methods to those described above, the non-executive
directors, led by Jane Dale as Senior Independent Director, met to conduct
a formal performance evaluation of the Chairman.
The outcome of the review of the board and its committees indicated that
they continue to be effective and that each of the directors demonstrates
commitment to his or her role, along with sufficient time to meet the required
time commitment to the company. A number of improvements have been
made in the year as a result of the actions emanating from the effectiveness
review undertaken in 2018. In summary, the principal governance actions are:
– the board has increased its employee engagement with the appointment of a
NED who will be available to all employees;
– changes in reporting (appropriate for the size of the organisation) have been
made and will continued to be reviewed in the light of the developments in
FRC guidance;
– the implementation date for IFRS17 regulation has been deferred for a year but
focus has continued on monitoring of the implementation project; and
– focus has remained on the potential impact of the UK leaving the
European Union.
Directors’ conflicts of interest
The board has a policy and effective procedures in place for managing and,
where appropriate, approving conflicts or potential conflicts of interest.
This is a recurring agenda item at all board meetings, giving directors the
opportunity to raise any conflicts of interest they may have or to update
the board on any changes to previously lodged interests. A director may be
required to leave a board meeting whilst such matters are discussed.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
CORPORATE GOVERNANCE REPORT (CONTINUED)
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
John Deane - Executive director
Veronica Oak - Non-executive director
David Brand - Non-executive director
David Rimmington - Executive director
Jane Dale - Senior independent non-executive director1
Mark Hesketh – Non-executive director 2
Mike Evans – Senior independent non-executive director1
Scheduled
board
Nomination &
Governance
Committee
Remuneration
Committee
Audit & Risk
Committee
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
0 (0)
6 (6)
5 (5)
5 (5)
5 (5)
5 (5)
n/a
5 (5)
0 (0)
3 (3)
4 (4)
4 (4)
4 (4)
1 (1)
n/a
n/a
0 (0)
3 (3)
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
0 (0)
6 (6)
The figures in brackets indicate the maximum number of scheduled meetings in the period during which the individual was a board or committee member.
1. Mike Evans was senior independent non-executive director until he stepped down from the board effective 1 October 2018. Jane Dale was appointed as
the board senior independent non-executive director from October 2018.
2. Mark Hesketh was appointed to board in mid-December 2018 and as such, did not attend any meetings in his capacity as a director.
Relations with shareholders
The Group Chief Executive and the Group Finance Director meet with
institutional shareholders 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 Group Chief Executive, the
Group Finance Director and shareholders and is responsible for ensuring
that the views of shareholders are known to the board. This includes twice
yearly feedback prepared by the company’s brokers on meetings the
executive directors have held with institutional shareholders. The company
has a programme of meetings with its larger shareholders, which provides
an opportunity to discuss, on the basis of publicly available information, the
progress of the business.
Annual and interim reports are published 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
All shareholders are encouraged to attend the Annual General Meeting
(‘AGM’) at which the results are explained and 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 14 May 2019 can be found in the
notice of the meeting on pages 181 to 182.
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 the FRC’s guidance on Risk Management, Internal
Control and Related Financial and Business Reporting, the board confirms
that there is an on-going process for identifying, evaluating and managing
the significant risks faced by the group. This process has been in place for
the year under review and up to the date of approval of the Annual
Report and Accounts. The process is regularly reviewed by the board and
accords with the guidance.
In accordance with the regulatory requirements of the PRA and SII, the
relevant business divisions have maintained and enhanced their 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 Audit & Risk
Committee regularly reviews and reports quarterly on risks to the board.
The group also maintains a principal risk register, which ensures
identification, assessment and control of the significant risks subsisting
within the company, CA, Waard Group, Movestic and Scildon. The principal
risks and uncertainties of the group can be found on pages 43 to 45.
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SECTION C
The maintenance of the principal risk registers is the responsibility of senior
management, who report on them quarterly to the respective divisional
Audit & Risk Committees and to each Chesnara Audit & Risk Committee
meeting. The divisions maintain a risk and responsibility regime, which
ensures that:
Financial reporting
Management is responsible for establishing and maintaining adequate internal
controls over financial reporting. These controls are designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes.
– the boards and Group 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 boards have responsibility for the satisfactory management and control
of risks through the specification of internal procedures; and
– there is an explicit risk function, which is supported by compliance and internal
audit functions.
As an integral part of this regime a detailed risk register is maintained, which
identifies, monitors and assesses risk by appropriate classification of risk.
All Chesnara directors are also members of the CA plc board and the company
thereby has effective oversight of the maintenance and effectiveness of
controls subsisting within CA plc. Regarding the Waard Group, Scildon and
Movestic, such oversight is exercised by way of the membership of a
number of the Chesnara directors on their boards, together with quarterly
reporting to the Chesnara plc 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 2018, 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 and Compliance 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. Conclusions of the Audit &
Risk Committee annual review of effectiveness of the group’s risk management
and internal control systems is reported in more detail in the Audit & Risk
Committee Report as set out on page 83 to 84. The board is not aware of
any significant deficiencies in the effectiveness of the group’s systems of
internal control and risk management for the year under review. There has
been no change of status to this up to the date of approval of this report.
The group has comprehensive planning, budgeting, forecasting and reporting
processes in place. A summary of the group’s financial results supported by
commentary and performance measures are provided to the board before each
board meeting.
In relation to the preparation of the group financial statements, the controls in
place include:
– the finance governance team review new developments in reporting
requirements and standards to ensure that these are reflected in group
accounting policies; and
– the finance governance team develop the group’s financial control processes
and procedures which are implemented across the group.
The reporting process is supported by transactional and consolidation finance
systems. Reviews of the applications of controls for external reporting purposes
are carried out by senior finance management. The results of these reviews are
considered by the board as part of its monitoring of the performance of controls
around financial reporting. The Audit & Risk Committee reviews the application
of financial reporting standards and any significant accounting judgements made
by management.
Going Concern and Viability Statement
The Directors’ Statement on Going Concern is included in the Directors’ Report
on page 88 and the Long-Term Viability Statement is set out on page 41.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
NOMINATION & GOVERNANCE
COMMITTEE REPORT
The main focus of the Nomination & Governance Committee considers the mix of skills and experience that the
board requires to be effective and with focus on talent development and succession planning across the group.
Nomination & Governance Committee
During the period under review, the committee comprised Peter Mason,
The composition of the board
After a number of director changes in recent years, the committee has
who also served as chairman of the committee, David Brand, Veronica Oak,
Jane Dale, all of whom served throughout the period, and Mike Evans who
served to October 2018. Mark Hesketh was appointed to the committee in
December 2018. The chairman does not chair or attend when the committee
is considering matters relating to his position, in which circumstances the
committee is chaired by an independent non-executive director, usually the
Senior Independent Director. No individual participates in discussion or
decision-making when the matter under consideration relates to him or her.
The committee chairman reports material findings and recommendations at
the next board meeting.
continued to focus on succession planning, with a view to identifying the best
composition for the board and its committees for the next phase of
development for the business. The review also identified areas where the
board should evolve to meet any expected future business and strategic
direction of the group.
The committee is mindful of the corporate governance developments in the
areas of diversity and gender balance including the changes to the Disclosure
and Transparency Rules. This will be kept under review during 2019, and any
changes to the existing policies and objectives for board and management
diversity will be reported in the next Annual Report.
The terms of reference for the committee can be found on the company
The Nomination & Governance Committee agrees with the importance of
website, www.chesnara.co.uk
The role of the Nomination & Governance Committee is to:
– keep under review the balance, structure, size and composition of the board
and its committees, ensuring that they remain appropriate;
– be responsible for overseeing the board’s succession planning requirements
including the identification and assessment of potential board candidates and
making recommendations to the board for its approval;
– keep under review the leadership needs of, and succession planning for, the
group in relation to both its executive directors and other senior management;
– identify and nominate, for the approval of the board, candidates to fill board
vacancies as and when they arise;
– manage the search process for new directors, recommending appointments
to the board; and
– evaluate the balance of skills, knowledge, experience and diversity of the board.
This includes consideration of recommendations made by the Group Chief
Executive for changes to the executive membership of the board.
During the period, the committee met five times and attendance at those
meetings is shown on page 56 of the Corporate Governance Report.
having diversity on the board, including female representation and individuals
with different experiences, skills, background and expertise, to ensure an
appropriate board balance is maintained. During the year, the Nomination &
Governance Committee reviewed and recommended the approval of the
Chesnara Diversity Policy. The board currently comprises five men and two
women (28.5%). The key objective of the policy is stated below:
Chesnara plc recognises and embraces the benefits of having diversity at its
board table in order to achieve and optimise competitive advantage. The
board will aim to include and utilise directly, or through the board subsidiaries,
differences in the skills, background, ethnicity, gender, regional and industry
experience along with other qualities brought by its directors and those of its
subsidiaries. Such differences will be considered in determining the optimum
composition of the board and will be re-balanced as appropriate and when
possible to ensure optimal and efficient stewardship.
The organisation also recognises the benefits of behavioural diversity, such as
temperament and approach of individual directors and seeks to build the right
mix of such independent character and judgement.
All board appointments are made on merit, in the context of the skills and
experience required for the board to operate effectively as a unit and taking
account of succession planning. Candidates are assessed against pre-defined
and professional profile criteria. Chesnara remains committed to meritocracy
in the boardroom, which requires a diverse and inclusive culture where
directors believe that their views are heard, their concerns are attended to and
they serve in an environment where bias, discrimination and harassment on
any matter are not tolerated.
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The development of talent below board level is extremely important and
an area of focus for the board. The company continues to build an internal
leadership pipeline for senior roles. The board believes by focusing on
creating a pool of internal talent that there is an increased probability of
employee retention and the building of internal capabilities needed to
support the growth of the business.
Succession planning
Succession planning is an important element of good governance, ensuring
that Chesnara is fully prepared for planned or sudden departures from key
positions throughout the group. The committee, in the year, has reviewed the
succession plans for the board, the group executive committee and senior
executives across the group.
The biographical details of the board and the committee membership for
each director who served during 2018 can be found on pages 50 and 51.
Board appointment process
The committee adopts a formal and transparent procedure for the
appointment of new directors to the board.
The board’s process is to use independent external recruitment consultants
for appointing directors. The company will provide a brief of the candidate
desired, along with a role profile, to the recruitment consultant. As part of
the appointment process, external recruitment consultants are asked to
provide candidates from a diverse range of backgrounds. Candidates who
are deemed suitable, based on merit and against objective criteria, are
submitted to the committee as a potential candidate. The committee will
review a short list of suitable candidates against the criteria, and put forward
for interview by the board and the executive management team suitably
qualified candidates. Any candidate deemed suitable for appointment will,
if necessary, first have to go through the fit and proper process as outlined
in the Senior Managers & Certification Regime (SMCR), which came into
full force on 10 December 2018.
Diversity
The board recognises the benefits of having diversity across all areas of the
group. When considering the make-up of the board, the benefits of diversity
are appropriately reviewed and balanced where possible and appropriate,
including in terms of difference in skills, sector experience, gender, race,
disability, age, nationality and other contributions that individuals may make.
In identifying suitable candidates, the committee will seek candidates from
a range of backgrounds, with the final decision being based on merit against
the role criteria set. The board maintains its practice of embracing diversity
and has therefore chosen, at this time, not to set any measurable gender
based targets.
The board and its committees undertook annual effectiveness reviews and
the respective chairmen discussed the findings in each forum. Other
standard processes were also undertaken, including Fit & Proper assessments,
Board Diversity Policy review, NED succession planning and the review of
the effectiveness of the Chairman. Any areas where increased focus was
considered to be of potential value will be taken into account as appropriate
during 2019.
Non-executive director engagement
It is important to the board that non-executive directors are provided with
training and development both within the business and at a group level. The
board believes that on-going training is essential to maintaining an effective
and knowledgeable board. The Company Secretary supports the Chairman
in ensuring that all new directors receive a tailored and comprehensive induction
programme on joining the board. Continuing education and development
opportunities are made available to all board members throughout the year.
In 2018, a number of development initiatives have continued, these included
one-to-one sessions with key members of the senior management team and
training sessions given by external providers.
Directors standing for re-election
In accordance with the Code, all directors will offer themselves for
re-election at the company’s 2019 AGM. Following the annual board
effectiveness reviews of individual directors, as applicable and subject to
re-election, the Chairman considers that each director:
– continues to operate as an effective member of the board;
– has the necessary skills, knowledge and experience to enable them to
discharge their duties and contribute to the continued effectiveness of the
board; and
– has sufficient time available to fulfil their duties.
The board, on the advice of the committee, recommends the re-election of
each director proposed for re-election at the 2019 AGM. The full 2019 AGM
Notice can be found on page 181.
Peter Mason
Chairman of the Nomination & Governance Committee
28 March 2019
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
REMUNERATION COMMITTEE
CHAIRMAN’S ANNUAL STATEMENT
Dear Shareholder
I am pleased to present the 2018 Directors’
Remuneration Report, for which we seek your
support at our forthcoming Annual General
Meeting, in May 2019.
Our Remuneration Policy was last approved by shareholders in 2017 and
Executive performance in 2018
provides a clear framework for reward linked to the strategy of the company,
aligned to the interests of executives and shareholders. For ease of reference,
this policy is appended to the Remuneration Report, starting on page 73.
In light of the performance of the executive team in 2018 relative to the
financial targets and strategic objectives set, the Remuneration Committee
is satisfied that the reward outcomes are appropriate. Our assessment of
the performance outcomes in 2018 under the STI can be found on page 64.
2018 – Another year of dividend delivery
Chesnara has a very clear focus, to recap:
1. Maximise value from existing business;
2. Acquire life and pension businesses that meet the investment criteria of the
company; and
3. Enhance value through profitable new business.
This clear strategic focus is underpinned by the culture, values and risk
environment of the group, which looks to deliver solid investment returns and
value for money for our customers. From a remuneration perspective we
seek to achieve strong alignment between the interests of shareholders and
executive directors, and continue to operate two executive incentive
schemes: the Short-Term Incentive Scheme (STI) and Long-Term Incentive
Scheme (LTI).
In 2018 we have seen delivery against:
1. Cash generation of £47.8m exceeding the funding requirements of the dividend.
2. Movestic has delivered new business profits of £8.9m, which although
reduced when compared to the prior year, is within the challenging target
range and represents a commercially attractive return. Movestic has provided
to Chesnara a SEK31.5m (£2.7m) dividend payment.
3. Scildon has delivered new business profits of £1.7m. This is in line with
expectations and shows marginal increases since acquisition but it is not
currently generating sufficient new business profits and this is therefore
a focus of management’s improvement plans. Scildon has provided to
Chesnara a EUR25m (£21.7m) dividend payment in the year.
The awards made in April 2016 under the 2014 LTI are due to vest in April
2019 and apply to John Deane (GCEO) and David Rimmington (GFD). The
targets, performance outcome and estimated value of awards can be found
in the table on page 66. As in 2018, disclosure of the Embedded Value/
Economic Value outcome now enables comparison with opening values.
Changes to the directors’ salary
In line with our Remuneration Policy, it is our normal practice to award
executive directors, and indeed all employees, an annual salary increase
broadly in line with inflation.
UK employees received an average salary increase of 2.5% in 2018 and 2.2%
in 2019. The salary of John Deane (GCEO) has been increased by the same
percentages in both years. The salary for David Rimmington (GFD) increased
by 4.9% in 2018 reflecting development in his role and by 2.2% in 2019 in line
with other UK employees. The executive directors’ remuneration for 2019 can
be found on page 63.
In line with the average salary increase to staff, the board has increased the
base fee and committee chairmanship fees for non-executive directors by 2.2%.
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Review of incentive scheme performance measures
As noted in my report last year, we have considered the performance
targets used within the Short-Term and Long-Term Incentive Schemes
to ensure that they remain effective and appropriate.
Short-Term Incentive Scheme – under this scheme, the committee
has discretion to determine with each award the performance criteria in
accordance with the Remuneration Policy. In 2018, the Remuneration
Committee reviewed whether the weightings and measures continued to
be appropriate and made changes to better reflect achievement of an
overall assessment of company financial performance when determining
executive director bonus payments – see full details on page 71.
The Long-Term Incentive Scheme aims to align executive and shareholder
interests via two equally weighted metrics: (1) Total Shareholder Return
(TSR); and (2) Embedded Value (EEV)/Economic Value (EcV) – the latter
being a measure of shareholder value. Following the advent of Solvency II,
EEV has been replaced with EcV. Therefore, for performance years starting
before 1/1/2016 the measure used is EEV, whilst EcV is the measure used
for performance years starting on or after 1/1/2016.
Future developments
We have continued to monitor developments in the area of remuneration,
whether that is via enhancements to accepted best practice, regulatory
guidance or legal requirements. Of particular note has been the committee’s
review of the new UK Corporate Governance Code. A review of our
Remuneration Policy will be undertaken this year and put to shareholders at
our AGM in 2020.
I hope my Annual Statement, together with our Remuneration Report, provides
a clear account of the operation of the Remuneration Committee during 2018
and how we have put our Remuneration Policy into practice. I’m very happy
to talk to shareholders to discuss any aspect of our activities or decisions.
Veronica Oak
Chairman of the Remuneration Committee
Shareholder engagement
The Directors’ Remuneration Report for the year ended 31 December 2018
28 March 2019
comprises my Annual Statement as Chairman of the Remuneration
Committee and our Annual Remuneration Report, which together are subject
to an advisory shareholder vote at the AGM in May 2019.
The voting outcome at the 2018 AGM in respect of the Directors’
Remuneration Report for the year ended 31 December 2017 is set out
on page 72 and reflects the support of both private and institutional
shareholders. The committee will continue to be mindful to the interests of
shareholders and other stakeholders and I welcome shareholder feedback.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION REPORT
This section sets out how the Remuneration Committee has implemented its Remuneration Policy for executive directors during 2018.
Other than the single total figure of remuneration for each director tables on page 63, statement of directors’ shareholding and share interests on pages
67 and 68, the information contained within this report has not been subject to audit.
Composition and activities of the Remuneration Committee
In accordance with its Terms of Reference, which can be viewed on the company’s website, the Remuneration Committee considered matters relating to
directors’ remuneration at each of its meetings in 2018. Members of the Remuneration Committee during the course of the year were:
Committee members
Veronica Oak
Peter Mason
Mike Evans
David Brand
Role on the
committee
Committee chairman
Committee member
Committee member
Committee member
Committee member
since
Attendance
in 2018
Maximum possible
meetings in 2018
January 2013
March 2004
March 2013
September 2018
4
4
3
1
4
4
3
1
Notes.
1. Mike Evans stepped down from the board and board committees effective 1 October 2018.
Peter Mason was not present when the chairman’s fees were discussed. By invitation, the GCEO attends Remuneration Committees, but was not present
when matters relating to his own remuneration were discussed.
The committee does not retain the services of external advisers.
Highlights 2018/2019
In 2018, the committee met four times and dealt with the following matters:
Area of focus
Matter considered
Executive director
remuneration and reward
The committee considered the scheme awards and performance targets for the awards made in 2018 under the 2014 STI Scheme
and the 2014 LTI Scheme for executive directors. A half-year evaluation was also undertaken.
All employee and executive
remuneration
A review of remuneration trends across the group revealed that pay remains at appropriate levels and is not adversely affecting
staff turnover or the ability to recruit new members of staff with the required skills and experience.
Terms of Reference
The committee’s Terms of Reference were reviewed and revision made to ensure that they continue to be appropriate for the
activities of the committee and provide adequate scope to cater for the expectations set by the new UK Corporate Governance Code.
Review of the
Remuneration Policy
The committee reviewed the Remuneration Policy last approved by shareholders in 2017 and deemed that it continued to
be appropriate.
Review of new UK Corporate
Governance Code and other
remuneration practices
The committee considered the requirements of the new UK Corporate Governance Code and as a result brought the executives’
Long-Term Incentive Scheme into compliance by adding a holding period of 2 years, which will be effective for awards made in
2019, and also amended the committee’s Terms of Reference to slightly broaden the responsibilities of the committee.
Committee evaluation
An evaluation of the committee’s performance by way of an internal questionnaire suggested that the committee continued to
operate well.
Annual salary review
The committee reviewed the salaries of the executive directors and senior management and made changes in line with its
Remuneration Policy and with due reference to staff salaries generally.
Directors’ remuneration
reporting
The committee reviewed the draft Directors’ Remuneration Report for the 2017 Report and Accounts and recommended its approval
by the Chesnara board.
Performance against
strategic targets
The committee reviewed the executive directors’ performance against targets set.
Directors’ minimum
shareholding
The committee reviewed and agreed that no changes be made at present in relation to the quantum of shares required to be held
by executive directors. The committee also reviewed the value of shares held by executives relative to the minimum requirement.
Shareholder engagement
The committee sought feedback from institutional investors in relation to the direction of voting at the 2018 AGM.
Chairman’s fees
The committee reviewed the level of fees payable to the Chairman.
Remuneration principles
The committee reviewed the Group Remuneration Principles, which guide the remuneration policies throughout the group.
Review against UK
Governance Code
Review of bonus scheme
for group and UK staff
The committee conducted a review and prepared a gap analysis, which revealed that the Code had been complied with.
The committee conducted a review of the bonus scheme for group and UK staff (excluding executive directors) which resulted in
changes being approved, including to the metrics used to assess financial performance and for the UK staff scheme the weighting
between personal and company performance.
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SECTION C
Single total figure of remuneration for each director (audited information)
The remuneration of the executive directors for the years ended 31 December 2018 and 31 December 2017 is made up as follows:
Executive directors’ remuneration as a single figure - year ended 31 December 2018
Name of director
John Deane
David Rimmington
Total
Salary
and fees
£000
All taxable
benefits1
£000
Non-taxable
benefits
£000
Annual
bonuses
£000
LTI2
£000
Pension3
£000
439
277
716
27
20
47
5
5
10
136
79
215
316
193
509
42
26
68
Executive directors’ remuneration as a single figure - year ended 31 December 2017
Name of director
John Deane
David Rimmington
Total
Salary
and fees
£000
All taxable
benefits
£000
Non-taxable
benefits
£000
428
264
692
27
17
44
5
4
9
Annual
bonuses
£000
373
206
579
LTI4
£000
Pension3
£000
268
179
447
41
25
66
Notes.
1. All taxable benefits includes amounts paid in lieu of accrued dividends and interest arising upon the exercise of share options under the 2014 STI Scheme.
2. Includes amounts paid in lieu of accrued dividends and interest arising upon the exercise of share options under the 2014 LTI Scheme.
3. The pension component in the single figure table represents employer contributions. No directors were members of a defined benefit scheme.
4. These figures have been re-stated to reflect the actual share price at the date of vesting of 410.0 pence.
The remuneration of the non-executive directors for the years ended 31 December 2018 and 31 December 2017 is made up as follows:
Non-executive directors’ remuneration as a single figure - year ended 31 December 2018 and 2017
Name of director
Peter Mason
Veronica Oak
David Brand
Mike Evans5
Jane Dale
Mark Hesketh6
Total
Fees
£000
120
59
59
45
65
5
353
2018
Benefits7
£000
1
1
1
2
1
–
6
Total
£000
121
60
60
47
66
5
359
Fees
£000
111
58
58
58
63
–
348
2017
Benefits7
£000
1
1
1
1
1
–
5
Total for
2018
£000
965
600
1,565
Total for
2017
£000
1,142
695
1,837
Total
£000
112
59
59
59
64
–
353
Notes.
5. Mike Evans stepped down from the board effective 1 October 2018.
6. Mark Hesketh was appointed to the board effective 17 December 2018.
7. Benefits shown here relate to expenses grossed up for income tax, which is settled by the company for travel to Chesnara’s head office in Preston, which, for tax purposes, is deemed to
be the NEDs’ normal place of work.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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DI(cid:260)ECTO(cid:260)(cid:268)(cid:1287)(cid:3)(cid:260)E(cid:195)UNE(cid:260)(cid:4)TION(cid:3)(cid:260)E(cid:256)O(cid:260)T(cid:3)(cid:1235)(cid:3)(cid:4)NNU(cid:4)(cid:184)(cid:3)(cid:260)E(cid:195)UNE(cid:260)(cid:4)TION(cid:3)(cid:260)E(cid:256)O(cid:260)T(cid:3)(CONTINUED)
CORPORATE GOVERNANCE
Salary and fees
The Remuneration Committee usually reviews basic salaries annually. Assessments are made giving full regard to external factors such as earnings inflation
and industry benchmarks and to internal factors such as changes to the role by way of either structural reorganisations or enlargement of the group. In
addition, basic pay levels reflect levels of experience. The single earnings figures demonstrate the application of this assessment process.
The Remuneration Policy for the executive directors is designed with regard to the policy for employees across the group as a whole. Our ability to meet our
growth expectations and compete effectively is dependent on the skills, experience and performance of all our employees. Our employment policies,
remuneration and benefit packages for employees are regularly reviewed. There are some differences in the structure of the Remuneration Policy for the
executive directors and senior management team compared to other employees, reflecting their differing responsibilities, with the principal difference being
the increased emphasis on performance related pay for the more senior employees within the organisation.
Employee share ownership is encouraged and facilitated through participation in the SAYE scheme (subject to minimum service requirement), which was
renewed this year.
Although the committee does not consult directly with employees on directors’ pay, the committee does take into consideration the pay and employment
conditions of all employees when setting directors’ remuneration, including the average level of salary increase being budgeted for the UK workforce. The
committee is also mindful of any changes to the pay and benefit conditions for employees more generally when considering directors’ pay.
Taxable benefits
The taxable benefits for executive directors relate to the provision of a car, fuel allowance and medical insurance. For non-executive directors, the taxable
benefits represent the reimbursement of travelling expenses incurred in attending board meetings at the Preston head office. These amounts also include an
amount to compensate for the personal tax burden incurred.
Annual bonuses
The amounts reported as annual bonuses in 2018 derive from awards made under the 2014 STI. The amounts awarded to the executive directors under this
scheme are based on performance against three core measures; IFRS pre-tax profit, EcV operating profit and group strategic objectives. The table below
shows the outcome of each measure, the target set and the resulting award.
Upper
threshold for
minimum
performance
Percentage
award
for min
performance
On target
performance
Percentage
award for
on target
performance
Minimum
threshold for
maximum
performance
Percentage
award for
maximum
performance
Actual result
Actual
percentage
total award
Total award
(£)
Actual
percentage
award, as
% age of
salary
John Deane
IFRS pre-tax
result1
EcV operating
result2
£25.760m
0%
£34.347m1
12.0%
£68.694m
40.0%
£36.551m
13.8%
13.8%
60,584
£6.930m
0%
£7.700m
16.0%
£11.550m
40.0%
£(22.848)m
0%
0%
–
Group strategic
objectives
60% of
max
0%
80% of
max
10.0%
100%
20.0%
86.5% of
max
17.3%
17.3%
75,876
Total
David
Rimmington
IFRS pre-tax
result1
EcV operating
result2
38.0%
100.0%
31.1%
31.1%
136,460
£25.760m
0%
£34.347m1
12.0%
£68.694m
40.0%
£36.551m
13.8%
12.4%
34,395
£6.930m
0%
£7.700m
16.0%
£11.550m
40.0%
£(22.848)m
0%
0%
–
Group strategic
objectives
60% of
max
0%
80% of
max
10.0%
100%
20.0%
90.5% of
max
18.1%
16.3%
45,088
Total
38.0%
100.0%
31.9%
28.7%
79,483
For results between the performance thresholds, a straight-line basis applies.
Notes.
1. This is stated after certain adjustments, such as consolidation adjustments. The actual results are also adjusted in the same manner.
2. The EcV operating earnings before exceptional items on page 38 has been adjusted in line with the basis of the target.
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The following table details the requirements for delivery of the strategic objectives for 2018 and actual outcomes:
Objectives area
Objectives and performance
Outcome
John Deane
Governance (20%)
Ensure a robust strategy and management reporting process
is in place and that strong regulatory relationships are
maintained.
Board papers consistently of a high standard and enhanced through
the year, including improvements to integration with the strategy
development process.
New business (25%)
Profitability of new business.
Actions on customer communications delivered and strong
regulatory relationships maintained.
Movestic new business profits delivered within the target range.
Scildon new business profits improved but further delivery is required.
Acquisition
and capital
management (45%)
Support the investigation of acquisitions within risk appetite.
Improve the consideration of capital management within the
divisions and across the group.
Acquisitions that have been investigated have followed a defined
risk based approach, with working parties established to oversee
that process.
Progressed in 2018 with further work and opportunities identified
for 2019.
People (10%)
Development of management teams and maintenance of
an open culture.
The management teams have continued to develop with employee
engagement and an open culture being areas of focus.
David Rimmington
Statutory reporting (25%)
Ensure improvements in reporting processes to meet new
deadlines for SII Reports (QRTs and narratives at group and
divisional level).
Processes developed to ensure delivery to the shorter deadlines
with no impact on the quality of deliveries.
Expense
management (10%)
Timely and appropriate analysis of expenses and appropriate
plans actioned.
Improvement in analysis and MI to enhance controls with appropriate
support to the cost reduction exercise undertaken in Movestic.
Business support (25%)
Guiding divisional teams through group-wide processes.
Deals well assessed, with stringent application of
assessment criteria.
In addition to IFRS17, group-wide processes have been improved
with further developments in risk management and systems of
governance and controls.
Deals continue to be assessed against our investment criteria.
Management reporting
and financial analysis (25%)
Enhancements in MI reporting and analysis to support capital
and balance sheet management and decision-making.
Progressed in 2018 with further work and opportunities identified
for 2019.
IFRS 17 (15%)
Planning and delivery of IFRS 17 across group and divisions.
Programme plan and resourcing fully established and delivery in
line with the ARC approved plan.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
Annual bonuses (continued)
In converting performance against the measures assessed for 2018 set out in the previous tables, the directors’ annual bonus awards are specified below:
Name of director
John Deane
David Rimmington
Total
Salary on
which award
based
£
Maximum
potential
award as
% age
of salary
Actual
award as
% age of
salary
439,110
277,000
100%
90%
31.08%
28.69%
Total
value of
award
£
136,460
79,483
215,943
35% of the above awards are granted as deferred share awards that will vest at the end of a 3 year deferred period.
Long-Term Incentive Scheme awards
The following table sets out the amounts that are due to vest on 28 April 2019 under the 2014 LTI, for which performance conditions were satisfied during
the year.
Individual
Measure
Weight
Ranges and targets
Actual outcome
Minimum
achievement
(as % of
target)
Target
achievement
Max
achievement
Opening
EcV
Closing
EcV1
Performance
achieved
% of
award
vesting
Value of
award £
John Deane
David Rimmington
TSR
EcV
TSR
EcV
50%
50%
50%
50%
=Median
12.03%
55.65%
18.41%
17.99%
83,742
=95.7%
£480.9m
£545.8m
£417.2m
£643.3m
133.8%
50.0%
232,745
=Median
12.03%
55.65%
18.41%
17.99%
44,859
=95.7%
£480.9m
£545.8m
£417.2m
£643.3m
133.8%
50.0%
124,686
The estimated value of the awards vesting disclosed above has been determined using the average share price over the 3 month period prior to the
year-end (349.95p). The actual amounts upon vesting will be determined using the share price upon the vesting date.
Notes.
1. The closing value for EcV is based on that shown on page 39 with the addition of dividends paid out and the deduction of equity raised in the performance period which is consistent
with basis upon which the targets are set. The closing value for EcV on this basis was £643.3m.
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SECTION C
The table below sets out potential LTI interests that have accrued during the year, and each director’s interest in that scheme:
Name of
executive director
Name of
scheme
Date award
was granted
Amount of
options
awarded1
John Deane
2014 LTI
28 April 2018
107,100
2014 LTI
28 April 2017
111,781
2014 LTI
28 April 2016
133,017
2014 LTI
28 April 2015
84,639
David Rimmington
2014 LTI
28 April 2018
60,805
2014 LTI
28 April 2017
61,996
2014 LTI
28 April 2016
71,259
2014 LTI
28 April 2015
47,727
Face value on the
date of grant2
% of award
vesting for
minimum
performance
Length of vesting period
– 3 years
Date of vesting
£439,110
based on share price (410.00p)
£428,400
based on share price (383.25p)
£415,013
based on share price (312.00p)
£269,998
based on share price (319.00p)
£249,300
based on share price (410.00p)
£237,600
based on share price (383.25p)
£222,328
based on share price (312.00p)
£152,249
based on share price (319.00p)
10.0%
12.5%
12.5%
12.5%
10.0%
12.5%
12.5%
12.5%
28 April 2021
28 April 2020
28 April 2019
28 April 2018
28 April 2021
28 April 2020
28 April 2019
28 April 2018
Basis of awards and summary of performance measures and targets
2014 LTI
Share options awarded are based on the share price at close of business on date of award and a percentage of basic salary as follows: John Deane; 75% in 2015, 100% in
2016, 2017 and 2018. David Rimmington; 75% in 2014 and 2015, 90% in 2016, 2017 and 2018. Options have a nil exercise price.
Total Shareholder Return
50% of the award will vest subject to the TSR target being in a certain range, with the range being the ranking of the TSR of Chesnara against the TSR of the individual
companies in the FTSE 350 Higher Yield Index. The award will be made on a sliding scale from nil if the Chesnara TSR is below the median to full if the Chesnara TSR is in
the upper quartile.
EEV/EcV growth target
The LTI Scheme has transitioned to Economic Value (EcV) as an equivalent post Solvency II replacement for Embedded Value (EEV). For performance years starting
before 1/1/2016 the measure will be EEV. For performance years starting on or after 1/1/2016 the measure is EcV.
For awards granted prior to 2018, 50% of the award will vest subject to the EEV/EcV outcome being within a certain range of its target. The award will be made on a sliding
scale with nil being paid out if the outcome is less than or equal to 89% of target, up to a maximum pay-out if the outcome is greater than or equal to 114% of target.
For the award granted in 2018, 50% of the award will vest subject to the EcV outcome being within a certain range of its target. The award will be made on a sliding
scale with nil being paid out if the outcome is less than or equal to 95.7% of target, up to a maximum pay-out if the outcome is greater than or equal to 104.1% of target.
Notes.
1. No awards are made if performance is below the minimum criteria.
2. The face value is reported as an estimate of the maximum potential value on vesting.
Payments for loss of office (audited information)
No payments were made during the year for loss of office.
Statement of directors’ shareholding and share interests (audited information)
The Remuneration Policy requires executive directors to build up a shareholding through the retention of shares to the value of their basic salary. As at the
reporting date this criterion has been met. When the minimum holding level has not been achieved, directors may only dispose of shares where funds are required
to discharge any income tax and National Insurance liabilities arising from awards received from a Chesnara incentive plan. The Chairman and non-executive
directors are encouraged to hold shares in the company but are not subject to a formal shareholding guideline.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
67
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DI(cid:260)ECTO(cid:260)(cid:268)(cid:1287)(cid:3)(cid:260)E(cid:195)UNE(cid:260)(cid:4)TION(cid:3)(cid:260)E(cid:256)O(cid:260)T(cid:3)(cid:1235)(cid:3)(cid:4)NNU(cid:4)(cid:184)(cid:3)(cid:260)E(cid:195)UNE(cid:260)(cid:4)TION(cid:3)(cid:260)E(cid:256)O(cid:260)T(cid:3)(CONTINUED)
CORPORATE GOVERNANCE
The table below shows, in relation to each director, the total number of share interests with and without performance conditions, the total number of share
options with and without performance measures, those vested but unexercised and those exercised at 31 December 2018 or the date of resignation.
No changes took place in the interests of the directors between 31 December 2018 and 28 March 2019.
Shares held:
1 January 2018
Shares held:
31 December 2018
Options:
With performance
measures
Options:
Without
performance
measures1
Options:
Vested but
unexercised
Options:
Exercised during
the year
Options:
Percentage of
shareholding
target held2
29,677
20,781
25,743
3,000
5,500
7,956
3,333
–
95,990
35,975
50,632
25,743
3,000
5,500
2,296
3,333
–
126,479
351,898
194,060
–
–
–
–
–
–
545,958
101,978
53,347
–
–
–
–
–
–
155,325
68,5163
–
–
–
–
–
–
–
68,516
6,298
59,019
–
–
–
–
–
–
65,317
103.9%
129.7%
–
–
–
–
–
–
–
Name of director
John Deane
David Rimmington
Peter Mason
Veronica Oak
David Brand
Mike Evans
Jane Dale
Mark Hesketh
Total
Notes.
1. The ‘options without performance measures’ column in the table does not include the share options that will be awarded as part of the mandatory deferral rules under the 2014
STI in respect of awards made in relation to the 2018 financial year, which equate to 35% of the cash award under this scheme. The timetable for the administration of the
scheme means that these will be reported in the 2019 Annual Report and Accounts.
2. Calculated using the share price of 345.50p at 31 December 2018.
3. Awarded under the 2014 LTI scheme and vested on 28 April 2018.
Outstanding share options and share awards
Below are details of outstanding share options and awards for current executive directors.
Name of
executive
director
Scheme
Grant
date
Exercise
price (p)
Number of
shares
under
option at
1 January
2018
Number
granted
during
year
Number
exercised
during
year
Number
lapsed
during
year
Number
waived
during
year
Number of
shares under
option and
unexercised at
31 December
2018
End of
performance
period
Vesting
date
Performance
period
Date of
expiry of
option
2014 LTI
(2018 award)
2014 LTI
(2017 award)
2014 LTI
(2016 award)
2014 STI
(2015 award)
2014 STI
(2017 award)
2014 STI
(2016 award)
2014 STI
(2015 award)
Share save
E
N
A
E
D
N
H
O
J
28/04/18
28/04/17
28/04/16
28/04/15
28/04/18
29/04/17
29/04/16
Nil
Nil
Nil
Nil
Nil
Nil
Nil
–
107,100
111,781
133,017
84,639
–
–
–
–
31,802
37,696
26,575
–
–
29/09/18
304.80
–
5,905
–
–
–
–
–
–
–
–
Share save
29/09/15
285.08
6,298
–
(6,298)
–
–
–
(16,123)
–
–
–
–
–
400,006
144,807
(6,298)
(16,123)
I
D
V
A
D
N
O
T
G
N
M
M
R
I
I
2014 LTI
(2018 award)
2014 LTI
(2017 award)
2014 LTI
(2016 award)
2014 LTI
(2015 award)
2014 STI
(2017 award)
2014 STI
(2016 award)
2014 STI
(2015 award))
2014 STI
(2014 award)
Share save
28/04/18
28/04/17
28/04/16
20/05/15
28/04/18
28/04/17
27/03/16
29/09/15
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
27/03/15
285.08
6,298
–
60,805
61,996
71,259
47,727
–
–
–
–
17,620
20,293
15,434
14,086
–
–
–
–
–
–
–
–
–
–
(38,635)
(9,092)
–
–
–
(14,086)
(6,298)
–
–
–
–
237,093
78,425
(59,019)
(9,092)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,802
37,696
26,575
5,905
107,100
31/12/20
28/04/21
3 years
28/04/28
111,781
31/12/19
28/04/20
3 years
28/04/27
133,017
31/12/18
28/04/19
3 years
28/04/26
68,516
31/12/17
28/04/18
3 years
28/04/25
n/a
28/04/21
n/a
28/04/27
n/a
28/04/20
n/a
28/04/26
n/a
28/04/19
n/a
28/04/25
n/a
01/12/21
–
n/a
01/11/18
522,392
n/a
n/a
n/a
n/a
60,805
31/12/20
28/04/21
3 years
28/04/28
61,996
31/12/19
28/04/20
3 years
28/04/27
71,259
31/12/18
28/04/19
3 years
28/04/26
–
31/12/17
28/04/18
3 years
28/04/25
17,620
20,293
15,434
–
–
247,407
n/a
28/04/21
n/a
28/04/27
n/a
28/04/20
n/a
28/04/26
n/a
28/04/19
n/a
28/04/25
n/a
27/03/18
n/a
20/05/24
n/a
01/11/18
n/a
n/a
6868
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SECTION C
Chesnara – Total Shareholder Return, rebased
FTSE UK Life Insurance – Total Return Index, rebased
FTSE 350 Higher Yield – Total Return Index, rebased
Performance graph and
CEO remuneration table
The graph to the right shows
the company’s performance
compared with the
performance of the FTSE 350
Higher Yield Index and the
FTSE UK Life Insurance
Index. The FTSE 350 Higher
Yield Index has been selected
since 2014 as a comparison
because it is the index used
by the company for the
performance criterion for its
LTI, and the FTSE UK Life
Insurance Index has been
selected due to Chesnara’s
inclusion within this index.
650
600
550
500
450
400
350
300
250
200
150
100
50
0
x
e
d
n
I
R
S
T
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan18
Jan19
The table below sets out the details for the director undertaking the role of Group Chief Executive:
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
Individual performing CEO role
CEO single figure
of total remuneration
£000
Annual bonus pay-out
against maximum
Long-term incentive
vesting rates against
maximum opportunity
John Deane
John Deane
John Deane
John Deane
Graham Kettleborough
Graham Kettleborough
Graham Kettleborough
Graham Kettleborough
Graham Kettleborough
Graham Kettleborough
965
1,142
902
596
712
702
612
384
631
502
31.08%
86.96%
98.33%
81.96%
91.30%
100.00%
65.48%
17.39%
100.00%
94.27%
67.99%
80.95%
-
-
34.52%
n/a
100.00%
n/a
n/a
n/a
Note
1
1
1
1
2
3
4
5
5
5
Notes.
1. John Deane was appointed CEO on 1 January 2015.
2. During 2014, an LTIP that was granted to the CEO in 2012 vested. The LTIP included
a condition such that the sum of the LTIPs and annual bonuses awarded in that year
could not exceed 100% of the CEO’s salary. The annual bonus in 2012 amounted to
65.48% of salary. When the performance measurements for the 2012 LTIP were
assessed, the award was required to be restricted due to the operation of the 100%
combined cap, such that the 2012 LTIP paid out 34.52% of the salary at the time of
award.
During 2014, the annual bonus that was awarded represented 68.5% of the CEO’s
salary. The maximum payable was up to 75% of the CEO’s salary, resulting in a 91.3%
pay-out with reference to the maximum potential award.
3. During 2013, no LTIP value was earned because the annual bonus in isolation
accounted for the full 100% combined bonus cap.
4. The vesting percentage in 2012 within the long-term incentive column does not
relate to a formal LTIP Scheme. It relates to a discretionary supplementary scheme
established in 2009 to recognise the value added to the group from the acquisition of
Movestic. The amount vesting has been classified in the LTIP column due to the fact
its award was subject to certain future performance criteria being achieved. That
scheme has generated the maximum potential value of £75,000 in 2012. The formal
2012 LTIP Scheme contributed no value to the total single remuneration figure as it did
not vest until performance criteria were achieved in 2014.
5. Prior to 2012, the LTIP Schemes were in fact better characterised as deferred
annual bonus schemes. As such they are classified within the annual bonus value and
any value is included in the annual bonus pay-out against maximum percentage.
Percentage change in remuneration for the executive directors
The table below shows the percentage change in remuneration for the executive directors and the company’s employees as a whole between the years
2018 and 2017.
Percentage change in remuneration in 2018
compared with 2017
Group Chief Executive
%
Group Finance Director
%
Group employees
%
Salary and fees
All taxable benefits
Annual bonuses
2.50
0.58
(63.37)
4.90
18.391
(61.49)
2.50
2.93
(9.68)
Notes.
1. All taxable benefits includes amounts paid in lieu of accrued dividends and interest arising upon the exercise of share options under the 2014 STI Scheme.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
DI(cid:260)ECTO(cid:260)(cid:268)(cid:1287)(cid:3)(cid:260)E(cid:195)UNE(cid:260)(cid:4)TION(cid:3)(cid:260)E(cid:256)O(cid:260)T(cid:3)(cid:1235)(cid:3)(cid:4)NNU(cid:4)(cid:184)(cid:3)(cid:260)E(cid:195)UNE(cid:260)(cid:4)TION(cid:3)(cid:260)E(cid:256)O(cid:260)T(cid:3)(CONTINUED)
Comparison of total remuneration for the group CEO and UK employees
Our 2017 Remuneration Report provided a comparison of total remuneration for the GCEO and an average of total remuneration for UK employees.
While recognising that the requirements on CEO pay ratio reporting as set out in The Companies (Miscellaneous Reporting) Regulations 2018 do not
apply until reporting financial years beginning 1 January 2019 onwards, we set out here such analysis in line with those requirements. This analysis
has been conducted using ‘Option A’ as set out in the regulations and has consisted of:
– Determining the total FTE remuneration of all UK employees for the 2018 financial year;
– Ranking all those employees based on their total FTE remuneration from low to high; and
– Identifying the employees whose remuneration places them at the 25th, 50th (median) and 75th percentile points of this ranking.
The analysis is then presented to show the ratio of the GCEO’s 2018 single total figure of remuneration to the:
– Median (i.e. 50th percentile) FTE remuneration of our UK employees;
– 25th percentile FTE remuneration of our UK employees; and
– 75th percentile FTE remuneration of our UK employees.
In future years, this analysis will be repeated to provide a multi year analysis of GCEO pay ratio.
Comparison of total remuneration in 2018
25th percentile
pay ratio (FTE UK
employees total
remuneration)
Median pay ratio
(FTE UK employees
total remuneration)
75th percentile pay
ratio (FTE UK
employees total
remuneration)
2018
15.2 : 1
9.8 : 1
6.4 : 1
The Remuneration Committee considers that the ratio is consistent with our Remuneration Policy and that no actions arise from this analysis.
Relative importance of spend on pay
The graph to the right shows the actual expenditure of the group and change
between the current and previous years.
2018 employee pay and acquisition and maintenance expenditure includes
a full year of costs in relation to Scildon, whereas 2017 only incorporates
9 months of Scildon costs from the point of acquisition in April 2017.
Due to Chesnara adopting a strategy of outsourcing much of its activities,
the level of total employee pay is relatively low in comparison to dividends.
In addition, the graph shows a comparison with the group’s total acquisition
and maintenance expenditure. This has been chosen as a comparator to give
an indication of the employee pay relative to the overall cost base. As can be
seen, the total employee pay is a relatively small component.
£m
120
100
80
60
40
20
0
2018 2017
+4%
+12%
+3%
29.4
25.8
97.9
94.7
31.0
30.0
Total employee
pay
Business
acquisition and
maintenance
expenditure
Dividends
Statement of implementation of Remuneration Policy in the following financial year
The Remuneration Policy took effect following approval at the 2017 AGM. This section sets out how the policy will be implemented during 2019.
Salaries and fees
Will be set in accordance with the company’s Remuneration Policy.
Executive directors
The salary of John Deane (GCEO) has been increased from £439.1k to £448.8k and the salary of David Rimmington, (GFD) has been increased from
£277.0k to £283.1k, both in line with the 2.2% average pay increase awarded to UK staff.
Non-executive directors
In line with the average salary increase to staff, the board has increased the base fee and committee chairmanship fees for non-executive directors by
2.2%. The Chairman’s fee has also increased by 2.2% to £122.6k.
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SECTION C
The table below sets out the anticipated payments to non-executive directors for 2019:
Peter Mason
Veronica Oak
David Brand2
Jane Dale
Mark Hesketh
Total
Notes.
Fees
£000
122.6
60.8
66.0
66.0
60.8
376.2
Benefits1
£000
1.0
1.0
1.0
1.0
1.0
5.0
Total
£000
123.6
61.8
67.0
67.0
61.8
381.2
1. Benefits shown here relate to expenses grossed up for income tax, which is settled by the company for travel to Chesnara’s head office in Preston, which, for tax purposes, is deemed to be
the non-executive director’s normal place of work.
2. David Brand’s fee reflects his appointment to the Chesnara Remuneration Committee effective 28 September 2018.
2019 award under the 2014 Short-Term Incentive Scheme
The Remuneration Committee proposes to grant awards to the executive directors under the 2014 Short-Term Incentive Scheme.
The table below and accompanying notes set out the performance measures, weightings and the potential outcomes for achieving minimum, on-target
and maximum performance. The actual targets for each measure are deemed to be commercially sensitive and whilst they are not disclosed at this stage,
they will be disclosed in 2020 together with the performance outcome relative to these targets.
Individual
Measures
Weighting
Ranges and targets
Potential outcomes in terms of % of basic salary
Minimum
achievement
(as % of target)
Target
achievement
(as % of target)
Maximum
achievement
(as % of target)
Minimum
achievement
Target
achievement
Maximum
achievement
John Deane
Cash generation
EcV profit
Group strategic objectives
David
Rimmington
Cash generation
EcV profit
Group strategic objectives
40.0%
40.0%
20.0%
40.0%
40.0%
20.0%
80.0%
70.0%
75.0%
80.0%
70.0%
75.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
130.0%
150.0%
125.0%
130.0%
150.0%
125.0%
nil
nil
nil
nil
nil
nil
12.0%
16.0%
10.0%
10.8%
14.4%
9.0%
40.0%
40.0%
20.0%
36.0%
36.0%
18.0%
The STI will be implemented and operated by the Remuneration Committee as set out within the Remuneration Policy.
Measures
In 2018, three measures were used by the Remuneration Committee,
namely IFRS pre-tax profit, EcV profit (together accounting for 80% of the
assessment) and achievement of group strategic objectives (20%). Following
review by the Remuneration Committee, changes were approved for 2019 to
remove the IFRS component and base performance assessment on cash
generation, EcV profit metrics with appropriate adjustments and group
strategic objectives. The two financial measures are deemed to be
complementary when operated together, to encourage sensible executive
behaviour and better reflect an overall assessment of company financial
performance. Our assessment measures continue to ensure there is a
balance between aligning executive director remuneration to shareholder
returns whilst also recognising measures over which the directors can
exercise more immediate and direct influence. The financial measures are
recognised outputs from the audited year-end Financial Statements,
although it should be noted that the Remuneration Committee is, in
accordance with the Remuneration Policy, able to make discretionary
adjustments if deemed necessary.
The objectives assigned to each executive director are relevant to their roles
and include major regulatory or business development initiatives that the
committee considers key to delivery of the company’s business plan. Each
individual development objective is assigned a ‘significance weighting’
influenced by factors such as business criticality, scale, complexity and level
of executive director influence. Developments with a higher significance are
weighted more heavily when establishing the overall performance target.
We include the latest approved Remuneration Policy on page 73 of the
Report and Accounts. Whilst the policy makes several specific reference to
IFRS profit as being one of the key financial metrics, it also refers to the fact
that ‘targets may include, but are not limited to costs, IFRS pre-tax profit,
EcV operating profit, cash generation, group strategic objectives and
personal performance’. As such, the proposed shift in focus in 2019 from
IFRS profit and EcV operating profit to cash generation and total EcV profits
is deemed to be in accordance with our approved policy.
Weightings
The Remuneration Committee has set the weightings. The financial
measures that align most directly to shareholder benefit are generally
assigned a higher weighting.
Targets
The cash generation and EcV profit targets are initially based on the latest
budget which is produced annually as part of the group business planning
process. The group business plan is subject to rigorous Chesnara board
scrutiny and approval. The Remuneration Committee can make discretionary
adjustments to either the targets or to the actual results for the year if it
considers this to be appropriate, in accordance with the scheme rules.
Malus and clawback
This scheme includes malus and clawback provisions covering material
misstatement, assessment error and misconduct if this arises within
2 years of an award vesting.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
71
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CORPORATE GOVERNANCE
2019 award made under the 2014 LTI
In 2019, the Remuneration Committee proposes to grant awards to the executive directors under the Chesnara 2014 Long-Term Incentive Scheme.
The table below and accompanying notes set out the performance measures, weightings and the potential outcomes relative to achieving minimum,
on-target and maximum performance. The actual EcV target is commercially sensitive and will not be disclosed until 2022 together with the actual
performance against those targets.
Individual
Share award
Measures
Weighting
Ranges and targets
Vesting rates
% of basic
salary
Minimum
achievement
(as % of target)
Target
achievement
Maximum
achievement
(as % of target)
Minimum
achievement
Target
achievement
Maximum
achievement
John Deane
100%
David
Rimmington
90%
TSR
EcV
TSR
EcV
50%
50%
50%
50%
=Median
Median
Upper quartile
=Median
Median Upper quartile
nil
nil
nil
nil
12.5%
12.5%
50.0%
50.0%
50.0%
50.0%
The 2019 award under the 2014 LTI will be implemented and operated by the Remuneration Committee as set out within the Remuneration Policy.
Measures
The two performance measures for the 2019 LTI award use performance
against the constituents of an index and an internal target. The external
measure compares the 3-year TSR of Chesnara plc with the TSR of the
companies comprising the FTSE 350 Higher Yield Index with averaging
over the first and last calendar months. The internal measure assesses
Economic Value growth which are set with due regard to the board
approved business plan. Both measures seek to ensure an alignment between
executive director reward and shareholder value, with one assessing relative
performance to other investment opportunities and the other assessing
absolute performance. Both measures are based on a 3-year performance
period ending 31 December 2021.
Weightings
For the 2019 award, the two measures have been assigned equal weighting.
Holding period
Following the Remuneration Committee’s review of the new UK Corporate
Governance Code, a 2 year holding period has been introduced to the LTI
Scheme, to follow the 3 year performance period.
Targets
TSR: The Remuneration Committee proposes that the constituents of the
FTSE 350 Higher Yield Index represents the most appropriate peer group
for assessing the relative TSR performance.
EcV: The Economic Value target is an output from the Chesnara business plan
process. The figure is therefore subject to group board challenge and
approval. The projections assume a realistic expectation for investment
returns and incorporate challenging expectations for new business value from
Movestic and Scildon.
The Remuneration Committee can make discretionary adjustments to either
the target or to the actual result for the year if it considers this to be appropriate,
in accordance with the scheme rules and the Remuneration Policy.
Malus and clawback
This scheme includes malus and clawback provisions covering material
misstatement, assessment error and misconduct if this arises within
2 years of an award vesting.
The following table sets out the voting in respect of the Directors’ Remuneration Report at the 2018 AGM:
Report
Number of votes
cast for
Percentage of
votes cast for
Number of votes
cast against
Percentage of
votes cast against
Total votes cast
Number of votes
withheld
Remuneration Report
96,518,190
98.51%
1,461,107
1.49%
97,979,297
8,635
The following table sets out the voting in respect of the Directors’ Remuneration Policy at the 2017 AGM:
Report
Number of votes
cast for
Percentage of
votes cast for
Number of votes
cast against
Percentage of
votes cast against
Total votes cast
Number of votes
withheld
Remuneration Policy
92,417,545
97.93%
1,958,029
2.07%
94,375,574
65,457
Approval
This report was approved by the Board of Directors on 28 March 2019 and signed on its behalf by:
Veronica Oak
Chairman of the Remuneration Committee
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SECTION C
DIRECTORS’ REMUNERATION REPORT
REMUNERATION POLICY
The current Remuneration Policy was approved by our shareholders at the Annual General Meeting
held on 17 May 2017. The policy as approved by shareholders can be found on our website:
www.chesnara.co.uk/corporate-responsibility/governance-reports
The diagram demonstrates that the Remuneration Policy aligns well to all
aspects of the group’s objectives. For illustration purposes the diagram below
shows the KPIs that the committee has most recently considered
appropriate for the incentive schemes but as will be seen on pages 73 to 79
the committee may change the KPIs and / or their weighting for future awards.
In addition to the KPIs shown, the Short-Term Incentive Scheme includes
objectives for the executives covering key deliverables for the year ahead.
Overall Remuneration Policy aims are:
– to maintain a consistent remuneration strategy based on clear principles
and objectives;
– to ensure remuneration structures do not encourage or reward excessive
risk-taking which is outside the boundaries of our stated risk appetite;
– to link remuneration clearly to the achievement of our business strategy
and ensure executive and shareholder reward is closely aligned;
– to enable the company to attract, motivate and retain high-calibre
executives; and
– for the policy to be easy to understand and communicate.
Introduction
Remuneration Policy
The policy has been developed by the committee to provide a clear
framework for reward linked to the strategy of the company, aligned to the
interests of executives and shareholders.
In developing its policy and making decisions about executive director
remuneration, the committee has taken into account the terms and
conditions of employment for employees throughout the company, together
with the strategy, objectives and KPIs for the business, and developments
in the external marketplace. The company has not consulted with employees.
Alignment of incentives with strategy
Chesnara plc is a holding company engaged in the management of life and
pension books of business in the UK, Sweden and the Netherlands with
oversight and governance being provided by a central governance team
based in the UK.
The company has three core strategic objectives:
1. Maximise value from existing business;
2. Acquire life and pension business; and
3. Enhance value through profitable new business.
The achievement of these objectives are considered against the culture
and risk environment of the company to ensure that rewards do not
encourage excessive risk taking or an inappropriate culture to develop.
The schematic below illustrates how the company’s KPIs align to its core
strategic objectives and, in turn, how those KPIs flow through into the
performance measures of the executive’s short and long-term incentives
schemes. Reading across the chart shows how the KPIs align to Chesnara’s
core strategic objectives. For example, ‘Maximise value from existing
business’, ‘Enhance value through profitable new business’ and; ’Acquire life
and pensions businesses’ will directly impact the Economic Value growth of
the group. Likewise progress against all three objectives should have an impact
on the Total Shareholder Return to varying degrees.
Strategic objectives/cultural values
Key performance indicators
Short-Term Incentive Scheme
Long-Term Incentive Scheme
Deliver shareholder value
Maximise value from existing business
Acquire life and pensions businesses
I
F
R
S
p
r
o
fi
t
Enhance value through profitable new business
Chesnara culture and values
E
c
V
o
p
e
r
a
t
i
n
g
p
r
o
fi
t
E
c
o
n
o
m
i
c
V
a
l
u
e
g
r
o
w
t
h
T
o
t
a
l
s
h
a
r
e
h
o
d
e
r
l
r
e
t
u
r
n
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
The implementation of this policy involves:
– paying salaries that reflect individual roles, an individuals’ development in that role and sustained individual performance and contribution, taking account of
the external competitive market;
– enabling executives to enhance their earnings by meeting and out-performing stretching short and long-term targets in line with the group’s strategy;
– requiring executives to build and maintain shareholdings in the company;
– rewarding executives fairly and responsibly for their contribution and paying what is commensurate with achievement of these objectives; and
– including malus and clawback provisions, in the STI Scheme (including the deferred share award) and the LTI Scheme.
For the avoidance of doubt, the directors’ Remuneration Policy includes authority for the company to honour any commitments entered into with current or
former directors that have been disclosed to shareholders in previous Remuneration Reports. Details of any payments to former directors will be set out in
the implementation section of this report as they arise.
The following tables give an overview of the company’s policy on the different elements of the remuneration package.
The remuneration policy table
Executive directors’ remuneration
The following tables give an overview of the company’s policy on the different elements of the remuneration package.
Purpose and link to strategy
Operation
Performance measures and maximum
Basic salary
To recruit and retain individuals
with the skills and experience
needed for the role and to contribute
to the success of the group.
In setting salaries for new executive roles or reviewing
the salaries for existing roles, the committee will take into
account, as it considers appropriate, some or all of the
following factors:
Changes to responsibilities, increased complexity of
the organisation, personal and group performance
is taken into consideration when deciding whether a
salary increase should be awarded.
– assessment of the responsibilities of the role
– the experience and skills of the jobholder on
commencement of the role and their development at the
review point;
– the group’s salary budgets and results;
– the jobholder’s performance;
– with the use of periodic benchmarking exercises, the
external market for roles of a similar size and
accountability;
– inflation and salaries across the company; and
– balance between fixed and variable pay to help ensure
good risk management.
Where a new appointment is made, pay may be initially
below that applicable to the role and then may increase over
time subject to satisfactory performance.
Salaries are usually reviewed annually. There may be reviews
and changes during the year in exceptional circumstances
(such as new appointments to executive positions or
significant changes in the jobholder’s responsibilities).
Taxable benefits
To recruit and retain individuals
with the skills and experience
needed for the role and to contribute
to the success of the group and to
minimise the potential of ill health to
undermine executive’s performance.
Executive directors receive life assurance, a company car,
fuel benefit and private medical insurance. A cash
equivalent may be paid in lieu of a car and fuel benefit.
Benefits may be changed in response to changing
circumstances whether personal to an executive director
or otherwise subject to the cost of any changes being
largely cost neutral.
No performance measures attached.
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SECTION C
The remuneration policy table (continued)
Purpose and link to strategy
Operation
Performance measures and maximum
Pensions
To recruit and retain individuals with
the skills and experience needed
for the role and to contribute to the
success of the group and to encourage
responsible provision for retirement.
The executive directors can participate in a defined
contribution pension scheme with employer contributions
being 9.5% of basic salary. If pension limits are reached,
the executive may elect to receive the balance of the
contribution as cash.
No performance measures attached.
Short-Term Incentive Scheme (STI)
To drive and reward achievement of
the group’s business plan and key
performance indicators. To help
retention and align the interests of
executive directors with those of
shareholders.
The 2014 STI Scheme is discretionary. Awards are based on
the committee’s assessment and judgement of performance
against specific targets and objectives in support of the group’s
business plan which are assessed over a financial year.
Provided the minimum performance criteria is judged to
have been achieved then an award will be granted in two
parts; at least 35% into deferred share awards in the shape
of nil cost options which will vest after a 3 year deferral
period and the balance in cash.
Dividend equivalents accrue in cash with interest thereon in
respect of the deferred share awards between the date the
share award is granted and the date the options are exercised.
Performance is measured based on the financial results
of the group and its strategic priorities, together with
the performance of the executives in relation to specific
objectives. The main weighting is given to financial results
– typically 80%.
The targets may include, but are not limited to, costs,
IFRS pre-tax profit, EcV operating profit, cash generation,
group strategic objectives and personal performance.
STI Scheme targets are commercially sensitive and
therefore, not disclosed. Actual targets and results will be
disclosed in the Annual Report immediately following
each performance period.
It is the intention of the committee to grant awards
annually and the performance criteria will be set out in the
corresponding Remuneration Report.
The committee may substitute, vary or waive the
performance measures in accordance with the
Scheme rules.
The STI Scheme includes malus and clawback provisions.
The maximum award is 100% of basic salary with
each participant being assigned a personal maximum
to be disclosed in the Remuneration Report with each
award made.
Long-Term Incentive Scheme (LTI)
To incentivise the delivery of the
longer-term strategy by the setting
of stretching targets based on
shareholder value, and to help retain
key executives and increase their
share ownership in the company.
The 2014 LTI Scheme is discretionary. Awards are made
under a performance share plan, with no exercise price.
The right to receive shares awarded will be based on
achievement of performance conditions over a minimum
3 year period.
It is the intention of the committee to grant awards
annually and the performance criteria will be set out in the
corresponding Remuneration Report.
The LTI Scheme includes malus and clawback provisions.
Vesting is dependent on two weighted performance
measures which the committee for 2017 weights equally
but may vary the weighting and the Index as it considers
appropriate in future years:
1. Total Shareholder Return: Performance conditions are
based on total shareholder return of the company when
compared to that of the companies comprising the FTSE
350 Higher Yield Index. No payout of this element will be
made unless the company achieves at least median
performance. Full vesting will be achieved if the company
is at the upper quartile compared to the peer group.
2. Group Economic Value: this target is commercially
sensitive and therefore, not disclosed upfront. Actual
targets and results will be disclosed in the Annual
Report for the year in which an award vests. The
assumptions underpinning the calculations are subject
to independent actuarial scrutiny.
The committee may substitute, vary or waive the
performance measures in accordance with the
scheme rules.
The maximum award is up to 100% of basic salary, with
each participant being assigned a personal maximum
to be disclosed in the Remuneration Report with each
award made.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
Non-executive directors’ remuneration
Purpose and link to strategy
Operation
Performance measures and maximum
Fees & expenses
To recruit and retain independent
individuals with the skills, experience
and qualities relevant to the role and
who are also able to fulfil the required
time commitment.
Fees for the Chairman are determined and agreed with the
board by the committee (without the Chairman being party
to this). Non-executive director fees are determined by the
Chairman and the executive directors.
Fees are reviewed periodically and in setting fees
consideration is given to market data for similar roles in
companies of comparable size and complexity whilst also
taking account of the required time commitment.
All non-executive directors are paid a base fee. Additional
fees are paid to the Senior Independent Director, the chair of
board committees and to other non-executive directors to
reflect additional time commitments and responsibilities
required by their role.
Fees for the Chairman and non-executive directors are
not performance related.
Reflecting the periodic nature of the fee reviews, increases
at the time they are made, may be above those paid to
executives and / or other employees.
Explanatory notes:
1. Why these performance measures were chosen and how performance
Short-Term Incentive Scheme (STI)
(i) based on a broad range of measures – including group objectives;
targets are set
STI Scheme - The performance measures for the STI Scheme reflect the
main financial contributors to sustaining returns for shareholders and the
group strategic objectives to ensure that management is incentivised on
the important projects needed to support the business plan and strategy.
The Remuneration Committee determines the measures, their weighting
and the targets for each financial year. The measures will be based upon
the most relevant taken from a selection of measures which may include,
but are not limited to, costs, IFRS pre-tax profit, EcV operating profit, cash
generation, group objectives and personal performance. The maximum
potential award requires significant outperformance of budgeted targets.
LTI Scheme - The performance measures for the LTI Scheme have been
selected for their alignment to shareholder interests using an absolute
measure (growth in group EcV) and a comparative measure (TSR). The
measures and targets are set by the committee. The maximum potential
award for the group EcV measure requires significant outperformance of
budgeted targets. The TSR measure uses the FTSE 350 Higher Yield
Index over a 3 year period with averaging during the first and last month.
The committee currently considers this to be an appropriate comparator
given Chesnara’s strategic aims and focus on dividend payments.
In setting targets for both schemes, the committee exercises its
judgement to try to ensure that there is a balance between stretch in the
targets and the company’s risk appetite. Full details of the performance
measures, weightings and targets and the corresponding potential awards
are set out in the Remuneration Report.
(ii) performance measures and their weighting are determined by
the committee each year to help ensure there is focus on each of
the elements necessary to drive sustainable performance. The
main weighting will be given to financial measures (typically 80%);
(iii) maximum potential award up to 100% of salary with each participant
having a personal maximum which is to be disclosed in the
Remuneration Report for each award made;
(iv) award is part cash and part share award deferred for a further 3 years.
Currently the intention is to structure the award 65% cash and 35%
deferred into shares provided that the total award to a participant is at
least £20,000, otherwise the award is 100% cash with no deferral. The
committee may increase the weighting for the share award in future
years and adjust the de-minimis amount;
(v) unvested awards may be withheld under the terms of the malus
provision. Cash awards are subject to a 2 year clawback provision; and
(vi) it is the intention of the committee to make a new award each year.
Long-Term Incentive Scheme (LTI)
(i) a performance share plan;
(ii) uses absolute and comparative measures;
(iii) in making a new award, the committee will determine the measures,
their weighting and targets to maintain a clear focus on longer-term
strategic aims;
The Remuneration Policy table notes that all the financial targets for the
(iv) performance period is at least 3 years;
STI Scheme are commercially sensitive as is one of the measures for the
LTI Scheme. The committee has considered whether it could reasonably
use transparent targets but concluded that transparency should not
be sought at the expense of choosing the right ones for the alignment of
executive director and shareholder interests even if these are not capable
of being disclosed upfront.
(v) maximum potential award is up to 100% of salary with each participant
having a personal maximum which is to be disclosed in the Remuneration
Report for each award made;
(vi) includes a malus provision and a 2 year clawback provision; and
(vii) it is the intention of the committee to make a new award each year.
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SECTION C
Minimum shareholding requirement
3. Other
In order to align the executive directors’ interests with those of shareholders, a
minimum shareholding requirement applies equal to one times salary. There is
no timescale attached and it may be achieved by participating in the company’s
share plans. It is a requirement that shares awarded under the STI and LTI
Schemes (net of shares sold to pay for any income tax and National Insurance)
must be retained if the minimum requirement has not been met.
The company currently operates an SAYE in the UK which expires in 2021.
A tax efficient all employee scheme in which executive directors are eligible
to participate.
Approach to remuneration on recruitment
The following principles apply when recruiting executive directors
– To offer a remuneration package that is sufficient to attract individuals with the
skills and experience appropriate to the role to be filled whilst also being
consistent with this policy. In addition to salary and variable remuneration, this
may include pension, taxable benefits and other allowances such as relocation,
housing and education.
– Pay levels will be set taking account of remuneration across the company
including other senior appointees, and the salary offered for similar roles by
other companies of similar size and complexity.
– Each element of remuneration offered will be considered separately and
collectively in this context.
– The maximum awards in respect of the STI Scheme and LTI Scheme as set
out in the policy table apply in recruitment situations, save that exceptionally
the company may award a one-off compensatory bonus or LTI award where
the new joiner would lose a bonus or long-term award relating to his or her
former role. In the event that such a payment is made, full details will be
disclosed in the Annual Report on remuneration for the relevant year.
Expenses
In line with the company’s Expenses Policy, all directors may receive
reimbursement of reasonable expenses incurred in connection with company
business and including settling any tax incurred in relation to these.
2. Differences in policy compared with other employees:
The following note outlines any differences in the company’s policy on
executive director remuneration from other employees of the group.
– Salary and fees: There are no differences in policy. The committee takes
into account the company’s overall salary budget and percentage increases
made to other employees.
– All taxable benefits: There are no differences in policy although the benefits
available vary by personnel and jurisdiction and with job role. For example
cars and health insurance benefits are broadly consistent with the equivalent
benefits when offered to UK non-director personnel. Executive directors
receive fuel allowances which is a benefit not offered to other grades receiving
a car allowance.
– Annual bonus: This is an integral part of the company’s philosophy with all
UK employees below board level being eligible to participate in a bonus
scheme which is based on personal performance and achievement of financial
targets. Senior managers in Sweden participate in annual bonus schemes
which reflect the achievement of business targets and personal goals. In line
with Swedish regulations, part of the payment of this bonus is deferred.
Other employees in Sweden participate in a scheme based on the achievement
of company-wide business goals. In line with local regulations, the
remuneration to employees within the Netherlands does not include any
bonus element.
– Long-term plans: Only executive directors are currently entitled to
participate in the long-term plans as these are the roles which have most
influence on and accountability for the strategic direction of the business and
the delivery of returns to shareholders. This may be reviewed as appropriate
in the light of growth in the company.
– Pension: The level of contribution made by the company to executive
directors is the same as that offered to other UK employees.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
Service contracts and loss of office
Executive directors
Our policy is for executive directors to have service contracts with a rolling 12 month notice period.
The table below summarises the notice periods and other termination rights of the executive directors and the company. The approach of the company
on any termination is to consider all relevant circumstances and to act in accordance with any relevant rules or contractual provisions. Typically, a leaving
employee is classified as a ‘Good Leaver’ if they depart under ‘Special Circumstances’ (defined in the table below). An employee leaving under any other
circumstances is classified as a ‘Bad Leaver’.
The committee has discretion to classify an employee as a ‘Good Leaver’ or a ‘Bad Leaver’ and to determine the treatment of their outstanding awards
upon departure. Regardless of whether a departing executive is deemed to be a ‘Good Leaver’ or ‘Bad Leaver’, the committee has discretion to pay a
departing executive’s legal fees subject to any such payment being made in accordance with the terms of a compromise agreement which waives all
claims against the company.
Typical treatment in relation to salary, benefits and outstanding incentive awards for leavers under each scenario is shown below:
Nature of termination
Notice period
Salary and benefits
Short-Term Incentive Scheme
Long-Term Incentive Scheme
Pension
By executive director or
company giving notice
(and where deemed to
be a Bad Leaver).
12 months
Cease on date
employment ends.
Payment may be
made for any unused
holiday entitlement.
By company summarily
(Bad Leaver).
None
Cease on date
employment ends.
Under special
circumstances:
Good Leaver status
whether leaving by
reason of death,
injury or disability,
redundancy, retirement
with the agreement
of the Remuneration
Committee, the sale of
employing business or
company, or other
special circumstances
at the discretion of the
committee.
None
prescribed
Normally cease on date
employment ends.
Payment may be made
for any unused holiday
entitlement.
Discretion for the
company to pay salary
and benefits in a single
payment or in monthly
instalments. Where
payments are made
monthly the executive
is under an obligation
to mitigate his or her
loss and monthly
payments will cease
or reduce upon the
executive accepting
alternative employment.
If leaving by reason
of redundancy
the payment may
include statutory
redundancy pay.
No grants following service of notice.
Right to cash payment and unvested
deferred share awards cease on date
employment ends.
No grants following service of
notice.
Unvested awards lapse on date
employment ends.
Cease on
date
employment
ends.
Cease on
date
employment
ends
Cease on
date
employment
ends.
Outstanding options must be exercised
within 6 months of date employment ends.
No further grants.
Right to cash payment and unvested
deferred share awards cease on date
employment ends.
Outstanding options must be exercised
within 6 months of date employment ends.
Discretion to make further grants during
a notice period where this is considered
to be in the company’s interests.
Where employment ends before
deferred share awards made, at the
discretion of the committee, the award
may be retained.
If retained, the committee has discretion
to allow the award to vest in accordance
with original terms, or determine award
is to vest on ceasing to be employed
and will also assess the extent to which
targets have been met.
In either case the award will be pro-rated
to reflect period of Performance Period
that has been worked and will be paid in
cash. The committee has discretion to
pro-rate using a longer period.
Where employment ends after deferred
share awards made, the award will
be retained and vest in accordance with
original terms. The committee has
discretion to allow the award to vest on
ceasing to be employed.
All outstanding options must be
exercised within 6 months of the date on
which employment ends or on which
they vest (whichever is later), unless the
committee specifies a longer period.
Outstanding options must be
exercised within 6 months of
date employment ends.
No further grants.
Unvested awards lapse on
date employment ends.
Outstanding options must be
exercised within 6 months of
date employment ends.
No further grants.
Where employment ends
before share awards vest, at
the discretion of the committee
the award may be retained.
If retained, the committee has
discretion to allow the award
to vest in accordance with
original terms or, by exception
may determine awards to
vest on ceasing to be
employed and will also assess
the extent to which the targets
have been met.
In either case the award will
be pro-rated to reflect the
period of the Performance
Period that has been worked.
The committee has discretion
to pro-rate using a longer
period.
All outstanding options must
be exercised within 6 months
of the date on which
employment ends or on which
they vest (whichever is later)
unless the committee
specifies a longer period.
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SECTION C
Non-executive directors
Other directorships
– Appointments are made under a contract for services for an initial term
of 3 years subject to election by shareholders at the first Annual General
Meeting following their appointment and annual re-election thereafter.
– Non-executive directors are typically expected to serve two 3 year terms
but may be invited by the board to serve for an additional period. Any
renewal is subject to board review and AGM re-election.
– The terms of an appointment are set out in a letter of appointment which
can be terminated by either party with 3 months’ notice or immediately if
termination is as a result of not being elected at the AGM.
– There are no compensation terms regardless of the circumstances that
may lead to a contract being terminated.
Executive directors may, if approved by the board, accept appointments
as non-executive directors of suitable organisations. Normally fees for
such positions are paid to the company, unless the board determines
otherwise.
Illustration of application of Remuneration Policy
The view of the committee is that there should be balance between fixed
and variable pay such that when stretching performance targets have
been achieved in full, variable pay should be no more than 200% of
salary. The committee believes that this is appropriate given the strategy
of the company and its risk appetite.
The charts below provide estimates of the potential future reward
opportunities for each executive director, and the potential split between
the different elements of remuneration under three different performance
scenarios: ‘Minimum’, ‘In line with expectation’ and ‘Maximum’. The
illustration assumes that the 2017 policy applies throughout the period.
Group Chief Executive Officer
£000’s
Long-term incentive
Short-term incentive
Fixed
875
20%
20%
524
1,422
32%
32%
Group Finance Director
£000’s
Long-term incentive
Short-term incentive
Fixed
526
15%
19%
327
837
30%
30%
100%
60%
36%
100%
66%
40%
Minimum
In line with
expectation
Maximum
Minimum
In line with
expectation
Maximum
In line with expectation, performance assumes that the STI and LTI payments are at 37.8% and 29.2% of their maximum respectively for the Group Chief
Executive and 34.0% and 26.3% of their maximum for the Group Finance Director. The targets are based on the measures outlined above but are not
declared prior to the publication of the accounts for the relevant year as they may be commercially sensitive.
Minimum
The table below analyses the constitution of the minimum remuneration projection for 2019:
Director
Group Chief Executive
Group Finance Director
Salary and fees
£000
Benefits
£000
Pension
£000
Total fixed pay
£000
448.8
283.1
32.3
16.8
42.6
26.9
523.7
326.8
The pension figure above is based on 9.5% of gross basic salary.
Statement of shareholder views
Given there is very little change in policy between this and our last Remuneration Policy the committee has not considered it necessary to consult with shareholders.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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CORPORATE GOVERNANCE
AUDIT & RISK COMMITTEE REPORT
IFRS 17, the potential risks
of Brexit and the embedding
of Scildon into the group have
been key areas of focus for the
committee during the year
NUMBER OF MEETINGS
DURING YEAR: 9
- Chairman
- Member
MEMBERS:
Jane Dale
Mike Evans
(resigned 1 October 2018)
- Member
David Brand
- Member
Veronica Oak
Mark Hesketh
- Member
(appointed 17 December 2018)
The requirements for the composition of the
Audit & Risk Committee are detailed within its
terms of reference. The composition of the
committee in accordance with the requirements
of the UK Corporate Governance Code and with
DTR 7.1.1AR and committee member
biographies are detailed on pages 50 and 51.
Chairman’s introduction
It has been another busy year for the Chesnara Audit & Risk Committee.
As well as the usual responsibilities that the committee has undertaken, we
have also spent significant time on non-routine matters. These have included
the commissioning of an External Quality Assessment (EQA) of the internal
audit function, overseeing the implementation of General Data Protection
Regulations (GDPR) across the group, focusing on developments in IFRS
financial reporting – most notably IFRS 17 ‘Insurance Contracts’ – and
monitoring Brexit and its potential impact on the group. The committee has
had a change in membership during the year, with Mike Evans moving on
from Chesnara in October 2018 and Mark Hesketh joining in December
2018. I would like to thank Mike for his excellent contribution to the committee
and extend a warm welcome to Mark.
IFRS 17: The group’s IFRS 17 programme commenced in earnest during the
year, kicking off with an impact assessment that focused on the technical,
financial and operational implications of the standard. This work was supported
by a consultancy firm, with the findings and observations from this phase
being used to scope and subsequently commence the delivery phase of
the programme. It is too early to say at this stage what the full operational
and financial effects will be on the business, especially in light of certain
aspects of the standard remaining under review, but the implementation is
expected to require significant effort and as a result will be closely monitored
by the committee.
Brexit: The Brexit situation and the potential impacts on the group have been
monitored closely. From an Audit & Risk Committee perspective, the main
focus has been on ensuring any associated risks are understood to the
fullest extent possible to ensure that management and the board are sufficiently
informed on its potential impact. Further information on the group’s view
of the impact of Brexit can be found on page 15 of the Chairman’s Statement.
In addition, our prospects and viability reporting has been updated to reflect
this view, as shown on page 41.
Scildon embedding: This year is the first full year of ownership of Scildon
following its acquisition in 2017. During the year, the committee continued to
monitor the integration of the business into the wider Chesnara group.
Particular focus was given to the alignment of Scildon’s risk and governance
framework with that of Chesnara’s, coupled with overseeing the ongoing
integration of the company’s financial reporting routines. These developments
have supported the committee in performing its oversight of the financial
performance, risks and issues within the business.
Internal audit EQA: During the year, the committee oversaw an external
quality assessment over the group’s internal audit function. As the group has
grown over recent years, most recently with the acquisition of Scildon in the
Netherlands, it felt appropriate to take stock by obtaining an external view of
the current internal audit arrangements and benchmarking them against
industry practice and peers. A report has been provided by the external firm
performing the review and is currently being considered by the committee. The
committee will oversee the implementation of any relevant actions in response
to the observations arising from the review.
GDPR: The committee oversaw, through its risk oversight obligations, the
implementation risks associated with complying with the GDPR. Regular
reporting was provided to the committee on the group’s GDPR readiness
programme with all divisions delivering their plans successfully and on time.
The committee has continued its oversight of the risk management system
and internal controls and it is pleasing to report that the results of the
annual report presented to the committee on these areas continue to show
that the risk management system and internal control framework continue to
operate effectively.
Looking forward, there continues to be a full agenda for the committee. It will
continue to closely monitor the IFRS 17 implementation programme, where it
will be responsible for reviewing key technical and implementation decisions,
including developments in the financial reporting processes where necessary.
In addition, the committee is planning on overseeing a group-wide operational
resilience programme as part of its responsibilities to ensure that the group
continues to operate with the high standards that are expected of it from its
customers and regulators. Reviews of the external audit profession will also
be monitored with great interest given the potential for far-reaching reforms
in this area.
Jane Dale
Chairman of the Audit & Risk Committee
28 March 2019
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SECTION C
THE RESPONSIBILITIES OF THE CHESNARA AUDIT AND RISK COMMITTEE COVER
A COMBINATION OF RISK AND AUDIT MATTERS RELEVANT TO CHESNARA. THE FOLLOWING
REPORT HAS BEEN STRUCTURED TO REFLECT THIS.
Audit responsibilities
This section of the report includes the following:
1. Activities during 2018: A summary of the work performed by the Audit & Risk Committee during the year.
2. External audit: Further detail of how the committee has overseen various aspects of the external audit process.
3. Internal audit: The work performed by the committee in overseeing the internal audit function of Chesnara.
4. Significant issues: Provides some insight into the significant issues that the committee has considered during the year in relation to the financial
statements, and how these were addressed.
1. Activities during 2018
The committee’s activity during the calendar year is driven by a combination of ’business as usual’ items and non-standard areas on which the committee has
decided to focus. For 2018, these non-standard areas have included, amongst other things, monitoring and actively steering the group’s IFRS 17 ’Insurance
contracts’ programme and overseeing the delivery of an external quality assessment of the internal audit function. A summary of all the activities performed by the
committee during the year in relation to its audit responsibilities is included in the table below.
– Solvency II narrative reporting: Supported the further development of, and review of, the Chesnara group Solvency and Financial Condition
Report and Regular Supervisory Report and the supporting quantitative reporting templates.
– Financial performance: Monitored and scrutinised the financial performance of the group during the year, covering IFRS, Solvency, EcV and
cash generation.
– Actuarial assumptions: Reviewed and challenged the actuarial assumptions underpinning the quarterly financial reporting process, covering
IFRS, Solvency II and EcV. See ‘Significant issues’ section on page 84 for further detail.
– Annual Report and Accounts: Reviewed all aspects of the Annual Report and Accounts, including; compliance with accounting standards,
accounting policy appropriateness, consideration of financial reporting changes and emerging practice, whether they are fair, balanced and
understandable and disclosures surrounding going concern, prospects and longer-term viability (including any associated management supporting
papers). See ’Significant issues’ section on page 83 to 84 for further details on certain aspects of the 2018 Annual Report and Accounts.
– Scildon embedding: Oversaw the embedding of the financial reporting routines of Scildon into the wider Chesnara group.
– Half Year Report: Reviewed and challenged the Chesnara Half Year Financial Report for the 6 months ended 30 June 2018.
– IFRS 17: Oversaw the group’s IFRS 17 programme, which commenced during the year. The programme was initially supported by partnering
with a consultancy firm.
– FRC updates: Actively monitored key publications issued by the Financial Reporting Council regarding financial reporting matters.
– External audit plans: Reviewed the group-wide plans of the external auditor, including consideration of the key audit risks. See page 82 for
further detail.
– External audit quality: Assessed the quality of the external auditor during the year, including consideration of feedback from management
and reports issued by the Financial Reporting Council.
– External audit reporting and feedback: Reviewed key findings reported by the external auditor on the Annual Report and Accounts
and Half Year Report, including financial reporting judgements and control matters. As part of its interactions with the external auditor, the
committee met with the external auditor without the presence of executive directors.
– External audit independence: Reviewed the assessment regarding the independence of the external auditor, with specific consideration given
to audit fees and also the nature / volume of the services delivered by the external auditor during the year.
– Review of plans: Reviewed and approved the plans of the internal audit functions across the group, via interactions with local Audit & Risk
Committees. See page 82 for more information.
– Oversight of external quality assurance review: The committee oversaw the delivery of an external quality assessment over the internal
audit function of Chesnara. Plans are being created in consideration of the assessment.
– Review of internal audit findings: Received regular updates from local Audit & Risk Committees regarding key findings from divisional internal
audits that have been performed during the year. Reviewed the internal audit findings, management responses and tracking of required follow up
actions for Chesnara entity internal audits. See page 82 for more information.
– Feedback from divisional Audit and Risk Committees: Reviewed and challenged regular feedback provided by the group’s divisional Audit
& Risk Committees.
– Committee terms of reference: The committee reviewed its terms of reference during the year and also completed its annual assessment
of compliance with its terms of reference.
– Performance evaluation: The committee conducted a performance evaluation, completed by members regarding various aspects of the
committee’s performance.
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Role of the Audit & Risk Committee
The role of the Audit and 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 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. The full terms of reference of the Audit and Risk Committee are available on our website www.chesnara.co.uk
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AUDIT & RISK COMMITTEE REPORT (CONTINUED)
2. External audit
Effectiveness of the audit process
The effectiveness of the external audit process is performed on an annual basis and had regard to the following factors:
– The quality of the background papers and verbal presentations to the committee on the audit planning process, interim and final audit findings and compliance
with independence criteria. The current audit engagement partner, Stephen Williams, was appointed during 2016 and this will be his third year leading the
Chesnara audit;
– The rationale put forward for the materiality limits established and the explanation given of the impact these have had on the work performed;
– The views of the executive on the way in which the audit has been conducted;
– The report produced by the Financial Reporting Council dated June 2018 entitled ’Deloitte LLP Audit Quality Inspection’. The report was discussed with the
auditor although the Chesnara plc audit was not in the population of those inspected; and
– The audit fees charged and the change in fees from the previous year. Changes in annual fees do, of course, need to reflect change in the nature of the company’s
business which has expanded over time.
It was concluded that the audit process was effective. The company is committed to putting its audit out to tender at least every ten years, having completed
its last external audit tender during 2017. The next audit tendering process will need to take place at the latest during 2027, following the 2026 audit.
Provision of non-audit services and independence
The committee has in place a policy on the engagement of the audit firm for non-audit services. Approval is granted where the service is clearly related to
the process of audit services, including regulatory returns (’Assurance services’). In other cases, the approval of the committee is required and documented
governance processes are followed.
The committee regularly monitors the level of fees paid for non-audit services to ensure, over a period of years, that these represent a low proportion of total
fees paid. Reports from the auditor on independence are also reviewed annually and discussed with the auditor. It should be noted that total fees paid by the
company are not material in the context of the overall business of the auditor.
Details of the fees paid to Deloitte, and its associates, for both audit and non-audit services during the year have been provided below, with associated commentary.
Audit fees
Audit services
Assurance services
Non-audit services
Total
% proportion
77
23
–
2018
£000
808
235
–
1,043
% proportion
61
39
–
2017
£000
647
413
–
1,060
Audit services
The fees charged for audit services have increased when compared with 2017. The main reason for this is due to Deloitte now performing the external audit of
Scildon NV’s local statutory accounts. In 2017, this was performed by Ernst & Young.
Assurance services
The cost of assurance services performed by the external auditor has reduced compared with the prior year. The key reason for this is that the Chesnara group
no longer requires the external auditor to provide an opinion on the group’s or Countrywide Assured’s Solvency and Financial Condition Report, following UK
regulatory rule changes during the year.
Non-audit services
There were no other non-audit services in 2018 aside from the assurance services as detailed above.
3. Internal audit
During the year, Chesnara has continued to adopt its devolved, federal model for internal audit. This means that each subsidiary company is responsible for
the oversight of its own internal audit work, supervised by each local Audit & Risk Committee. As a result, the group utilises a mix of outsourced and in-house
capabilities, adapted to meet the specific needs of each local market. The Chesnara Audit & Risk Committee maintains oversight of each subsidiary via
regular updates from each local Audit & Risk Committee.
During 2018, the committee commissioned the delivery of an external quality assessment of the internal audit function of the group. The assessment, which
is consistent with the Chartered Institute of Internal Auditors (CIIA) requirement to undertake an external review of a company’s internal audit function,
sought to report back to the committee on the effectiveness of internal audit across the group. It was performed through a combination of interviews with
senior management and internal audit personnel, coupled with a review of various planning and reporting documentation that is produced by the internal
audit function. A draft report was presented to the committee during December 2018 and is in the process of being finalised. Following completion of this
phase, the committee will be charged with overseeing the delivery of any enhancements that have been identified from this review.
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SECTION C
4. Significant issues:
The table below/overleaf provides information regarding the significant issues that the committee has considered in relation to the preparation of these
financial statements:
Area of focus
Reporting issue
Role of the committee
Conclusion/action taken
The committee is satisfied that the
impact assessments and disclosures
as included in Note 2 of the IFRS
Financial Statements are appropriate
and reflect the facts and circumstances
of the business.
The committee’s involvement has
been centred around ensuring
that it is appropriately educated
regarding the requirements of
the new accounting standards,
and to have reviewed impact
assessment papers prepared
by management regarding their
application. In addition to this
the committee has paid close
attention to the disclosures in
the IFRS Financial Statements
regarding the application of the
new standards.
For IFRS 17, which is a group-wide,
cross-functional and multi-year
programme, the committee has
been closely involved in initial
scoping of the programme and is
involved in decision making as
the programme progresses.
New
accounting
standards
There are a number of new accounting standards that affect the
preparation of these financial statements. A summary of their
impact is below:
– IFRS 9 ‘Financial Instruments’: This new standard replaces IAS 39
’Financial Instruments: Recognition and Measurement’ and is
effective for financial statements with accounting periods
beginning on or after 1 January 2018. However, for reporting
entities whose activities are predominantly connected with
insurance, a temporary exemption is available such that IFRS 9
will apply from the earlier of IFRS 17 ’Insurance Contracts’
coming into force and 1 January 2022. Certain deferral
disclosures are required for the group as a result of applying
this exemption. IFRS 9 has, however, been applied in the
Chesnara plc company only balance sheet.
– IFRS 15 ‘Revenue from Contracts with Customers’: IFRS 15 is a
new accounting standard that applies for the first time in this
year’s financial statements and deals with revenue recognition
and disclosures from contracts with customers, and replaces
IAS 18 ’Revenue’. The financial statements have been reviewed
and updated in order to comply with the requirements of IFRS 15.
The result of the review was that there was no requirement to
change the recognition profile of any components of revenue as
they already comply with the requirements of IFRS 15. However,
we have taken the opportunity to refine some of the revenue
category descriptions.
– IFRS 16 ‘Leases’: A new accounting standard for leases comes
into force for accounting periods beginning on or after 1 January
2019, with the consequence that Chesnara will be reporting
against this new standard for the first time in the 2019 Half Year
Report. Whilst the new standard does not apply to this set of
financial statements, IAS 8 requires companies to disclose, to the
extent this is possible, the impact of applying new or revised
IFRSs that are issued but not yet effective. The group’s impact
assessment has shown, as expected, that the group does not make
extensive use of leases, either through direct lease arrangements
or through the use of assets that form part of wider contractual
arrangements, and as a result the impacts on the balance sheet
and income statement are not expected to be significant. The most
material leases within the group relate to occupied office space.
– IFRS 17 ‘Insurance Contracts’: IFRS 17 is the new accounting
standard for insurance contracts and represents an extensive
re-working of the existing insurance contracts accounting
framework. During the year, it was proposed that the effective
date of the new standard is delayed a year to periods beginning
on or after 1 January 2022, and certain aspects of the standard
are currently under review by the IASB. The group’s IFRS 17
programme is underway and developments in the accounting
standard are being monitored closely. Further information can
be found in Note 2(a) on pages 106 and 107
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AUDIT & RISK COMMITTEE REPORT (CONTINUED)
4. Significant issues continued:
Area of focus
Reporting issue
Role of the committee
Conclusion/action taken
Prospects
and longer-term
viability
The uncertainty surrounding Brexit has heightened the focus on
company disclosures surrounding prospects and longer term
viability. In particular, the Financial Reporting Council has reminded
companies regarding the reporting of the risks and potential
impacts of Brexit and how these are reflected in such statements.
In light of this, the company’s prospects and longer-term viability
statements, as shown on page 41 have been updated to reflect
the most recent views of the directors, and in particular cover their
views on the impact of Brexit.
The committee has reviewed
the disclosures in the
Financial Statements and
management’s’ papers
supporting the disclosures
that have been made. It was
concluded that the
disclosures were appropriate.
The committee is satisfied with the
group’s prospects and longer-term
viability statements as included on
page 41. Further information
regarding the impact of Brexit has
been included on page 41.
Actuarial
assumptions
A key aspect of the Audit & Risk Committee’s role is to review
and challenge the actuarial assumptions that underpin the
valuation of the policyholder liabilities in the financial statements.
The assumptions are inherently judgemental and are updated
at least annually to reflect the facts and circumstances available
at the time. The assumptions are underpinned by a combination
of internally observed experience coupled with data that is
available at a market level. The key assumptions include
estimates over:
– future mortality and morbidity rates;
– future lapse assumptions;
– future expense required to manage the policies in force; and
– policyholder options.
The committee reviewed and
approved the actuarial basis
of assumptions report
underpinning the valuation of
insurance liabilities.
The committee concluded that the
actuarial assumptions were
appropriate. Disclosures over key
judgements are included in
on pages Note 3 and Note 30 of the
IFRS financial statements.
Scildon acquired
value in-force
intangible asset
The purchase of Scildon resulted in the recognition of a material
intangible asset, representing the value of the policies that were
in-force at the point of acquisition. As part of the process for
preparing the Financial Statements, and in the context of the loss
that Scildon reported for the year, an impairment review over the
carrying value of the intangible asset was performed.
The committee has ensured
that a review of the carrying
value of the Scildon AVIF asset
was performed.
The committee concluded that the
carrying value of the intangible AVIF
asset was not impaired.
Risk responsibilities
This section of the report provides information regarding the risk oversight responsibilities of the Audit & Risk Committee. Overall the committee is
responsible for:
– the group’s risk management and internal control systems and their effectiveness;
– overseeing the group’s risk profile in the context of its current and future strategy;
– discussing and recommending to the board for approval, the group’s risk appetite statement, reverse stress testing and scenario stress testing;
– advising the board on proposed changes to the group’s risk appetite statement where this is deemed appropriate;
– monitoring risk exposures across the group and advising the board where such exposures do not appear to accord with the group’s risk appetite statement;
– reviewing the group’s capability to identify and manage emerging and new risk types;
– challenging the regular stress and scenario testing of the group’s business;
– determining whether there is a sufficient level of risk mitigation in place;
– overseeing due diligence of a major strategic transaction, including any proposed acquisition or disposal, prior to the board taking a decision to proceed with
a view to ensuring that the board is aware of all material risks associated with the transaction;
– considering the adequacy and effectiveness of the technology infrastructure and supporting documentation in the risk management system and framework;
– considering and approving the remit of the risk function and ensure it has adequate resources and appropriate access to information to enable it to perform
its function effectively and in accordance with the relevant professional standards;
– providing qualitative and quantitative advice to the Remuneration Committee on risk weightings to be applied to any performance objectives; and
– considering and recommending to the board for approval, the group’s risk related regulatory submissions, including the ORSA.
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The table below provides some further information regarding the specific activities that the committee has performed during the year in discharging its risk
oversight responsibilities:
– Quarterly risk reporting: During the year, the committee reviewed the quarterly group and divisional risk reports on the identification, evaluation and
management of principal risks across the group, including any emerging risks. As part of this process, it flags any items of concern or clarification
requiring follow up. The quarterly risk reporting included ‘in focus’ sections as required, including amongst other things;
• a focus on operational resilience following the publication of the Bank of England’s discussion paper on ‘Building the UK financial sector’s operational
resilience’;
• Brexit;
• Capital risk appetites following the issue of the PRA’s policy statement 10/18 entitled ‘Financial management and planning by insurers’; and
• reporting on plans and progress regarding integrating the Scildon risk management framework into the wider group. This has facilitated greater
oversight by the committee over the risks and issues in the Scildon business.
– Principal risk definition: Reviewed and challenged the group’s definition of principal risks for the purpose of reporting and monitoring against these
risks, including how they are mitigated through the group’s internal control framework.
– Risk plan review and sign off: The committee reviewed and approved the group and divisional risk plans and associated resourcing needs.
– Internal control report: The committee reviewed and approved the annual internal controls assessment report, which concluded that the controls
across the group are operating effectively.
– Systems of governance review: An annual review of the effectiveness of the systems of governance review was facilitated by the risk function. This
considered a number of areas of the overall system of governance including its completeness, effectiveness, its use and the overall culture. This
concluded there were no major areas of concern. Any areas for improvement have been built into the 2019 plans, with suitable priorities attached.
– ORSA review: The committee reviewed the 2018 ORSA, and made a formal recommendation to the board to approve it. The ORSA includes the
outcome of the group’s stress and scenario testing. The stresses that are modelled are reviewed and approved as part of the ORSA planning process,
and the results are included in the final ORSA report.
– Risk appetite: Reviewed and approved developments to the group’s risk appetite framework, which was improved to more clearly and consistently
articulate risk taking preferences across the group and to increase alignment of the key risk indicators/tolerance limits with stakeholder interests and
key business performance measures.
– Continuous solvency monitoring: Reviewed the output from the group’s continuous solvency monitoring activities. There were no issues arising
from this process during the year.
– Standard formula assessment: As part of its annual cycle, the actuarial function performs an assessment of the appropriateness of the standard
formula for the purposes of calculating the group’s capital requirements under Solvency II. The work and associated findings was reviewed and
challenged by the committee.
Jane Dale
Chairman of the Audit & Risk Committee
28 March 2019
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CORPORATE GOVERNANCE
DIRECTORS’ REPORT
Chesnara plc - Company No. 4947166
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year ended 31 December 2018. The Corporate Governance Report on pages 54 to 57 forms part of the Directors’ Report.
The following information, that has been included by way of a cross
reference to other areas of the Annual Report and Accounts, is required by
the Companies Act to be included within the Directors’ Report:
Requirements/reference
Financial risk management objectives and policies
The ‘Financial management’ section on pages 40 to 41 and the ‘Risk
management’ section on pages 42 to 45.
Exposure to price risk, credit risk, liquidity risk and cash flow risk
Note 6 ‘Management of financial risk’ to the IFRS Financial Statements.
Likely future developments
The ‘Business review’ section on pages 24 to 29.
Greenhouse gas reporting
The ‘Corporate and social responsibility’ section on page 47.
Environmental, employee and social community matters
The ‘Corporate and social responsibility’ section on page 46.
Directors
Full information of the directors who served in 2018 is detailed in the Corporate
Governance Report on pages 54 to 57. Detail of the non-executive directors
who served as chairmen and members of the board committees of the board
are set out in the Corporate Governance Report on pages 54 to 57. 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 62 to 79, which also includes details of directors’ interests in
shares and share options. The Chairman and all the non-executive directors will
retire at the Annual General Meeting and, being eligible, offer themselves for
re-election. All the executive directors have service contracts with the company
of no more than 1 year’s duration and will offer themselves for re-election at
least every 3 years.
The service contracts of all the directors are retained at the company’s
office, and will be available for inspection for 15 minutes prior to the Annual
General Meeting. 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 2017 and 31 December 2018 and
the period to 28 March 2019.
Director evaluations
During the year, the Chairman evaluated the performance of the directors in
one-to-one meetings and the Senior Independent Director evaluated the
performance of the Chairman. It was confirmed that each director continued
to make effective contributions to their role and the board as a whole.
Director appointments
With regard to the appointment and replacement of directors, the company
follows the UK Corporate Governance Code 2016 and is governed by its
Articles of Association, the Companies Act 2006 and related legislation. The
Articles of Association may be amended by special resolution. In December
2018, Mark Hesketh was appointed to the board following the departure of
Mike Evans who stepped down on 1 October 2018.
Share capital
Details of the issued share capital, together with details of movements
in the issued share capital of Chesnara plc during the year, are shown in
Note 40 to the IFRS Financial Statements which is incorporated by reference
and deemed to be part of this report.
The company has one class of ordinary share which carries no right to fixed
income. Each share carries the right to one vote at general meetings of the
company. The ordinary shares are listed on the Official List and traded on
the London Stock Exchange. As at 31 December 2018, the company had
149,908,956 ordinary shares in issue, of which none were held as treasury
shares. During the year, the maximum number of treasury shares held was
86,040 with a nominal value £4,302. The number of treasury shares
disposed of during the year was 86,040, with a nominal value of £4,302.
In order to retain maximum flexibility, the company proposes to renew the
authority granted by ordinary shareholders at the Annual General Meeting in
2019, to repurchase up to just under 10% of its issued share capital. Further
details are provided in the Notice of this year’s Annual General Meeting.
At the Annual General Meeting in 2018, shareholders approved resolutions
to allot shares up to an aggregate nominal value of £4,991,274 and to allot
shares for cash other than pro rata to existing shareholders. Resolutions will
be proposed at this year’s Annual General Meeting to renew these authorities.
No person has any special rights of control over the company’s share capital
and all issued shares are fully paid. There are no specific restrictions on
the size of holding nor on the transfer of shares which are both governed by
the general provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreements between holders
of the company’s shares that may result in restrictions on the transfer of
securities or voting rights. The directors have no current plans to issue shares.
Articles of Association
The company’s Articles of Association may only be amended by special
resolution of the company at a general meeting of its shareholders.
Conflicts of interest
Procedures are in place to ensure compliance with the directors’ conflict of
interest duties as set out in the Companies Act 2006. The company has
complied with these procedures during the year and the board considers that
the procedures operated effectively. During the year, details of any new
conflicts or potential conflicts were advised and submitted to the board for
consideration, and where appropriate, approved.
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SECTION C
Results and dividends
The Consolidated Statement of Comprehensive Income for the year ended 31 December 2018, prepared in accordance with International
Financial Reporting Standards adopted by the EU and set out on page 100 shows:
Profit for year attributable to shareholders
2018
£000
2017
£000
24,124
78,434
An interim dividend of 7.21p per ordinary share was paid by Chesnara on 12 October 2018. The board recommends payment of a final dividend
of 13.46p per ordinary share on 24 May 2019 to shareholders on the register at the close of business on 12 April 2019.
The Chesnara dividend policy is directly influenced by two key factors. We recognise that our shares are predominantly held as a source of
predictable and sustainable income. Our primary aim is therefore to provide an attractive yield with steady growth where possible.
Our aim to satisfy investor expectations cannot and will not be delivered at the expense of financial security and solvency. As such, dividend
capacity is assessed giving full regard to our Group Capital Management Policy which currently prohibits dividends to be declared that would
result in Chesnara having a solvency ratio below 110%.
Total dividend as a ratio of cash generated
Considerations
Dividend growth
£31.0m
£30.1m
Cash
generation
Historical and projected cash generation levels need to support
any dividend payment although there is no explicit requirement
for the current year’s cash generation to cover the dividend.
£27.6m
Solvency
Dividends will not be paid if they were to result in a breach in
our Group Capital Management Policy which currently sets a
minimum dividend paying solvency constraint of 110%.
£24.0m
£22.5m
53%
2014
54%
2015
76%
2016
36%
2017
64%
2018
Over the past 5 years £135m of dividends have
been paid at an average annual yield of 5.5% (based
on average annual share prices) representing 53%
of the cash generated over the period.
Acquisition
strategy
The Chesnara business model is based upon making future
acquisitions and any dividend payments consider the financial
requirements to continue to deliver our acquisition strategy.
Investor
expectations
In addition to a stable and attractive dividend yield our investors
value predictability and sustainability of earnings. As such, under
normal circumstances, ’special dividends’ are unlikely.
The board makes dividend decisions with reference to a range of management information, reports and policies including the group ORSA,
group business plan, solvency analysis including sensitivities, analysis of historical financial results and the Group Capital Management Policy.
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CORPORATE GOVERNANCE
DIRECTORS’ REPORT (CONTINUED)
Substantial shareholdings
Information provided to the company by major shareholders pursuant to the FCA’s Disclosure and Transparency Rules (DTR), is published via a Regulatory
Information Service and is available on the company’s website. The company had been notified under Rule 5 of the DTR of the following interests in
voting rights in its shares as at 31 December 2018 and 21 March 2019:
Name of substantial shareholder
Total number of ordinary shares held
Percentage of the issued share capital
as at 31 December 2018
Aberdeen Standard Investments
Columbia Threadneedle Investments
Invesco Ltd
Hargreaves Lansdown Asset Management
M&G Investment Management
Janus Henderson Investors
Canaccord Genuity Wealth Management
Royal London Asset Management
20,915,445
19,843,004
9,815,819
7,215,343
6,042,744
5,822,656
5,436,489
4,776,509
13.95%
13.24%
6.55%
4.81%
4.03%
3.88%
3.63%
3.19%
,
Subsequent to 31 December 2018 there have been changes to this position and the holdings as at 21 March 2019 are 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 21 March 2019
Aberdeen Standard Investments
Columbia Threadneedle Investments
Invesco Ltd
Hargreaves Lansdown Asset Management
Canaccord Genuity Wealth Management
M&G Investment Management
Janus Henderson Investors
Royal London Asset Management
21,088,051
19,833,322
9,879,331
7,189,420
6,671,864
6,042,744
5,406,656
4,748,782
14.06%
13.23%
6.59%
4.80%
4.45%
4.03%
3.61%
3.17%
Related party transactions and significant contracts
During the year ended 31 December 2018, the company did not have any
material transactions or transactions of an unusual nature with, and did not make
loans to, related parties in which any director has or had a material interest.
in Note 2. Detailed analysis of relevant risks and other factors is included
within the Risk Management section on pages 42 to 45, within the
Financial Management section on pages 40 to 41 and within Notes 5 and 6
to the IFRS Financial Statements.
There were no significant contracts with substantial shareholders during
the year.
Post balance sheet events
There have been no post balance sheet events that either require adjustment
to the Financial Statements or are important in the understanding of the
company’s current position, financial performance or results.
Charitable donations
Charitable donations made by group companies during the year ended
31 December 2018 were £14,000 (2017: £nil). No political contributions were
made during the year ended 31 December 2018 (2017: £nil).
Employees
The average number of employees during the year was 363 (2017: 329).
Employee involvement
The group believes that employee communication and consultation is important
in enhancing the company culture and connectivity, and in motivating
and retaining employees. An open communications programme enables all
employees to understand key strategies and other matters of interest and
importance, quickly and efficiently. The communication includes face-to-face
briefings, open discussion forums with senior management and email.
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
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 or she ought to have taken as a director to make
himself or herself 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
The 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 28 March 2019 and signed on its behalf by:
David Rimmington
Group Finance Director
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SECTION C
DIRECTORS’ RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Responsibility statement
We confirm that to the best of our knowledge:
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
– 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.
– 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;
– the Strategic 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; and
– the Annual Report and Financial Statements, taken as a whole, are fair, balanced
and understandable and provide the information necessary for shareholders to
assess the company’s performance, business model and strategy.
Peter Mason
Chairman
John Deane
Chief Executive Officer
28 March 2019
28 March 2019
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SECTION D:
IFRS FINANCIAL
STATEMENTS
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92
Independent Auditor’s Review Report
to the members of Chesnara plc
100 Consolidated Statement of
Comprehensive Income
101 Consolidated Balance Sheet
102 Company Balance Sheet
103 Consolidated Statement of Cash Flows
104 Company Statement of Cash Flows
105 Consolidated Statement of Changes
in Equity
105 Company Statement of Changes in Equity
106 Notes to the Consolidated
Financial Statements
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Morecambe Bay, Lancashire
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INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF CHESNARA PLC
IFRS FINANCIAL STATEMENTS
Report on the audit of the financial statements
Opinion
In our opinion
– the financial statements of Chesnara plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of the group’s
and of the parent company’s affairs as at 31 December 2018 and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (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.
We have audited the financial statements which comprise:
– the consolidated statement of comprehensive income;
– the consolidated and parent company balance sheets;
– the consolidated and parent company statements of cash flows;
– the consolidated and parent company statements of changes in equity;
– the statement of accounting policies; and
– the related Notes 1 to 51 excluding the capital adequacy disclosures in Note 29c calculated in accordance with the Solvency II regime which are marked
as unaudited.
The financial reporting framework that has been applied in their preparation is applicable law and 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are
further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
– Valuation of insurance liabilities, which includes the accuracy of the Save & Prosper (‘S&P’) Cost of Guarantees and the
Scildon Liability Adequacy Test;
– Valuation of the Scildon Acquired Value In-Force (‘AVIF’) intangible asset; and
– Valuation of specific Level 2 financial instruments.
Materiality
Scoping
The materiality that we used for the group financial statements was £12.0m (2017: £11.6m) which was determined on the basis
of 3% of net assets.
We focused our group audit scope on the audit work at three UK locations where the group’s policies are administered, three
overseas locations where the group’s policies are also administered, and in Luxemburg where the group undertake certain
fund management activities.
Significant changes in
our approach
We have identified a new key audit matter in the period. This is around the valuation of certain financial instruments where the
fair value is modelled using Level 2 inputs; specifically, the judgements used in the valuation of the embedded derivative
within Movestic and the interest rate swap within Scildon. This is a new key audit matter in the period as, cumulatively with
the Scildon interest rate swap, there is now a significant quantum of such complex instruments.
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SECTION D
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in Note 2c to the financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material
uncertainties to the group’s and company’s ability to continue to do so over a period of at least 12 months from the date
of approval of the financial statements.
We confirm that we have
nothing material to report,
add or draw attention to
in respect of these matters.
We considered as part of our risk assessment the nature of the group, its business model and related risks including where
relevant the impact of Brexit, the requirements of the applicable financial reporting framework and the system of internal
control. We evaluated the directors’ assessment of the group’s ability to continue as a going concern, including challenging
the underlying data and key assumptions used to make the assessment, and evaluated the directors’ plans for future
actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to that statement required
by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the knowledge
we obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’ assessment
of the group’s and the company’s ability to continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
– the disclosures on pages 43- 45 that describe the principal risks and explain how they are being managed or mitigated;
– the directors’ confirmation on page 57 that they have carried out a robust assessment of the principal risks facing the
group, including those that would threaten its business model, future performance, solvency or liquidity; or
– the directors’ explanation on page 41 as to how they have assessed the prospects of the group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the group required by Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period
and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
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IFRS FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF CHESNARA PLC (CONT)
Valuation of insurance liabilities
Key audit matter
description
Across the group, there are two matters relating to insurance liabilities which we have identified as key audit matters:
a) Accuracy of Save & Prosper Cost of Guarantees:
The assessment of the Cost of Guarantee reserves for policies written by Save & Prosper is complex and material, including
the use of a stochastic model based on a variety of possible economic scenarios.
Historically, the residual cost to shareholders arising from the cost of guarantees has fluctuated as a result of movements in
bond yields and equity markets with a value of £23.1m at 31 December 2018 (31 December 2017: £19.3m). This movement
is mainly due to lower asset returns over 2018, which decreased policyholder asset shares, and increased the residual cost
to shareholders. The value is determined by a third party actuarial consultant, and the directors compare this valuation against
an in-house derived estimate using an approximation model to validate its reasonableness.
Due to the highly judgemental nature of this balance, we identified manipulation of this estimate as an area of potential fraud.
See Note 3e for management’s consideration of critical accounting judgement and key sources of estimation and uncertainty,
Note 30c for disclosure of the calculation methodology and the charge to income for the current and prior year.
b) Scildon Liability Adequacy Test (LAT)
Scildon measures the majority of its insurance contract liabilities using historical market rates of interest along with a number
of other parameters and assumptions.
IFRS 4 requires an insurer, at the end of each reporting period, to assess whether its recognised insurance liabilities are adequate,
using current estimates of future cash flows (the ‘Liability adequacy test’, or ‘LAT’). Given Scildon’s accounting policy makes
use of historical market interest rates, there is a heightened risk that its insurance liabilities are not adequate. There is also a
risk of management override over the setting of the parameters used to calculate the reserves at inception.
We therefore view the liability adequacy test and initial parameter setting process as key audit matters, specifically in relation
to the mortality, lapse and expense assumptions which feed into the test, given that the insurance liabilities are most
sensitive to these factors.
The accounting policy adopted by the group is documented within Note 2h to the financial statements.
In respect of the Accuracy of Save & Prosper Cost of Guarantees:
– We assessed the design and implementation of the internal controls in place to monitor and manage the risks associated with
the cost of guarantee reserve.
– We assessed the competence of the actuarial consultant. Such an assessment includes a direct challenge of the actuarial
consultant’s working papers and a challenge of the historical accuracy of modelling when compared with actual experience.
– We used actuarial specialists within our audit team to challenge the appropriateness of assumptions input into the model
and benchmark against external actuarial data. Sensitivity analysis was also performed to assess potential management bias.
– We developed an independent expectation of how the assumptions impact the model and challenged management’s
explanation and analysis to support any variations.
In respect of the Scildon Liability Adequacy Test we performed the following procedures:
– Evaluation of the design and implementation of the key controls over the setting of the assumptions feeding in to the LAT;
– Performed checks on the initial parameters used in setting the book cost reserves;
– Performed analytical checks on policy cash flows to identify outliers and movements compared to the prior period, which
were then investigated;
– For a sample of policies, ran the policy cash flows through a model to test whether the calculations within management’s
model are accurate; and
– Assessed the results of the experience investigations carried out by management in comparison to industry studies and
other sources of evidence to determine whether they provide support for the assumptions.
How the scope of our
audit responded to the
key audit matter
Key observations
Based on the audit procedures performed, we consider that the S&P Cost of Guarantees reserve is not materially misstated
and we found that the initial parameter setting process and Liability Adequacy Test performed by management were
reasonable, supporting the adequacy of Scildon’s insurance contract liabilities.
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SECTION D
Valuation of the Scildon AVIF intangible asset
Key audit matter
description
Following the acquisition of Scildon, Chesnara recorded an AVIF intangible asset of £66m on the group balance sheet, reflecting
the capitalised future profit in the Scildon business.
Our key audit matter in the prior year related to the valuation of the intangible; this risk has then evolved in the current period,
based on our ongoing assessment, to focus on the discount rate used by Management to discount the future policyholder
cash flows underpinning the VIF.
Management is required to assess the impairment of the Scildon AVIF intangible balance at least annually, in line with IAS 36
Impairment of assets for investment contracts or, for insurance contracts, under the IFRS 4 Insurance Contracts liability
adequacy test, which involves significant judgement.
Due to the highly judgemental nature of this balance, we identified manipulation of this assessment as an area of potential fraud.
See Note 3a for management’s consideration of significant accounting judgements. The accounting policy adopted by the
group is documented within Note 2o to the financial statements and the acquired in-force business intangible is disclosed in
Note 19.
How the scope of our
audit responded to the
key audit matter
We assessed the design and implementation of the internal controls in place to monitor and mitigate the risk of inappropriate
management adjustments to the key assumptions.
We constructed an independent discount rate, comparing this to the discount rate used by management and performing
sensitivity analysis.
We challenged the amortisation profile produced by management for the future run off of the Scildon book.
Key observations
Based on the audit procedures performed, we consider the assumptions in the base VIF, and the calculation and magnitude
of the adjustments thereof, and the resultant AVIF to be reasonable. We conclude that the discount rate used and amortisation
profile are appropriate.
Valuation of specific Level 2 financial instruments
Key audit matter
description
There are a number of complex financial instruments held on the group’s balance sheet, with a fair value modelled using
Level 2 inputs, per IFRS 13. Due to the significance of the balance, a small difference in input sources could result in a material
variation. The instruments of focus are the financial reinsurance contract, within Movestic (£39.1m), and the interest rate
swap, within Scildon (£21.2m).
The financial reinsurance contract within Movestic is deemed to have one component that transfers significant insurance risk,
and a component that is deemed not to transfer significant insurance risk. The component 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 interest rate swap held within Scildon has been entered into to hedge some of the risk of changes in the value of its
obligations under insurance contract liabilities.
Due to the judgement involved in the valuation of these complex financial instruments, namely the margin applied to the
embedded derivative, we identified manipulation of these as an area of potential fraud.
The accounting policy adopted by the group is documented within Note 2u to the financial statements and the derivatives are
disclosed in Note 27.
How the scope of our
audit responded to the
key audit matter
We assessed the design and implementation of the internal controls in place to understand and challenge the valuation
methods used.
We used financial instrument specialists within our audit team to challenge the appropriateness of assumptions input into the
model and benchmark against external actuarial data.
We developed an independent expectation of the valuations and challenged management’s explanation and analysis to support
any variations.
Key observations
Based on the audit procedures performed, we conclude that the valuation of the embedded derivative and the interest rate
swap, and the associated judgements used, namely the margin used for the embedded derivative, to be reasonable.
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IFRS FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF CHESNARA PLC (CONT)
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgment, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£12.0m (2017: £11.6m)
£10.5m (2017: £9.7m)
Basis for determining
materiality
3% of adjusted Q2 net assets
The adjustment is 90% of this net asset benchmark to determine materiality due to the level of inherent volatility in equity prices
in the net asset amount so that materiality does not exceed 3% of the net asset figure.
Rationale for the
benchmark applied
In our judgement we believe that a net assets measure is more closely aligned to the objectives of capital solvency and
efficiency, dividend payments and ultimately cash generation that is relevant for this business model. This represents a stable
long-term measure of value in a business which has a significant closed insurance book.
Excluding the parent company, the component materiality levels set by the group auditor range from £4.8m to £6.0m (2017: £5.8m to £6.4m). The movement
in range in the year arises due to foreign exchange movements impacting the re-translated group balance sheet.
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of £600,000 (2017: £578,000), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit & Risk Committee on disclosure
matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing the risks of material
misstatement at the group level.
Based on this assessment, we focused our group audit scope primarily on the audit work at seven (2017: seven) locations where the group’s policies are
administered. Three (2017: three) relate to Countrywide Assured plc and are in the United Kingdom, and the remaining four (2017: four) locations in the Netherlands,
Sweden and Luxembourg relate to Waard Leven, Waard Schade, Movestic Livförsäkring AB, Movestic Fund Management S.A., and Scildon. All components
except for Movestic Fund Management S.A., which is immaterial and therefore scoped out for group purposes, were subject to a full scope audit.
The group audit team performed the audit work directly at three of the seven locations. The remaining four locations involved the use of component audit teams,
and included a programme of planned visits that has been designed so that the senior statutory auditor and a senior member of the group audit team visited
each of the locations at least once in the financial year, except for Luxemburg which was not considered to be material for group reporting purposes.
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SECTION D
Other information
The directors are responsible for the other information. The other information comprises the information included in the
Annual Report, other than the financial statements and our auditor’s report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other
information include where we conclude that:
– Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders
to assess the group’s position and performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
– Audit & Risk Committee reporting – the section describing the work of the Audit & Risk Committee does not appropriately
address matters communicated by us to the Audit & Risk Committee; or
– Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement required
under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
Responsibilities of directors
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, and for such internal control as the directors determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities
This description forms part of our auditor’s report.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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IFRS FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF CHESNARA PLC (CONT)
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures
responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our
procedures included the following:
– enquiring of management, internal audit and the Audit & Risk Committee, including obtaining and reviewing supporting documentation, concerning the group’s
policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
– discussing among the engagement team including significant component audit teams and involving relevant internal specialists, including tax, IT, financial
instrument and actuarial specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part
of this discussion, we identified potential for fraud in the potential manipulation of the estimates used in the valuation of insurance liabilities, valuation of
the Scildon Acquired Value In-Force (‘AVIF’) intangible asset, and valuation of specific Level 2 financial instruments; and
– obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and regulations that had a direct effect
on the financial statements or that had a fundamental effect on the operations of the group. The key laws and regulations we considered in this context
included the UK Companies Act, Listing Rules, pensions legislation, tax legislation, and the regulations set out by the Prudential Regulation Authority, Financial
Conduct Authority, the Finansinspektionen and De Nederlandshe Bank. In addition, compliance with terms of the group’s operating licence and regulatory
solvency requirements were fundamental to the group’s ability to continue as a going concern.
Audit response to risks identified
As a result of performing the above, we identified the valuation of insurance liabilities, Valuation of the Scildon Acquired Value In-Force (‘AVIF’) intangible asset
and the valuation of specific Level 2 financial instruments as key audit matters. The key audit matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above;
– enquiring of management, the Audit & Risk Committee and external legal counsel concerning actual and potential litigation and claims;
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing all regulatory correspondence; and
– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether
the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including internal specialists and
significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
98
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SECTION D
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with
the financial statements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– 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 are not in agreement with the accounting records and returns.
We have nothing to report in
respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report
arising from these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit & Risk Committee, we were appointed by the group’s board with effect from 1 October 2009 to audit the financial
statements for the year ending 31 December 2009 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals
and reappointments of the firm is 10 years, covering the years ended 2009 to 2018.
Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are required to provide in accordance with ISAs (UK).
Use of our report
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.
Stephen Williams FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Manchester, United Kingdom
28 March 2019
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
99
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IFRS FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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
I(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:520)(cid:566)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:449)
C(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:3)
Net decrease in insurance contract provisions
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)
N(cid:457)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:3)
Change in investment contract liabilities
Reinsurers’ share of investment contract liabilities
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Net change in investment contract liabilities
Fees, commission and other acquisition costs
Administrative expenses
Other operating expenses
Charge for amortisation of acquired value of in-force business
Charge for amortisation of acquired value of customer relationships
Other
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Note
2018
£000
2017
£000
274,916
(55,536 )
231,515
(54,191 )
219,380
101,783
(335,035 )
177,324
90,301
531,817
(13,872 )
799,442
41,236
40,789
27,364
840,231
(471,205 )
351,812
43,648
(cid:1263)(cid:1116)(cid:1114)(cid:1239)(cid:1116)(cid:1113)(cid:1114)(cid:3)(cid:1264)(cid:3)
196,940
(1,611 )
195,329
(28,158 )
(69,795 )
(12,093 )
(83 )
(4,840 )
(465,729 )
51,033
49,449
(cid:1263)(cid:1112)(cid:1115)(cid:1114)(cid:1239)(cid:1111)(cid:1113)(cid:1116)(cid:3)(cid:1264)
(293,603 )
3,681
(289,922 )
(24,405 )
(70,269 )
(13,271 )
(101 )
(4,239 )
8
9
10
11
11
11
(cid:3)(cid:3)
12
12
13
14
15
15
15
Total income/(expenses) net of change in insurance contract provisions and investment contract liabilities
4,615
(767,454 )
Total income less expenses
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:3)
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:616)(cid:457)(cid:442)(cid:577)(cid:508)(cid:566)(cid:520)(cid:624)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:441)(cid:520)(cid:566)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)
Financing costs
Profit before income taxes
Income tax expense
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Profit for the year
Items that will not be reclassified to profit and loss:
Foreign exchange translation differences arising on the revaluation of foreign operations
Revaluation of pension obligations
Revaluation of investment property
Total comprehensive income for the year
(cid:57)(cid:387)(cid:624)(cid:520)(cid:442)(cid:3)(cid:457)(cid:387)(cid:616)(cid:566)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:1263)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:1264)(cid:3)
D(cid:520)(cid:546)(cid:653)(cid:637)(cid:457)(cid:449)(cid:3)(cid:457)(cid:387)(cid:616)(cid:566)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:1263)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:577)(cid:566)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:1264)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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 106 to 177 form part of these financial statements.
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
23
(cid:3)(cid:3)
16
7
17
7
4
34
46
46
31,979
(616 )
(cid:1269)(cid:3)(cid:3)
(4,351 )
27,012
(2,888 )
72,777
949
(cid:1111)(cid:1109)(cid:1239)(cid:1112)(cid:1110)(cid:1118)
(4,443 )
89,602
(11,168 )
24,124
78,434
(783 )
56
277
8,274
124
90
23,674
86,922
16.10p
52.38p
16.01p
52.13p
100
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CONSOLIDATED BALANCE SHEET
31 December
Assets
Intangible assets
Deferred acquisition costs
Acquired value of in-force business
Acquired value of customer relationships
Goodwill
Software assets
Property and equipment
Investment in associates
Investment properties
Reinsurers’ share of insurance contract provisions
Amounts deposited with reinsurers
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
Policyholders’ funds held by the group
Mortgage loan portfolio
Insurance and other receivables
Prepayments
Derivative financial instruments
Total financial assets
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
Derivative financial instruments
Total financial liabilities
Deferred tax liabilities
Reinsurance payables
Payables related to direct insurance and investment contracts
Deferred income
Income taxes
Other payables
Bank overdrafts
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Treasury shares
Other reserves
Retained earnings
Total shareholders’ equity
The Notes and information on pages 106 to 177 form part of these financial statements.
Approved by the board of directors and authorised for issue on 28 March 2019 and signed on its behalf by:
Peter Mason
Chairman
John Deane
Chief Executive Officer
Company number: 04947166
Note
2018
£000
2017
£000
18
19
20
21
22
23
30
31
24
24
24
24
24/25
24/26
24
24/27
37
28
30
31
32
33
27
35
36
37
38
39
28
65,039
106,609
537
781
5,711
4,293
5,840
1,299
213,369
34,349
413,851
4,835,621
1,521,616
259,836
41,191
55,849
7,309
446
7,135,719
17,640
10,702
215,212
61,858
119,039
641
806
6,358
4,327
6,407
1,199
233,154
38,776
512,724
5,202,772
1,628,817
265,729
48,106
59,448
7,325
1,682
7,726,603
25,888
7,681
210,647
7,817,100
8,443,384
3,569,014
882
3,962,279
1,098
3,235,519
259,836
109,202
22,714
3,627,271
19,463
10,535
91,229
3,948
3,428
44,756
958
3,420,273
265,729
129,202
22,494
3,837,698
22,794
11,406
97,163
4,701
8,514
44,984
1,091
7,371,484
7,991,728
7
445,616
451,656
40
40
4 1
42
43
43,767
142,053
–
27,158
232,638
43,766
141,983
(98 )
27,664
238,341
445,616
451,656
101
SECTION DCHESNARA ANNUAL REPORT AND ACCOUNTS 2018
IFRS FINANCIAL STATEMENTS
COMPANY BALANCE SHEET
31 December
Assets
Non-current assets
Financial assets
Investments in subsidiaries
Deferred tax asset
Total non-current assets
Current assets
Financial assets
Holdings in collective investment schemes at fair value through income
Receivables and prepayments
Income taxes
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Borrowings
Other payables
Total current liabilities
Non-current liabilities
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Treasury shares
Other reserves
Retained earnings
Total shareholders’ equity
Note
2018
£000
2017
£000
24
354,720
388
354,720
338
355,108
355,058
24
28
47,288
2,486
2,665
7,990
29,091
3,060
3,032
11,867
60,429
47,050
415,537
402,108
33
39
15,306
2,811
22,029
4,651
18,117
26,680
33
54,274
67,428
54,274
67,428
72,391
94,108
343,146
308,000
40
40
41(cid:3)(cid:3)
42
43
7,495
142,053
(cid:1269)(cid:3)(cid:3)
50
193,548
7,494
141,983
(cid:1263)(cid:1118)(cid:1117)(cid:3)(cid:1264)
50
158,571
343,146
308,000
The Notes and information on pages 106 to 177 form part of these financial statements.
The profit for the financial year of the parent company was £64.9m (2017: £22.5m).
The financial statements of Chesnara plc (registered number 4947166) were approved by the board of directors and authorised for issue on 28 March 2019 and
signed on its behalf by:
Peter Mason
Chairman
John Deane
Chief Executive Officer
102
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 102
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SECTION D
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December
Profit for the year
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
Share based payment
Tax paid
Interest receivable
Dividends receivable
Interest expense
(cid:3)(cid:3)
(cid:121)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:508)(cid:387)(cid:520)(cid:566)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:387)(cid:616)(cid:520)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:441)(cid:520)(cid:566)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:546)(cid:577)(cid:624)(cid:624)(cid:1251)(cid:1263)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:1264)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:3)(cid:3)
(cid:3)(cid:3)
Increase in intangible assets related to insurance and investment contracts
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Interest received
Dividends received
Changes in operating assets and liabilities (excluding the effect of acquisitions)
Changes in operating assets and liabilities:
D(cid:457)(cid:442)(cid:616)(cid:457)(cid:387)(cid:624)(cid:457)(cid:1251)(cid:1263)(cid:520)(cid:566)(cid:442)(cid:616)(cid:457)(cid:387)(cid:624)(cid:457)(cid:1264)(cid:3)(cid:520)(cid:566)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
Decrease in reinsurers’ share of insurance contract provisions
Decrease/(increase) in amounts deposited with reinsurers
Decrease in insurance and other receivables
(Increase)/decrease in prepayments
Decrease in insurance contract provisions
(Decrease)/increase in investment contract liabilities
(Decrease)/increase in provisions
(Decrease)/increase in reinsurance payables
(Decrease)/increase in payables related to direct insurance and investment contracts
Decrease in other payables
(cid:3)(cid:3)
(cid:3)(cid:3)
Net cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
(cid:57)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:441)(cid:520)(cid:566)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
Development of software
Disposal/(purchases) of property and equipment
Net cash utilised by investing activities
Cash flows from financing activities
Proceeds/(loss) from issue of share capital
(cid:256)(cid:616)(cid:577)(cid:442)(cid:457)(cid:457)(cid:449)(cid:624)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:520)(cid:624)(cid:624)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:564)(cid:520)(cid:653)(cid:564)(cid:3)
Net (loss)/proceeds from borrowings
Sale of treasury shares
Dividends paid
Interest paid
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Net cash (utilised by)/generated from financing activities
Net increase/(decrease) in net cash and cash equivalents
Net cash and cash equivalents at beginning of year
Effect of exchange rate changes on net cash and cash equivalents
Net cash and cash equivalents at end of the year
Note. Net cash and cash equivalents includes overdrafts.
The Notes and information on pages 106 to 177 form part of these financial statements.
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Note
2018
£000
2017
£000
24,124
78,434
22
18
19
21
16
(cid:3)(cid:3)
(cid:3)(cid:3)
23
34
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
647
13,629
12,093
83
1,671
501
2,888
(4,796 )
(2,939 )
4,351
(cid:1263)(cid:1111)(cid:1109)(cid:1114)(cid:1239)(cid:1113)(cid:1110)(cid:1109)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
616
(18,457 )
5,360
1,579
56
(cid:1116)(cid:1110)(cid:1114)(cid:1239)(cid:1112)(cid:1118)(cid:1109)(cid:3)(cid:3)
26,462
4,427
11,937
(86 )
(409,405 )
(102,577 )
(180 )
(792 )
(5,947 )
(2,549 )
72,676
(12,104 )
698
14,506
13,271
101
2,218
(159 )
11,209
4,785
(4,619 )
4,443
(cid:1263)(cid:1111)(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1109)(cid:1115)(cid:3)(cid:1264)
(cid:1263)(cid:1111)(cid:1109)(cid:1239)(cid:1112)(cid:1110)(cid:1118)(cid:3)(cid:1264)
(949 )
(28,634 )
4,560
4,336
124
(cid:1263)(cid:1110)(cid:1113)(cid:1114)(cid:1239)(cid:1115)(cid:1110)(cid:1112)(cid:3)(cid:1264)
17,074
(1,339 )
11,317
12,722
(91,110 )
414,014
272
4,424
2,432
(935 )
86,987
(27,480 )
60,572
59,507
(cid:1269)(cid:3)(cid:3)
(1,839 )
71
(cid:1263)(cid:1110)(cid:1110)(cid:1116)(cid:1239)(cid:1118)(cid:1118)(cid:1112)(cid:3)(cid:1264)
(928 )
(314 )
(1,768 )
(119,235 )
1
(cid:1116)(cid:1109)(cid:3)(cid:3)
(18,974 )
98
(30,384 )
(4,174 )
(75 )
(cid:1269)
42,022
63
(29,484 )
(4,266 )
(53,363 )
8,260
28
5,441
(51,468 )
209,556
(743 )
258,731
2,293
28
214,254
209,556
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
103
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 103
04/04/2019 12:44
IFRS FINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS
Year ended 31 December
Profit for the year
Adjustments for:
Tax recovery
Interest receivable
Share based payment
Dividends receivable
(cid:1263)I(cid:566)(cid:442)(cid:616)(cid:457)(cid:387)(cid:624)(cid:457)(cid:1264)(cid:1251)(cid:449)(cid:457)(cid:442)(cid:616)(cid:457)(cid:387)(cid:624)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
Changes in operating assets and liabilities:
Decrease/(increase) in loans and receivables
(Increase)/decrease in prepayments
Decrease in other payables
(cid:3)(cid:3)
Net cash (utilised by)/generated from operating activities
Income tax received
Net cash (utilised by)/generated from operating activities
Cash flows from investing activities
(cid:57)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:441)(cid:520)(cid:566)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
Dividends received from subsidiary company
(cid:3)(cid:3)
Net cash generated from/(utilised by) investing activities
Cash flows from financing activities
N(cid:457)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:442)(cid:457)(cid:457)(cid:449)(cid:624)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:520)(cid:624)(cid:624)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)
Net proceeds from the issue of share premium
Sale of treasury shares
Net proceeds from borrowings
Dividends paid
Interest paid
(cid:3)(cid:3)
Net cash (utilised by)/generated from financing activities
Net decreases increase in net cash and cash equivalents
Net cash and cash equivalents at beginning of year
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Note
2018
£000
2017
£000
64,860
22,465
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(1,044 )
2,394
501
(69,320 )
(cid:1263)(cid:1110)(cid:1117)(cid:1239)(cid:1110)(cid:1118)(cid:1116)(cid:3)(cid:1264)(cid:3)
559
(35 )
(1,792 )
(1,860 )
1,683
669
(32,701 )
(cid:1113)(cid:1112)(cid:1239)(cid:1117)(cid:1113)(cid:1117)
(213 )
24
(23 )
(22,074 )
1,363
33,892
996
(20,711 )
34,888
(cid:1269)(cid:3)(cid:3)
69,320
(cid:1263)(cid:1110)(cid:1109)(cid:1114)(cid:1239)(cid:1113)(cid:1117)(cid:1115)(cid:3)(cid:1264)
32,701
69,320
(72,785 )
(cid:1110)(cid:3)(cid:3)
70
98
(19,877 )
(30,384 )
(2,394 )
(cid:1269)
(75 )
63
36,760
(29,484 )
(1,683 )
(52,486 )
5,581
(3,877 )
11,867
(32,316 )
44,183
Net cash and cash equivalents at end of the year
28
7,990
11,867
Note. Net cash and cash equivalents includes overdrafts.
The Notes and information on pages 106 to 177 form part of these financial statements.
104
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 104
04/04/2019 12:44
SECTION D
STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Note
Share
capital
£000
Share
premium
£000
Other
reserves
£000
Treasury
shares
£000
Retained
earnings
£000
Equity shareholders’ funds at 1 January 2018
43,766
141,983
27,664
(98 )
238,341
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)(cid:3)
D(cid:520)(cid:676)(cid:520)(cid:449)(cid:457)(cid:566)(cid:449)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
Foreign exchange translation differences
(cid:260)(cid:457)(cid:676)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:441)(cid:546)(cid:520)(cid:508)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:676)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:613)(cid:387)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
I(cid:624)(cid:624)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)
I(cid:624)(cid:624)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:564)(cid:520)(cid:653)(cid:564)(cid:3)
(cid:268)(cid:387)(cid:546)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:616)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:688)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
4(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1116)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1116)(cid:1117)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1116)(cid:1116)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1118)(cid:1117)(cid:3)(cid:3)
(cid:1111)(cid:1113)(cid:1239)(cid:1110)(cid:1111)(cid:1113)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1117)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1109)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Total
£000
451,656
(cid:1111)(cid:1113)(cid:1239)(cid:1110)(cid:1111)(cid:1113)
(cid:1263)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1117)(cid:1113)(cid:1264)
(cid:1263)(cid:1116)(cid:1117)(cid:1112)(cid:1264)
(cid:1114)(cid:1115)
(cid:1111)(cid:1116)(cid:1116)
(cid:1114)(cid:1109)(cid:1110)
(cid:1110)
(cid:1116)(cid:1109)
(cid:1118)(cid:1117)
Equity shareholders’ funds at 31 December 2018
43,767
142,053
27,158
–
232,638
445,616
Year ended 31 December 2017
Note
Share
capital
£000
Share
premium
£000
Other
reserves
£000
Treasury
shares
£000
Retained
earnings
£000
Total
£000
Equity shareholders’ funds at 1 January 2017
43,766
142,058
1 9,300
(161 )
188,598
393,561
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)(cid:3)
D(cid:520)(cid:676)(cid:520)(cid:449)(cid:457)(cid:566)(cid:449)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
Foreign exchange translation differences
(cid:260)(cid:457)(cid:676)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:441)(cid:546)(cid:520)(cid:508)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:676)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:613)(cid:387)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
(cid:268)(cid:387)(cid:546)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:616)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:688)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
4(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1116)(cid:1114)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1117)(cid:1239)(cid:1111)(cid:1116)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1118)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1112)(cid:3)(cid:3)
(cid:1116)(cid:1117)(cid:1239)(cid:1113)(cid:1112)(cid:1113)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1118)(cid:1239)(cid:1113)(cid:1117)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1111)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1116)(cid:1117)(cid:1239)(cid:1113)(cid:1112)(cid:1113)
(cid:1263)(cid:1111)(cid:1118)(cid:1239)(cid:1113)(cid:1117)(cid:1113)(cid:3)(cid:1264)
(cid:1117)(cid:1239)(cid:1111)(cid:1116)(cid:1113)
(cid:1110)(cid:1111)(cid:1113)
(cid:1118)(cid:1109)
(cid:1115)(cid:1115)(cid:1118)
(cid:1263)(cid:1110)(cid:1111)(cid:3)(cid:1264)
Equity shareholders’ funds at 31 December 2017
43,766
141,983
27,664
(98 )
238,341
451,656
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Equity shareholders’ funds at 1 January 2018
7,494
141,983
50
(98 )
158,571
308,000
Note
Share
capital
£000
Share
premium
£000
Other
reserves
£000
Treasury
shares
£000
Retained
earnings
£000
Total
£000
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)(cid:3)
D(cid:520)(cid:676)(cid:520)(cid:449)(cid:457)(cid:566)(cid:449)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:613)(cid:387)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
I(cid:624)(cid:624)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:442)(cid:387)(cid:613)(cid:520)(cid:637)(cid:387)(cid:546)(cid:3)
I(cid:624)(cid:624)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:564)(cid:520)(cid:653)(cid:564)(cid:3)
(cid:268)(cid:387)(cid:546)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:616)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:688)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:624)(cid:3)
Equity shareholders’ funds at 31 December 2018
Year ended 31 December 2017
Equity shareholders’ funds at 1 January 2017
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)(cid:3)
D(cid:520)(cid:676)(cid:520)(cid:449)(cid:457)(cid:566)(cid:449)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:613)(cid:387)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
(cid:268)(cid:387)(cid:546)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:616)(cid:457)(cid:387)(cid:624)(cid:653)(cid:616)(cid:688)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1116)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1118)(cid:1117)(cid:3)(cid:3)
(cid:1115)(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1109)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1117)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1114)(cid:1109)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1109)
(cid:1263)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1117)(cid:1113)(cid:1264)
(cid:1114)(cid:1109)(cid:1110)
(cid:1110)
(cid:1116)(cid:1109)
(cid:1118)(cid:1117)
7,495
142,053
50
–
193,548
343,146
Share
capital
£000
Share
premium
£000
Other
reserves
£000
Treasury
shares
£000
Retained
earnings
£000
Total
£000
7,494
142,058
50
(161 )
164,921
314,362
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1116)(cid:1114)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1112)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1115)(cid:1114)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1118)(cid:1239)(cid:1113)(cid:1117)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1115)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1115)(cid:1114)
(cid:1263)(cid:1111)(cid:1118)(cid:1239)(cid:1113)(cid:1117)(cid:1113)(cid:3)(cid:1264)
(cid:1115)(cid:1115)(cid:1118)
(cid:1263)(cid:1110)(cid:1111)(cid:3)(cid:1264)
Equity shareholders’ funds at 31 December 2017
7,494
141,983
50
(98 )
158,571
308,000
The Notes and information on pages 106 to 177 form part of these financial statements.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
105
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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 in the United Kingdom and registered in England and Wales.
The company is limited by shares and has a primary listing on the London Stock Exchange. The address of the registered office is 2nd Floor, Building 4, West
Strand Business Park, West Strand Road, Preston, England, PR1 8UY, UK.
The company and its subsidiaries, together forming the group, comprise UK, Swedish and Dutch life and pensions businesses.
The UK business is represented by the CA segment, as described in Note 7. Its activities are performed almost entirely in the UK, where it underwrites 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. It is substantially closed to new business, such that new insurance contracts are only issued to existing customers, dependent on
their changing needs.
The Swedish business, which comprises the Movestic segment, as described in Note 7, 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.
The Dutch business, which comprises the Waard Group and Scildon segments, as described in Note 7. These represent the group’s Dutch life and general
insurance businesses. The Waard Group originally consisted of three insurance companies Waard Leven N.V., Hollands Welvaren Leven N.V. and Waard Schade
N.V., and a servicing company, Waard Verzekering. During 2017, the book of policies held within Hollands Welvaren Leven N.V. was successfully integrated into
Waard Leven and the company was subsequently de-registered on 19 December 2018. The Waard Group’s policy base is predominantly made up of term life
policies, although also includes unit-linked policies and some non-life policies, covering risks such as occupational disability and unemployment. Scildon’s policy
base is predominantly made up of individual protection and savings contracts. It is open to new business and sells protection, individual savings and group
pension contracts via a broker-led distribution model.
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 28 March 2019.
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 business, the Swedish business and the Dutch business.
(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.
‘IFRS 9 Financial Instruments’ is effective from 1 January 2018 and replaces ‘IAS 39 Financial Instruments: Recognition and Measurement’. The group has
however elected to defer the application of IFRS 9 in the consolidated financial statements, applying the temporary exemption available under ‘Amendments to
IFRS 4 Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4’. The temporary exemption is available to reporting entities whose activities are
predominantly connected with insurance and the IASB has recommended that the exemption applies until the earlier of the introduction of ‘IFRS 17 Insurance
Contracts’ and 1 January 2022.
An assessment of the group’s liabilities has been made as at 31 December 2017, the year-end following the most recent acquisition. The assessment determined
that the proportion of liabilities within the scope of IFRS 4, together with other liabilities connected with insurance was greater than 90% of the total liabilities
of the group as at that date. Other liabilities connected with insurance include non-derivative investment contract liabilities measured at fair value under IAS 39,
with a value of £3,420.3m at 31 December 2017. Certain disclosures are required as a result of deferring the application of IFRS 9 and these disclosures are
contained in Note 5 and Note 24 to the financial statements.
Chesnara plc (the company) does not meet the qualifying criteria for temporary exemption from applying IFRS 9 as a stand-alone reporting entity. Therefore,
IFRS 9 has been applied to the parent company financial instruments within these financial statements. Within the group, Movestic Kapitalforvältning AB, has
also applied IFRS 9 to its individual financial statements and these are available at www.movestic.se
IFRS 15 Revenue from contracts with customers, establishes a single comprehensive framework for determining whether, how and when revenue is recognised.
The standard does not apply to insurance contracts or financial instruments within the scope of IAS 39 Financial Instruments: Recognition and Measurement.
The group adopted IFRS 15 using the full retrospective method of adoption however the effect of adopting IFRS 15 has been minimal and has not resulted in
any adjustment to the amount of revenue recognised in either the current or prior period. There has been no change to the group’s accounting policies or to the
basis of revenue recognition. As part of the assessment of IFRS 15, we performed a detailed analysis of our revenue streams and consequently, we have taken
the opportunity to refine some of the revenue category descriptions, with the comparatives restated. Consequently, investment management fee rebate income
of £23,547,000, has been reclassified from Note 8 Fees and commission income to Note 10 Other operating income. This amount represents investment
management fee rebates in Movestic, which had previously not been recognised in a consistent manner with similar income streams in other parts of the group.
This re-statement has no impact on the profit for the year, the total comprehensive income for the year, or the total shareholder equity. The ‘Disaggregation of
Revenue’ disclosures required by the standard, are disclosed in Note 7 to the consolidated financial statements. The practical expedient under IFRS 15 has been
applied and remaining performance obligations are not disclosed as the group has the right to consideration from customers in amounts that correspond with
the performance completed to date.
106
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SECTION D
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
IFRS 16
IFRIC 23
Amendments to IFRS 9 (Oct 2017)
Amendments to IAS 28 (Oct 2017)
Annual improvements to IFRS Standards 2015 - 2017 cycle (Dec 2017)
Amendments to IAS 19 (Feb 2018)
Amendments to references to the conceptual framework in IFRS Standards
Amendments to IFRS 3 (Oct 2018)
Amendments to IAS 1 and IAS 8 (Oct 2018)
IFRS 17
Amendments to IFRS 10 and IAS 28 (Sept 2014)
Subject
Leases
Uncertainty over income tax treatments
Prepayment features with negative compensation
Long-term interests in associates and joint ventures
Annual improvements to IFRSs: 2015-17 cycle
Plan amendment, curtailment or settlement
Amendments to references to the conceptual framework in IFRS Standards
Definition of business
Definition of material
Insurance contracts
Sale or contribution of assets between an investor and its associate or joint venture
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 16 Leases (2019). IFRS 16 will replace IAS 17 Leases. The new standard removes the classification of leases as either operating or finance leases for the
lessee, thereby treating all leases as finance leases. This will result in the recognition of a right to use asset and a lease liability for all of the group’s previously
classified operating leases. Short-term leases (less than 12 months) and leases of low-value assets are exempt from the requirements. The group has commenced
an assessment of the impact of the new standard and has concluded that it will bring its property leases currently classified as operating leases (see Note 47)
onto the consolidated balance sheet. A depreciation charge on the right-of-use assets and an interest expense on the lease liabilities will be recognised. The overall
impact on financial performance and net equity will be immaterial due to the limited number of these contracts and their relative value.
– IFRS 17 was issued in May 2017 and will replace IFRS 4, the current insurance contract accounting standard. In November 2018, the IASB recommended a one
year extension to the implementation date for the standard to 1 January 2022. The new standard will significantly change how the group measures and reports
its insurance contracts. An initial impact assessment of the standard was performed in 2018 and implementation activities are ongoing. These activities will continue
in 2019 and the financial impact of adopting the standard will continue to be assessed.
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 43 and on the face of the Company Balance Sheet.
(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.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
107
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 Significant accounting policies (continued)
(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 or 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 company balance sheet is also presented in this manner.
The preparation of financial statements in conformity with IFRSs requires management to make judgments, 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 judgments 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. Judgments
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.
In accordance with IFRS 4, Insurance Contracts, on adoption of IFRS the group applied existing accounting practices for insurance and participating investment
contracts, modified as appropriate to comply with the IFRS framework and applicable standards, introducing changes only where they provide more reliable and
relevant information.
(d) Business combinations
The group uses the purchase method of accounting 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 the Consolidated Statement of Comprehensive Income 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.
(e) 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.
(f) 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 the Consolidated Statement
of Comprehensive Income in the year 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 year, 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 year 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.
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SECTION D
(g) 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 business, 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 the S&P component of the CA segment, 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 the original CA book, all such contracts are wholly reinsured with ReAssure Limited (ReAssure – previously Guardian Assurance plc), 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; or
(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.
(h) Insurance contracts
There are fundamental differences between the nature of the insurance contracts subsisting in the UK, Swedish and Dutch businesses, including inter alia
contract longevity: the related product characteristics are set out for the separate UK, Swedish and Dutch 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:
(i) Premiums
Across all four businesses, 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.
In Sweden 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) Claims and benefits
Claims are accounted for in the accounting year in which they are due or notified. Surrenders are accounted for in the accounting year 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.
Swedish non-life 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.
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 30.
(iii) Acquisition costs
In the UK, Swedish and Scildon segments, 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.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 Significant accounting policies (continued)
(h) Insurance contracts (continued)
(iv) Measurement of insurance contract provisions
In the UK and Dutch businesses, 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 basis
in order to comply with the reporting requirements of the Prudential Sourcebook for Insurers and the Dutch Central Bank respectively. 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 or mortality improvement has been made.
In respect of CA (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 (original book) for those classes of non-linked and unit-linked business where policyholders participate in profits the liability is wholly reassured
to ReAssure. 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.
In Sweden, 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.
(i) 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.
(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 business, 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.
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.
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SECTION D
(j) 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.
(k) Fee and commission income
Fees charged for investment management services provided in connection with investment contracts are recognised as revenue over time, 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
over time in which services will be provided.
Initial fees charged for investment management services provided in connection with insurance contracts are recognised over time as revenue when earned.
For both insurance and investment contracts, initial fees, annual management charges and contract administration charges are recognised over time 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 over time 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 over time 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 over time as revenue over the period in which
services are rendered.
(l) 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 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 Consolidated Statement of Comprehensive Income on a straight-line basis
over the term of each lease. Lease incentives are recognised in the Consolidated Statement of Comprehensive Income as an integral part of the total lease income.
(m) 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 Consolidated Statement of Comprehensive Income 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.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 Significant accounting policies (continued)
(n) Income taxes
Income tax on the profit or loss for the year comprises current and deferred tax and is recognised in the Consolidated Statement of Comprehensive Income.
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 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.
(o) 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. The 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 Consolidated Statement of Comprehensive Income and the carrying amount is reduced to its recoverable amount.
(p) 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.
(q) 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.
(r) Property and equipment
Items of property and equipment are stated at cost less accumulated depreciation and impairment losses.
Depreciation is charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful economic lives of the property
and equipment on the following basis:
Computers and similar equipment
Fixtures and other equipment
3 to 5 years
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.
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SECTION D
(s) 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 12 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 Consolidated Statement of Comprehensive Income. Rental income from investment
property is accounted for as described in accounting policy (l).
(t) 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 four different categories
of financial assets are used: ‘Financial assets at fair value through income’, ‘Mortgage Loan Portfolio’, ‘Prepayments’ 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 the Waard mortgage loan portfolio and 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 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 insurance and other 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.
The mortgage loan portfolio held by the Waard Group is stated at amortised cost less impairment losses and incorporates the effective interest rate calculation method.
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.
(u) 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.
(v) 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.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 Significant accounting policies (continued)
(w) 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 3 months or less at their acquisition.
(x) 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 1 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.
(y) Impairment
The carrying amounts of the group’s assets other than reinsurance assets (refer to (j) on page 111) 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 Consolidated Statement of Comprehensive Income. 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 Consolidated Statement of Comprehensive Income 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.
(z) 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 expenditure 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.
(aa) Borrowings
Borrowings are recognised initially at fair value, less transaction costs, and are subsequently measured at amortised cost using the effective interest rate method,
with interest expense recognised in the Consolidated Statement of Comprehensive Income on an effective yield basis. The effective interest rate 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.
(bb) 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 Consolidated Statement of Comprehensive
Income 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 Consolidated Statement of Comprehensive Income when due.
Dutch business (Waard)
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 Consolidated Statement of Comprehensive
Income when due.
Dutch business (Scildon)
Scildon has a defined benefit plan. The pension scheme is administered by Stichting Pensionfonds Legal & General Nederland. The company has agreed to
contribute to the premium for the unconditional part of the pension. Part of the plan consists of a defined contribution scheme. The company pays a contribution
to the scheme and subsequently has no further financial obligations with respect to this part of the scheme. Further disclosure can be found in Note 34.
Net liability arising from defined benefit obligations on page 158.
(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 Consolidated Statement of Comprehensive Income on an accruals basis.
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(cc) Share-based payments
The value of employee share options and other equity settled share based payments is calculated at fair value at the grant date using appropriate and recognised
option pricing models. Vesting conditions, which comprise service conditions and performance conditions, other than those based upon market conditions, are not
taken into account when estimating the fair value of such awards but are taken into account by adjusting the number of equity instruments included in the ultimate
measurement of the transaction amount. The value of the awards is recognised as an expense on a systematic basis over the period during which the employment
services are provided. Where an award of options is cancelled by an employee, the full value of the award (less any value previously recognised) is recognised at
the cancellation date.
(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.
3 Critical accounting judgements and key sources of estimation and uncertainty
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 7, to which it is relevant.
During the year, the company continued to assess the potential operational and financial impacts of the Brexit outcome. This is discussed in more detail in the
key sources of estimation and uncertainty section below.
Critical accounting judgements
(a) Classification of long-term contracts (CA, Movestic, Waard Group and Scildon)
The group has exercised judgement in its classification of long-term business 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. Refer to Note 2(g) – Product Classification on page 109.
(b) 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. Refer to Note 2(bb) – Employee Benefits on page 114.
(c) Accounting for pension plans (Scildon)
Scildon has a defined benefit plan. The pension scheme is an indexed average pay scheme with a pension of 1.75% per year of service. Indexation is conditional
since 1 January 2013. The pension scheme is administered by Stichting Pensionfonds Legal & General Nederland. The company has agreed to contribute to
the premium for the unconditional part of the pension. Apart from the obligations which may arise from the collective agreement provisions, the company is not
obliged to make additional contributions to the claims brought under the pension fund. The company is not entitled to refunds or discounts. Part of the plan
consists a defined contribution scheme. The company pays a contribution to the scheme and subsequently has no further financial obligations with respect to
this part of the scheme. This contribution is recognised as an expense when paid. Refer to Note 2(bb) – Employee Benefits on page 114.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 Critical accounting judgments and key sources of estimation and uncertainty (continued)
Key sources of estimation and uncertainty
(a) Acquired value of in-force business (CA, Movestic, Waard Group and Scildon)
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. Refer to accounting policy Note 2(o) on page 112 and Note 19 on page 140.
The acquired value of in-force business is 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 cash flows are discounted and to the rates of return on invested
assets, based on applying a range of discount rates, which have been determined with reference to our review of the current market assessment of the true value
of money and the risks specific to the asset for which the cash flows have not been adjusted. The rates used for the purpose of the impairment testing were
4%, 6%, 8%, 10% and 12%.
From the results of the most recent impairment tests, we can conclude that we have sufficient headroom between the AVIF carrying values and the underlying
value of in-force business, to make the sensitivity with regard to discount rate movements irrelevant for the foreseeable future.
As at 31 December 2018, the carrying value of acquired in-force business, net of amortisation, was £7.2m in respect of CA (31 December 2017: £11.2m), £3.4m in
respect of S&P (31 December 2017: £4.0m), £28.6m in respect of Movestic (31 December 2017: £32.8m), £4.4m in respect of Waard Group (31 December 2017:
£5.0m) and £63.0m in respect of Scildon (31 December 2017: £66.1m).
(b) Deferred acquisition costs and deferred income – investment contracts (CA, Movestic and Scildon)
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. Refer to accounting policy 2(k) on page 111 and Note 18 on page 139.
As at 31 December 2018, the carrying values of deferred acquisition costs, net of amortisation, and of deferred income, in respect of CA, were £2.1m and £3.9m
respectively (as at 31 December 2017: £2.5m and £4.7m respectively). The impact on the above numbers of a 1 year movement in the estimated lifetime of the
management services contract or amortisation period is not material.
As at 31 December 2018, the carrying values of deferred acquisition costs, net of amortisation, in respect of Movestic, was £55.0m (as at 31 December 2017:
£55.2m). An increase in the length of the amortisation period by one year would have increased profit before tax for the year ended 31 December 2018 by £3.6m
and shareholders’ equity as at 31 December 2018 by £2.9m.
As at 31 December 2018, the carrying values of deferred acquisition costs, net of amortisation, in respect of Scildon, was £8.0m (as at 31 December 2017: £12.3m).
An increase in the length of the amortisation period by one year would have increased profit before tax for the year ended 31 December 2018 by £1.0m and
shareholders’ equity as at 31 December 2018 by £0.8m.
(c) Estimates of future benefits payments arising from long-term insurance contracts (CA and Scildon)
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 30 on page 150.
(d) Estimates of future maintenance expenses (CA and Scildon)
Future expense levels are a key variable that influence the value of insurance contract provisions. Under normal circumstances the nature of the cost base
underpinning CA means that future expenses are relatively predictable and hence assumptions made for actuarial reserving purposes are not subject to material
levels of judgement. This is because asset management and policy administration in the UK are outsourced and hence the future costs are defined in contractual
arrangements. In addition, governance overheads are by their nature relatively stable and predictable. The sensitivity in respect of a 10% increase maintenance
expenses is quantified in Note 30 on page 150.
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(e) 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 2018, the carrying value of insurance contract liabilities which contain S&P discretionary participation features was £286.4m (31 December
2017: £299.4m).
(f) 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 2018, the carrying value of the insurance claim reserves, gross of reinsurance, was £80.4m (as at 31 December 2017: £81.5m). The key
sensitivities in respect of insurance claim reserves are considered in Note 30 on page 150.
(g) 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 2018, such claims ceded to reinsurers and reflected on the balance
sheet were £53.2m (31 December 2017: £54.1m). The application of a 10% bad debt provision on the reinsurance balance would reduce 2018 profit before tax by
£5.3m and shareholders’ equity by £4.2m.
(h) Brexit
Other than the fact that Brexit could impact the investment markets to which our results are sensitive (see sensitivities on page 33) we consider that our
operating model is relatively unaffected by Brexit. We do not trade across borders nor do we share resource between our European businesses. Each division
operates to autonomous local regulatory frameworks and we believe we have the flexibility to change our regulatory structure if Brexit results in potentially
adverse regulatory outcomes in the UK.
4 Exchange rates
The group’s principal overseas operations during the year were located within Sweden and the Netherlands.
The results and cash flows of these operations have been translated into sterling at an average rate for the year of £1 = SEK 11.60 (2017: £1 = SEK 11.00) for the
Swedish business and £1 = EUR 1.13 (2017: £1 = EUR 1.14) for the Dutch business.
Assets and liabilities have been translated at the year end rate of £1 = SEK 11.43 (31 December 2017: £1 = SEK 11.08) for the Swedish business and £1 = EUR 1.11
(31 December 2017: £1 = EUR 1.13) for the Dutch business.
Total foreign currency exchange rate movements for the year ended 31 December 2018 resulted in a loss recognised in the Consolidated Statement of Comprehensive
Income of £0.8m (year ended 31 December 2017: profit of £8.3m).
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, Swedish and Dutch businesses are such that insurance risk is managed separately for
the separate businesses. Accordingly, the information which follows differentiates these businesses. The UK and Waard businesses which are substantially
closed to new business, are differentiated in the information provided below, where necessary. The Swedish and Dutch businesses, which are open to new
business, comprises the Movestic and Scildon segments respectively.
(a) UK business
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 business and of the ways in which the associated
risks are managed.
Sums assured/benefits per annum – gross and net of reinsurance
31 December
Long-term unit-linked without DPF (sums assured)
Long-term non-linked without DPF (sums assured)
I(cid:564)(cid:564)(cid:457)(cid:449)(cid:520)(cid:387)(cid:637)(cid:457)(cid:3)(cid:387)(cid:566)(cid:566)(cid:653)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1263)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:3)(cid:387)(cid:566)(cid:566)(cid:653)(cid:564)(cid:1264)(cid:3)
D(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:566)(cid:653)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)D(cid:256)(cid:121)(cid:3)(cid:1263)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:3)(cid:387)(cid:566)(cid:566)(cid:653)(cid:564)(cid:1264)(cid:3)
Long-term with DPF (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)
2018
2017
Gross
£000
Net
£000
Gross
£000
Net
£000
2,047,087
9,504,793
(cid:1114)(cid:1239)(cid:1114)(cid:1116)(cid:1116)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1118)(cid:1113)(cid:1118)(cid:3)(cid:3)
310,102
1,826,007
1,232,298
(cid:1114)(cid:1239)(cid:1114)(cid:1113)(cid:1110)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1118)(cid:1113)(cid:1118)(cid:3)(cid:3)
300,962
2,414,486
10,276,621
(cid:1114)(cid:1239)(cid:1115)(cid:1117)(cid:1112)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1109)(cid:1112)(cid:1114)(cid:3)(cid:3)
325,162
2,147,432
1,371,461
(cid:1114)(cid:1239)(cid:1115)(cid:1113)(cid:1116)
(cid:1111)(cid:1239)(cid:1109)(cid:1112)(cid:1114)
315,422
Long-term unit-linked and non-linked insurance contracts – without discretionary participation features
Product features
The UK business has 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 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 business, 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 75% 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; and
(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.
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(a) UK business (continued)
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
Exposures to material insurance risks on individual cases are avoided, through the use of reinsurance.
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 ReAssure 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.
Long-term insurance contracts – with discretionary participation features – CA (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 a fixed charge for expenses, and certain direct 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 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
Exposures to material insurance risks, on individual cases, are avoided through the use of reinsurance.
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 business, as follows:
Expense risk
The strategy of the UK business is to outsource the majority of 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 business monitors the financial soundness of third party administrators
and has 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.
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 business 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.
Assumptions and sensitivities
The assumptions and sensitivities relating to insurance contract provisions for the UK business are set out in Note 30 Insurance Contract Provisions.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 Management of insurance risk (continued)
(b) 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
2018
2017
Gross
£000
Net
£000
Gross
£000
19,821
16
3,343
2,896
6,779
6,032
3
1,488
847
5,749
22,343
19
3,534
3,373
7,656
Net
£000
6,630
4
1,529
986
6,520
32,855
14,119
36,925
15,669
2018
2017
Gross
£000
Net
£000
Gross
£000
44,142
996
12,494
215
44,995
1,103
837
9,696
23,583
324
3,249
12,230
721
10,359
24,895
Net
£000
13,057
238
293
3,444
12,991
79,254
28,512
82,073
30,023
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 Sweden and have been sold in Norway in the past via intermediaries. 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 typically provides a maximum coverage of insured benefits up to 40 times a base amount (31 December 2018: SEK 45,500, being approximately
£3,923) 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 (31 December 2018 NOK: 96,883, being approximately
£8,742) although most policies are between 10 to 19 times the base amount.
All contracts are for an annual period.
120
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SECTION D
(b) Swedish business (continued)
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 and size 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 claim portfolio arising from the acquisition of the business of Aspis Liv, a small Swedish Life and Health
insurer in 2010, is 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 £0.4m) and SEK 120m (approximately £10.5m).
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 99.7% 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 forecasts
that its maximum loss would be approximately SEK 150m (approximately £13.1m) gross of reinsurance and SEK 5m (approximately £0.4m) 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 31 Insurance Contract Provisions.
(c) Waard Group
Sums assured/benefits per annum – gross and net of reinsurance
31 December
2018
2017
Gross
£000
Net
£000
Gross
£000
Net
£000
Long-term unit-linked without DPF (sums assured)
Long-term non-linked without DPF (sums assured)
14,571
1,834,153
14,571
1,738,223
22,198
2,221,481
22,198
2,107,479
Protection
Product feature
The division mainly wrote term life, sold as a single premium policy in combination with a loan or mortgage. Policy conditions allow for a surrender value at lapse.
In addition, similar types of policies covering the risk of disability, unemployment and accident were written. The most significant factors that could increase risk
are epidemics and changes in lifestyle and the social security environment.
Management of risks
The portfolio is in run-off and no significant underwriting occurs. For the existing portfolio, the division entered into an excess of loss and catastrophe (Life) and
quota share (Health) reinsurance agreement to mitigate the risk in excess of risk appetite for mortality, disability and unemployment.
Concentration of insurance risk
Waard did not write group life and health contracts and an excess of loss limit of €100,000 is applied for life risk, hence concentration risk is limited.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 Management of insurance risk (continued)
Unit-linked
Product features
The division wrote unit-linked business, with policies paying out 90% of the unit-value at death of the policyholder and 100% at expiry. Early surrender triggers
smaller charges for policyholders.
Persistency and expense risk
The portfolio is small and very mature. To mitigate the expense risk, management may also consider the possibility of merging the portfolio into a larger scale
one, keeping cost levels appropriate. Persistency levels are moderate and largely depend on investment performance.
Assumptions and sensitivities
The assumptions and sensitivities relating to insurance contract provisions for Waard are set out in Note 31 Insurance Contract Provisions.
(d) Scildon
Sums assured/benefits per annum – gross and net of reinsurance
31 December
2018
2017
Gross
£000
Net
£000
Gross
£000
Net
£000
Long-term unit-linked without DPF (sums assured)
Long-term non-linked without DPF (sums assured)
I(cid:564)(cid:564)(cid:457)(cid:449)(cid:520)(cid:387)(cid:637)(cid:457)(cid:3)(cid:387)(cid:566)(cid:566)(cid:653)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1263)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:457)(cid:616)(cid:3)(cid:387)(cid:566)(cid:566)(cid:653)(cid:564)(cid:1264)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2,891,183
24,247,953
(cid:1117)(cid:1117)(cid:1239)(cid:1116)(cid:1118)(cid:1109)(cid:3)(cid:3)
1,738,948
8,009,496
(cid:1116)(cid:1116)(cid:1239)(cid:1115)(cid:1110)(cid:1110)(cid:3)(cid:3)
2,885,027
22,925,387
(cid:1118)(cid:1110)(cid:1239)(cid:1115)(cid:1112)(cid:1118)(cid:3)(cid:3)
2,281,513
13,484,481
(cid:1117)(cid:1239)(cid:1110)(cid:1117)(cid:1117)
Protection
Product feature
The division mainly wrote term life, sold as a regular premium policy. Older policy profit sharing conditions (before 2011) allow for a surrender value at lapse or
profit sharing at maturity. The current mass market product has no surrender value or profit sharing. The most significant factors that could increase risk are
epidemics and changes in lifestyle leading to higher mortality.
Management of risks
The product is the main new business product, significant underwriting occurs. Reinsurance agreements, quota share with a maximum retention per policy, to
mitigate the risk in excess of risk appetite for mortality at the moment of underwriting are in place. The national NHT cover in case of terrorism is in place but no
additional catastrophe or stop loss reinsurance is in place.
Concentration of insurance risk
Scildon does write group pensions contracts (SME segment) with an excess of loss limit of €200,000 per life, hence concentration risk is limited.
Unit-linked
Product features
Scildon writes unit-linked and index linked business, with most policies paying out 0%, 90% or 110% of the unit-value at death of the policyholder and 100% at
expiry. Early surrender triggers smaller charges for policyholders. Index linked policies contains either explicit of or implicit guarantees triggers smaller charges
for policyholders. Group pension is also unit-linked based.
Persistency and expense risk.
The portfolio is large, but slowly decreasing. To mitigate the expense risk, management may also consider the possibility of merging the portfolio into a larger
scale one, keeping cost levels appropriate. Persistency levels are moderate, due to the guarantees given for some policies the risk is high persistency.
Assumptions and sensitivities
The assumptions and sensitivities relating to insurance contract provisions for Scildon are set out in Note 31 Insurance Contract Provisions.
122
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SECTION D
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 the euro
against sterling, arising from its ownership of Movestic, Scildon and the Waard Group.
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 two types of investment contract: unit-linked savings and unit-linked pensions predominantly written in the UK and Sweden.
(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 charges 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) No investment contracts exist within the Dutch business.
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 CA (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.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
123
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 Management of financial risk (continued)
The Notes below explain how market risks are managed using the categories utilised in the businesses’ (Asset Liability Matching) ALM 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 2018
Assets
(cid:256)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:613)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
(cid:4)(cid:564)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:3)(cid:449)(cid:457)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)
Financial assets
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
E(cid:615)(cid:653)(cid:520)(cid:637)(cid:688)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:137)(cid:577)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:442)(cid:577)(cid:546)(cid:546)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
Debt securities at fair value through income
(cid:195)(cid:577)(cid:616)(cid:637)(cid:508)(cid:387)(cid:508)(cid:457)(cid:3)(cid:546)(cid:577)(cid:387)(cid:566)(cid:3)(cid:613)(cid:577)(cid:616)(cid:637)(cid:505)(cid:577)(cid:546)(cid:520)(cid:577)(cid:3)
I(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:616)(cid:457)(cid:442)(cid:457)(cid:520)(cid:676)(cid:387)(cid:441)(cid:546)(cid:457)(cid:624)(cid:3)
(cid:256)(cid:616)(cid:457)(cid:613)(cid:387)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
T(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:442)(cid:616)(cid:653)(cid:457)(cid:449)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
Cash and cash equivalents
Total assets
Liabilities
Insurance contract provisions
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
Financial liabilities
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:57)(cid:577)(cid:616)(cid:616)(cid:577)(cid:677)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
T(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
D(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:613)(cid:387)(cid:688)(cid:387)(cid:441)(cid:546)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
Payables related to direct insurance and investment contracts
(cid:3)(cid:3)
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:613)(cid:387)(cid:688)(cid:387)(cid:441)(cid:546)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:57)(cid:387)(cid:566)(cid:543)(cid:3)(cid:577)(cid:676)(cid:457)(cid:616)(cid:449)(cid:616)(cid:387)(cid:505)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
*Insurance
Unit-linked
contracts
£000
contracts Annuities in
payment
with DPF
£000
£000
Other
non-linked
contracts
and other
shareholder
£000
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1113)(cid:1114)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1115)(cid:1115)(cid:1117)(cid:3)(cid:3)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1113)(cid:1118)(cid:3)(cid:3)
(cid:1113)(cid:1110)(cid:1112)(cid:1239)(cid:1117)(cid:1114)(cid:1110)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1113)(cid:1118)(cid:1117)(cid:1239)(cid:1114)(cid:1114)(cid:1112)(cid:3)(cid:3)
651,237
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1118)(cid:1239)(cid:1111)(cid:1116)(cid:1113)(cid:3)(cid:3)
(cid:1112)(cid:1110)(cid:1114)(cid:3)(cid:3)
(cid:1116)(cid:1114)(cid:3)(cid:3)
(cid:1114)(cid:1239)(cid:1114)(cid:1117)(cid:1112)(cid:1239)(cid:1112)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1113)(cid:1117)(cid:1116)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
92,801
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1116)(cid:1239)(cid:1113)(cid:1117)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1117)(cid:1110)(cid:1239)(cid:1112)(cid:1116)(cid:1117)(cid:3)(cid:3)
139,005
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1110)(cid:1118)(cid:1111)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1114)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1112)(cid:1111)(cid:1111)(cid:1239)(cid:1117)(cid:1113)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
2,694
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
100,584
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1109)(cid:1109)(cid:1239)(cid:1114)(cid:1117)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
5,380
(cid:1113)(cid:1239)(cid:1111)(cid:1118)(cid:1112)(cid:3)(cid:3)
(cid:1114)(cid:1239)(cid:1117)(cid:1113)(cid:1109)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1109)(cid:1114)(cid:1113)(cid:3)(cid:3)
(cid:1110)(cid:1115)(cid:1118)(cid:1239)(cid:1111)(cid:1110)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1114)(cid:1114)(cid:1239)(cid:1115)(cid:1118)(cid:1109)(cid:3)(cid:3)
630,790
(cid:1113)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)(cid:3)(cid:3)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1117)(cid:1112)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1117)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1114)(cid:3)(cid:3)
(cid:1117)(cid:1115)(cid:1118)(cid:1239)(cid:1110)(cid:1113)(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1110)(cid:1239)(cid:1110)(cid:1114)(cid:1112)(cid:3)(cid:3)
(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1109)(cid:1111)(cid:3)(cid:3)
114,337
Total
£000
(cid:1113)(cid:1239)(cid:1111)(cid:1118)(cid:1112)
(cid:1114)(cid:1239)(cid:1117)(cid:1113)(cid:1109)
(cid:1110)(cid:1239)(cid:1111)(cid:1118)(cid:1118)
(cid:1111)(cid:1110)(cid:1112)(cid:1239)(cid:1112)(cid:1115)(cid:1118)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1113)(cid:1118)
(cid:1113)(cid:1110)(cid:1112)(cid:1239)(cid:1117)(cid:1114)(cid:1110)
(cid:1113)(cid:1239)(cid:1117)(cid:1112)(cid:1114)(cid:1239)(cid:1115)(cid:1111)(cid:1110)(cid:3)
1,521,616
(cid:1113)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)
(cid:1114)(cid:1114)(cid:1239)(cid:1117)(cid:1113)(cid:1118)
(cid:1116)(cid:1239)(cid:1112)(cid:1109)(cid:1118)
(cid:1113)(cid:1113)(cid:1115)
(cid:1115)(cid:1239)(cid:1117)(cid:1116)(cid:1114)(cid:1239)(cid:1117)(cid:1117)(cid:1112)
(cid:1110)(cid:1116)(cid:1239)(cid:1115)(cid:1113)(cid:1109)
(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1109)(cid:1111)
215,212
5,723,855
363,026
105,964
1,185,742
7,378,587
2,424,881
(cid:1269)(cid:3)(cid:3)
323,603
(cid:1269)(cid:3)(cid:3)
104,710
(cid:1269)(cid:3)(cid:3)
715,820
(cid:1117)(cid:1117)(cid:1111)(cid:3)(cid:3)
3,569,014
(cid:1117)(cid:1117)(cid:1111)
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1110)(cid:1239)(cid:1114)(cid:1116)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1111)(cid:1117)(cid:3)(cid:3)
24,452
(cid:1269)(cid:3)(cid:3)
(cid:1117)(cid:1239)(cid:1115)(cid:1112)(cid:1112)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1111)(cid:1115)(cid:1113)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1111)(cid:1115)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1117)(cid:3)(cid:3)
4,690
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1112)(cid:1117)(cid:3)(cid:3)
(cid:1118)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
1,254
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1111)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1110)(cid:1109)(cid:1118)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:3)(cid:3)
(cid:1111)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1113)(cid:1239)(cid:1114)(cid:1118)(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1118)(cid:1239)(cid:1113)(cid:1115)(cid:1112)(cid:3)(cid:3)
(cid:1110)(cid:1109)(cid:1239)(cid:1110)(cid:1118)(cid:1118)(cid:3)(cid:3)
60,833
(cid:1112)(cid:1239)(cid:1113)(cid:1111)(cid:1117)(cid:3)(cid:3)
(cid:1112)(cid:1114)(cid:1239)(cid:1114)(cid:1117)(cid:1114)(cid:3)(cid:3)
(cid:1115)(cid:1112)(cid:1116)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1114)(cid:1239)(cid:1114)(cid:1110)(cid:1118)
(cid:1110)(cid:1109)(cid:1118)(cid:1239)(cid:1111)(cid:1109)(cid:1111)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1113)
(cid:1112)(cid:1239)(cid:1112)(cid:1115)(cid:1116)(cid:1239)(cid:1113)(cid:1112)(cid:1114)
(cid:1110)(cid:1118)(cid:1239)(cid:1113)(cid:1115)(cid:1112)
(cid:1110)(cid:1109)(cid:1239)(cid:1114)(cid:1112)(cid:1114)
91,229
(cid:1112)(cid:1239)(cid:1113)(cid:1111)(cid:1117)
(cid:1113)(cid:1113)(cid:1239)(cid:1116)(cid:1114)(cid:1115)
(cid:1118)(cid:1114)(cid:1117)
Total liabilities
5,690,098
330,193
105,964
981,445
7,107,700
*Insurance contracts with DPF include shareholder funds within the CA (S&P) with-profits funds.
124
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 124
04/04/2019 12:44
31 December 2017
Assets
(cid:256)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:613)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
(cid:4)(cid:564)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:3)(cid:449)(cid:457)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)
Financial assets
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
E(cid:615)(cid:653)(cid:520)(cid:637)(cid:688)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:137)(cid:577)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:442)(cid:577)(cid:546)(cid:546)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
Debt securities at fair value through income
(cid:195)(cid:577)(cid:616)(cid:637)(cid:508)(cid:387)(cid:508)(cid:457)(cid:3)(cid:546)(cid:577)(cid:387)(cid:566)(cid:3)(cid:613)(cid:577)(cid:616)(cid:637)(cid:505)(cid:577)(cid:546)(cid:520)(cid:577)(cid:3)
I(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:616)(cid:457)(cid:442)(cid:457)(cid:520)(cid:676)(cid:387)(cid:441)(cid:546)(cid:457)(cid:624)(cid:3)(cid:3)
(cid:256)(cid:616)(cid:457)(cid:613)(cid:387)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
T(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:442)(cid:616)(cid:653)(cid:457)(cid:449)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
Cash and cash equivalents
Total assets
Liabilities
Insurance contract provisions
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
Financial liabilities
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:57)(cid:577)(cid:616)(cid:616)(cid:577)(cid:677)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
T(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
D(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:613)(cid:387)(cid:688)(cid:387)(cid:441)(cid:546)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
Payables related to direct insurance and investment contracts
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:613)(cid:387)(cid:688)(cid:387)(cid:441)(cid:546)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:57)(cid:387)(cid:566)(cid:543)(cid:3)(cid:577)(cid:676)(cid:457)(cid:616)(cid:449)(cid:616)(cid:387)(cid:505)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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
*Insurance
Unit-linked
contracts
£000
contracts Annuities in
payment
with DPF
£000
£000
Other
non-linked
contracts
and other
shareholder
£000
Total
£000
(cid:1113)(cid:1239)(cid:1112)(cid:1111)(cid:1116)
(cid:1115)(cid:1239)(cid:1113)(cid:1109)(cid:1116)
(cid:1111)(cid:1239)(cid:1109)(cid:1109)(cid:1114)
(cid:1111)(cid:1112)(cid:1112)(cid:1239)(cid:1110)(cid:1114)(cid:1113)
(cid:1112)(cid:1117)(cid:1239)(cid:1116)(cid:1116)(cid:1115)
(cid:1114)(cid:1110)(cid:1111)(cid:1239)(cid:1116)(cid:1111)(cid:1113)
(cid:1114)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:1239)(cid:1116)(cid:1116)(cid:1111)(cid:3)
1,628,817
(cid:1113)(cid:1117)(cid:1239)(cid:1110)(cid:1109)(cid:1115)
(cid:1114)(cid:1118)(cid:1239)(cid:1113)(cid:1113)(cid:1117)
(cid:1116)(cid:1239)(cid:1112)(cid:1111)(cid:1114)
(cid:1110)(cid:1239)(cid:1115)(cid:1117)(cid:1111)
(cid:1116)(cid:1239)(cid:1113)(cid:1115)(cid:1109)(cid:1239)(cid:1117)(cid:1116)(cid:1113)
(cid:1111)(cid:1114)(cid:1239)(cid:1117)(cid:1117)(cid:1117)
(cid:1116)(cid:1239)(cid:1115)(cid:1117)(cid:1110)
210,647
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1113)(cid:1114)(cid:3)(cid:3)
(cid:1113)(cid:1109)(cid:1239)(cid:1113)(cid:1110)(cid:1109)(cid:3)(cid:3)
(cid:1112)(cid:1117)(cid:1239)(cid:1116)(cid:1116)(cid:1115)(cid:3)(cid:3)
(cid:1114)(cid:1110)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1109)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1109)(cid:1239)(cid:1110)(cid:1114)(cid:1111)(cid:3)(cid:3)
691,412
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1113)(cid:1239)(cid:1113)(cid:1112)(cid:1110)(cid:3)(cid:3)
(cid:1110)(cid:1117)(cid:1117)(cid:3)(cid:3)
(cid:1116)(cid:1115)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1109)(cid:1116)(cid:1117)(cid:1239)(cid:1118)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1117)(cid:1239)(cid:1118)(cid:1112)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
89,765
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1118)(cid:1239)(cid:1117)(cid:1118)(cid:1116)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:3)(cid:3)
(cid:1111)(cid:1110)(cid:1115)(cid:1239)(cid:1118)(cid:1117)(cid:1109)(cid:3)(cid:3)
155,341
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1114)(cid:1114)(cid:1114)(cid:3)(cid:3)
(cid:1112)(cid:1111)(cid:3)(cid:3)
(cid:1114)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1112)(cid:1116)(cid:1113)(cid:1239)(cid:1113)(cid:1116)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
1,922
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
108,838
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1109)(cid:1117)(cid:1239)(cid:1117)(cid:1112)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
4,667
(cid:1113)(cid:1239)(cid:1112)(cid:1111)(cid:1116)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1113)(cid:1109)(cid:1116)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1116)(cid:1115)(cid:1109)(cid:3)(cid:3)
(cid:1110)(cid:1114)(cid:1111)(cid:1239)(cid:1117)(cid:1113)(cid:1116)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1111)(cid:1114)(cid:1239)(cid:1115)(cid:1113)(cid:1109)(cid:3)(cid:3)
673,226
(cid:1113)(cid:1117)(cid:1239)(cid:1110)(cid:1109)(cid:1115)(cid:3)(cid:3)
(cid:1113)(cid:1112)(cid:1239)(cid:1113)(cid:1115)(cid:1111)(cid:3)(cid:3)
(cid:1116)(cid:1239)(cid:1110)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1109)(cid:1113)(cid:1116)(cid:3)(cid:3)
(cid:1117)(cid:1118)(cid:1117)(cid:1239)(cid:1114)(cid:1118)(cid:1113)(cid:3)(cid:3)
(cid:1110)(cid:1115)(cid:1239)(cid:1118)(cid:1114)(cid:1114)(cid:3)(cid:3)
(cid:1116)(cid:1239)(cid:1115)(cid:1117)(cid:1110)(cid:3)(cid:3)
114,293
6,257,098
416,292
113,505
1,202,864
7,989,759
2,774,427
(cid:1269)(cid:3)(cid:3)
349,541
(cid:1269)(cid:3)(cid:3)
111,547
(cid:1269)(cid:3)(cid:3)
726,764
(cid:1112)(cid:1239)(cid:1109)(cid:1118)(cid:1117)(cid:3)(cid:3)
3,962,279
(cid:1112)(cid:1239)(cid:1109)(cid:1118)(cid:1117)
(cid:1112)(cid:1239)(cid:1113)(cid:1110)(cid:1114)(cid:1239)(cid:1115)(cid:1115)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1113)(cid:1112)(cid:1117)(cid:1239)(cid:1109)(cid:1117)(cid:1116)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1116)(cid:1111)(cid:3)(cid:3)
32,122
(cid:1269)(cid:3)(cid:3)
(cid:1116)(cid:1239)(cid:1109)(cid:1118)(cid:1118)(cid:3)(cid:3)
(cid:1111)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1116)(cid:1112)(cid:3)(cid:3)
(cid:1116)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1117)(cid:3)(cid:3)
5,061
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1110)(cid:1115)(cid:3)(cid:3)
(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
1,050
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1115)(cid:1109)(cid:1116)(cid:3)(cid:3)
(cid:1110)(cid:1111)(cid:1118)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1112)(cid:1239)(cid:1117)(cid:1109)(cid:1118)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1118)(cid:1113)(cid:3)(cid:3)
(cid:1110)(cid:1110)(cid:1239)(cid:1109)(cid:1111)(cid:1115)(cid:3)(cid:3)
58,930
(cid:1117)(cid:1239)(cid:1114)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1112)(cid:1114)(cid:1239)(cid:1112)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1117)(cid:1111)(cid:1116)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1113)(cid:1111)(cid:1109)(cid:1239)(cid:1111)(cid:1116)(cid:1112)
(cid:1110)(cid:1111)(cid:1118)(cid:1239)(cid:1111)(cid:1109)(cid:1111)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1118)(cid:1113)
(cid:1112)(cid:1239)(cid:1114)(cid:1116)(cid:1110)(cid:1239)(cid:1118)(cid:1115)(cid:1118)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1118)(cid:1113)
(cid:1110)(cid:1110)(cid:1239)(cid:1113)(cid:1109)(cid:1115)
97,163
(cid:1117)(cid:1239)(cid:1114)(cid:1110)(cid:1113)
(cid:1113)(cid:1111)(cid:1239)(cid:1118)(cid:1117)(cid:1113)
(cid:1110)(cid:1239)(cid:1109)(cid:1118)(cid:1110)
Total liabilities
6,252,366
355,204
112,597
1,001,131
7,721,298
*Insurance contracts with DPF include shareholder funds within the CA (S&P) with-profits funds.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
125
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 125
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 Management of financial risk (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 ReAssure 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 CA (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. 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.
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.
126
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 126
04/04/2019 12:44
SECTION D
(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 serve 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 2018
Carrying values and cash
flows arising from:
Carrying value
£000
0-5 years
£000
Contractual cash flows (undiscounted)
10-15 years
5-10 years
£000
£000
15-20 years
£000
>20 years
£000
Total
£000
Insurance contract liabilities
U(cid:566)(cid:520)(cid:637)(cid:1272)(cid:546)(cid:520)(cid:566)(cid:543)(cid:457)(cid:449)(cid:3)
With DPF
Annuities in payment
Other non-linked
Investment contract liabilities
U(cid:566)(cid:520)(cid:637)(cid:1272)(cid:546)(cid:520)(cid:566)(cid:543)(cid:457)(cid:449)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:624)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
Total
31 December 2017
(cid:1111)(cid:1239)(cid:1113)(cid:1111)(cid:1113)(cid:1239)(cid:1117)(cid:1117)(cid:1110)(cid:3)(cid:3)
323,603
104,710
715,820
(cid:1111)(cid:1239)(cid:1113)(cid:1111)(cid:1113)(cid:1239)(cid:1117)(cid:1117)(cid:1110)(cid:3)(cid:3)
142,977
25,946
444,722
(cid:1269)(cid:3)(cid:3)
75,618
21,726
290,279
(cid:1269)(cid:3)(cid:3)
54,537
17,285
165,678
(cid:1269)(cid:3)(cid:3)
21,095
12,886
78,815
(cid:1269)(cid:3)(cid:3)
7,478
15,994
42,813
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1111)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1111)(cid:1117)(cid:1109)(cid:1239)(cid:1113)(cid:1114)(cid:1112)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1111)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1111)(cid:1117)(cid:1109)(cid:1239)(cid:1113)(cid:1114)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1113)(cid:1111)(cid:1113)(cid:1239)(cid:1117)(cid:1117)(cid:1110)
301,705
93,837
1,022,307
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1113)
(cid:1113)(cid:1239)(cid:1111)(cid:1109)(cid:1114)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1113)
(cid:1111)(cid:1117)(cid:1109)(cid:1239)(cid:1113)(cid:1114)(cid:1112)
7,107,700
6,577,212
387,623
237,500
112,796
66,285
7,381,416
Carrying values and cash
flows arising from:
Carrying value
£000
0-5 years
£000
Contractual cash flows (undiscounted)
10-15 years
5-10 years
£000
£000
15-20 years
£000
>20 years
£000
Total
£000
Insurance contract liabilities
U(cid:566)(cid:520)(cid:637)(cid:1272)(cid:546)(cid:520)(cid:566)(cid:543)(cid:457)(cid:449)(cid:3)
With DPF
Annuities in payment
Other non-linked
Investment contract liabilities
U(cid:566)(cid:520)(cid:637)(cid:1272)(cid:546)(cid:520)(cid:566)(cid:543)(cid:457)(cid:449)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:624)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
Total
(cid:1111)(cid:1239)(cid:1116)(cid:1116)(cid:1111)(cid:1239)(cid:1117)(cid:1118)(cid:1112)(cid:3)(cid:3)
349,541
111,548
713,877
(cid:1111)(cid:1239)(cid:1116)(cid:1116)(cid:1111)(cid:1239)(cid:1117)(cid:1118)(cid:1112)(cid:3)(cid:3)
197,293
26,534
411,658
(cid:1112)(cid:1239)(cid:1113)(cid:1110)(cid:1114)(cid:1239)(cid:1113)(cid:1109)(cid:1116)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1116)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1118)(cid:1113)(cid:3)(cid:3)
(cid:1112)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1116)(cid:1110)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1113)(cid:1110)(cid:1114)(cid:1239)(cid:1113)(cid:1109)(cid:1116)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1116)(cid:3)(cid:3)
(cid:1112)(cid:1111)(cid:1113)(cid:3)(cid:3)
(cid:1112)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1116)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
80,819
22,456
282,146
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1116)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
58,936
18,146
163,817
(cid:1269)(cid:3)(cid:3)
27,688
13,841
81,912
(cid:1269)(cid:3)(cid:3)
8,145
18,506
44,249
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1116)(cid:1116)(cid:1111)(cid:1239)(cid:1117)(cid:1118)(cid:1112)
372,881
99,483
983,782
(cid:1112)(cid:1239)(cid:1113)(cid:1110)(cid:1114)(cid:1239)(cid:1113)(cid:1109)(cid:1116)
(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1116)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1118)(cid:1113)
(cid:1112)(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1116)(cid:1110)
7,721,298
7,159,347
407,891
240,899
123,441
70,900
8,002,478
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 ReAssure 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’
on page 129. The maturity analysis in respect of the CA (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.
The undiscounted contractual cash flows stated above, are based upon the cash flows payable directly to customers and hence do not include an estimate of
future expenses incurred, as is the case in the balance sheet carrying values.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
127
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 Management of financial risk (continued)
(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; and
(ii) its investment in Waard and Scildon, the assets and liabilities of which are principally denominated in euros.
The group’s currency risk through its ownership of Movestic, Scildon and Waard Group is reflected in:
(i)
foreign exchange translation differences arising on the translation into sterling and consolidation of Movestic, Scildon and Waard Group’s financial statements;
and
(ii) the impact of adverse exchange rate movements on cash flows between Chesnara plc and its foreign subsidiaries: in the short-term these relate to cash flows
from Movestic, Scildon and Waard 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.
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:
31 December
Swedish krona
Assets
Liabilities
Net assets
Euro
Assets
Liabilities
Net assets
Norwegian krone
Assets
(cid:184)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
Net assets
US dollar
Assets
Liabilities
Net assets/(liabilities)
2018
£000
2017
£000
3,016,091
(2,942,005 )
3,127,868
(3,057,590 )
74,086
70,278
2,149,809
(1,865,796 )
2,312,577
(1,976,235 )
284,013
336,432
687
(cid:1269)(cid:3)(cid:3)
687
682
(223 )
459
968
(cid:1263)(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1111)(cid:3)(cid:1264)
(344 )
528
(106 )
422
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
128
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SECTION D
(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 equity and property values;
(ii) a 100 basis point increase and decrease in per annum market rates of interest; and
(iii) 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 below.
Variation in/arising from
100 bp increase in market rates of interest
100 bp decrease in market rates of interest
10% increase in equity and property prices
10% decrease in equity and property prices
10% favourable movement in SEK: sterling exchange rate
10% adverse movement in SEK: sterling exchange rate
10% favourable movement in EUR: sterling exchange rate
10% adverse movement in EUR: sterling exchange rate
2018
2017
Profit before
tax
£m
Shareholders ’
equity
£m
Profit before
tax
£m
Shareholders ’
equity
£m
(37.3 )
38.6
15.5
(13.7 )
1.0
(0.8 )
0.2
(0.2 )
(27.9 )
28.8
13.5
(1 1.0 )
8.2
(6.7 )
31.5
(25.8 )
(46.8 )
45.8
1 1.9
(12.8 )
1.1
(0.9 )
2.5
(2.1 )
(35.2 )
34.3
9.5
(10.2 )
7.8
(6.4 )
37.4
(30.6 )
(v) 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 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.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
129
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 Management of financial risk (continued)
(v) Credit risk management (continued)
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
2018
Balance
2017
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
Holdings in collective investment schemes
Debt securities
Cash and cash equivalents
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:4)(cid:564)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:3)(cid:449)(cid:457)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)
(cid:195)(cid:577)(cid:616)(cid:637)(cid:508)(cid:387)(cid:508)(cid:457)(cid:3)(cid:546)(cid:577)(cid:387)(cid:566)(cid:3)(cid:613)(cid:577)(cid:616)(cid:637)(cid:505)(cid:577)(cid:546)(cid:520)(cid:577)(cid:3)
Insurance and other receivables
Reinsurers’ share of accrued policyholder claims
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
4,766,342
689,364
101,958
(cid:1116)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
38,889
4,226
(cid:1269)(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
69,279
832,252
113,254
(cid:1112)(cid:1116)(cid:1110)(cid:3)(cid:3)
(cid:1111)(cid:1110)(cid:1112)(cid:1239)(cid:1112)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1113)(cid:1118)(cid:3)(cid:3)
(cid:1113)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)(cid:3)(cid:3)
16,960
13,414
(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1109)(cid:1111)(cid:3)(cid:3)
4,835,621
1,521,616
215,212
(cid:1113)(cid:1113)(cid:1115)(cid:3)(cid:3)
(cid:1111)(cid:1110)(cid:1112)(cid:1239)(cid:1112)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1113)(cid:1118)(cid:3)(cid:3)
(cid:1113)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)(cid:3)(cid:3)
55,849
17,640
(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1109)(cid:1111)(cid:3)(cid:3)
5,155,886
751,393
82,322
(cid:1110)(cid:1239)(cid:1110)(cid:1111)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
38,941
10,267
(cid:1269)(cid:3)(cid:3)
46,886
877,424
128,325
(cid:1114)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1112)(cid:1239)(cid:1110)(cid:1114)(cid:1113)(cid:3)(cid:3)
(cid:1112)(cid:1117)(cid:1239)(cid:1116)(cid:1116)(cid:1115)(cid:3)(cid:3)
(cid:1113)(cid:1117)(cid:1239)(cid:1110)(cid:1109)(cid:1115)(cid:3)(cid:3)
20,507
15,621
(cid:1116)(cid:1239)(cid:1115)(cid:1117)(cid:1110)(cid:3)(cid:3)
Balance
sheet
carrying
value
£000
5,202,772
1,628,817
210,647
(cid:1110)(cid:1239)(cid:1115)(cid:1117)(cid:1111)
(cid:1111)(cid:1112)(cid:1112)(cid:1239)(cid:1110)(cid:1114)(cid:1113)
(cid:1112)(cid:1117)(cid:1239)(cid:1116)(cid:1116)(cid:1115)
(cid:1113)(cid:1117)(cid:1239)(cid:1110)(cid:1109)(cid:1115)
59,448
25,888
(cid:1116)(cid:1239)(cid:1115)(cid:1117)(cid:1110)
Total
5,600,854
1,345,141
6,945,995
6,039,932
1,417,039
7,456,971
The 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:
Credit rating
As at 31 December 2018
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:137)(cid:577)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:442)(cid:577)(cid:546)(cid:546)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:624)(cid:3)
(cid:4)(cid:564)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:3)(cid:449)(cid:457)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)
Debt securities at fair value through income
(cid:195)(cid:577)(cid:616)(cid:637)(cid:508)(cid:387)(cid:508)(cid:457)(cid:3)(cid:546)(cid:577)(cid:387)(cid:566)(cid:3)(cid:613)(cid:577)(cid:616)(cid:637)(cid:505)(cid:577)(cid:546)(cid:520)(cid:577)(cid:3)
Insurance and other receivables
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:442)(cid:616)(cid:653)(cid:457)(cid:449)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
C(cid:387)(cid:624)(cid:515)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:676)(cid:387)(cid:546)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
Total
As at 31 December 2017
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:137)(cid:577)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:442)(cid:577)(cid:546)(cid:546)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:624)(cid:3)
(cid:4)(cid:564)(cid:577)(cid:653)(cid:566)(cid:637)(cid:624)(cid:3)(cid:449)(cid:457)(cid:613)(cid:577)(cid:624)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:677)(cid:520)(cid:637)(cid:515)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)
Debt securities at fair value through income
(cid:195)(cid:577)(cid:616)(cid:637)(cid:508)(cid:387)(cid:508)(cid:457)(cid:3)(cid:546)(cid:577)(cid:387)(cid:566)(cid:3)(cid:613)(cid:577)(cid:616)(cid:637)(cid:505)(cid:577)(cid:546)(cid:520)(cid:577)(cid:3)
Insurance and other receivables
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:442)(cid:616)(cid:653)(cid:457)(cid:449)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
I(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:637)(cid:387)(cid:687)(cid:457)(cid:624)(cid:3)
C(cid:387)(cid:624)(cid:515)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:442)(cid:387)(cid:624)(cid:515)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:676)(cid:387)(cid:546)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
AAA
£000
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
97,615
(cid:1269)(cid:3)(cid:3)
881
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1110)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
AA
£000
(cid:1110)(cid:1112)(cid:1117)(cid:1239)(cid:1109)(cid:1118)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
253,776
(cid:1269)(cid:3)(cid:3)
8,491
(cid:1113)(cid:1239)(cid:1113)(cid:1117)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1115)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1110)(cid:1111)(cid:1239)(cid:1117)(cid:1117)(cid:1112)(cid:3)(cid:3)
A
£000
Below A
£000
Unrated
£000
(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1114)(cid:3)(cid:3)
(cid:1115)(cid:1114)(cid:1239)(cid:1110)(cid:1115)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
196,965
(cid:1269)(cid:3)(cid:3)
1,165
(cid:1110)(cid:1239)(cid:1109)(cid:1115)(cid:1114)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1118)(cid:1116)(cid:1239)(cid:1112)(cid:1117)(cid:1118)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
251,468
(cid:1269)(cid:3)(cid:3)
2,516
(cid:1118)(cid:1114)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1118)(cid:1117)(cid:1111)(cid:3)(cid:3)
(cid:1115)(cid:1118)(cid:1239)(cid:1110)(cid:1109)(cid:1112)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1110)(cid:1110)(cid:1110)(cid:3)(cid:3)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1113)(cid:1118)(cid:3)(cid:3)
32,428
(cid:1113)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)(cid:3)(cid:3)
3,907
(cid:1115)(cid:1239)(cid:1118)(cid:1110)(cid:1111)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1114)(cid:3)(cid:3)
(cid:1117)(cid:1239)(cid:1114)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Total
£000
(cid:1111)(cid:1110)(cid:1112)(cid:1239)(cid:1112)(cid:1115)(cid:1118)
(cid:1115)(cid:1118)(cid:1239)(cid:1111)(cid:1116)(cid:1118)
(cid:1112)(cid:1113)(cid:1239)(cid:1112)(cid:1113)(cid:1118)
832,252
(cid:1113)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)
16,960
(cid:1110)(cid:1112)(cid:1239)(cid:1113)(cid:1110)(cid:1113)
(cid:1112)(cid:1116)(cid:1110)
(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1109)(cid:1111)
(cid:1110)(cid:1110)(cid:1112)(cid:1239)(cid:1111)(cid:1114)(cid:1113)
99,015
419,395
363,203
262,778
200,750
1,345,141
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
92,796
(cid:1269)(cid:3)(cid:3)
1,139
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1118)(cid:1239)(cid:1111)(cid:1114)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
258,910
(cid:1269)(cid:3)(cid:3)
9,600
(cid:1114)(cid:1239)(cid:1118)(cid:1109)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1116)(cid:1239)(cid:1110)(cid:1118)(cid:1117)(cid:3)(cid:3)
(cid:1114)(cid:1113)(cid:1239)(cid:1118)(cid:1109)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1111)(cid:1239)(cid:1118)(cid:1115)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
188,279
(cid:1269)(cid:3)(cid:3)
1,242
(cid:1113)(cid:1117)(cid:3)(cid:3)
(cid:1114)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1118)(cid:1239)(cid:1113)(cid:1114)(cid:1118)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1118)(cid:1118)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
301,201
(cid:1269)(cid:3)(cid:3)
3,333
(cid:1116)(cid:1112)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1113)(cid:1111)(cid:1117)(cid:3)(cid:3)
(cid:1117)(cid:1117)(cid:1239)(cid:1118)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1118)(cid:1111)(cid:1114)(cid:3)(cid:3)
(cid:1112)(cid:1117)(cid:1239)(cid:1116)(cid:1116)(cid:1115)(cid:3)(cid:3)
36,238
(cid:1113)(cid:1117)(cid:1239)(cid:1110)(cid:1109)(cid:1115)(cid:3)(cid:3)
5,193
(cid:1117)(cid:1239)(cid:1118)(cid:1112)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1117)(cid:1112)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1114)(cid:1112)(cid:1111)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1112)(cid:1239)(cid:1110)(cid:1114)(cid:1113)
(cid:1113)(cid:1115)(cid:1239)(cid:1117)(cid:1117)(cid:1115)
(cid:1112)(cid:1117)(cid:1239)(cid:1116)(cid:1116)(cid:1115)
877,424
(cid:1113)(cid:1117)(cid:1239)(cid:1110)(cid:1109)(cid:1115)
20,507
(cid:1110)(cid:1114)(cid:1239)(cid:1115)(cid:1111)(cid:1110)
(cid:1114)(cid:1114)(cid:1118)
(cid:1116)(cid:1239)(cid:1115)(cid:1117)(cid:1110)
(cid:1110)(cid:1111)(cid:1117)(cid:1239)(cid:1112)(cid:1111)(cid:1114)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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
93,935
475,778
302,548
311,685
233,093
1,417,039
The ‘Mortgage Loan Portfolio’ and ‘Insurance and other receivables’ assets in the credit risk rating table are not held at fair value or managed on a fair value basis.
The cash-flows for all of these assets consist solely of payments of principal and interest. These assets are not considered to have a low credit rating as defined by
IFRS 9 as at 31 December 2018.
130
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION D
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 £72.0m as at 31 December 2018 (31 December 2017: £98.0m) to ReAssure, which does not have a published credit rating.
Of this amount £48.0m (31 December 2017: £71.0m) is in respect of currently guaranteed benefits. This counterparty exposure has been mitigated by ReAssure
granting to CA a floating charge over related investment assets, which ranks that company equally with ReAssure policyholders. In order to monitor the ongoing
creditworthiness of ReAssure, CA reviews the financial statements and regulatory returns submitted by ReAssure to the PRA on an annual basis. No credit limits
were exceeded during the year ended 31 December 2018 and 31 December 2017.
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 2018, further interim distributions totalling £2,718 (2017: £13,590) 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.
7 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 2018 comprise:
CA: This segment represents the group’s UK life insurance and pensions run-off portfolio and comprises the original business of Countrywide Assured plc, the
group’s principal UK operating subsidiary, and of City of Westminster Assurance Company Limited which was acquired in 2005 and the long-term business of
which was transferred to Countrywide Assured plc during 2006. This segment also contains Save & Prosper Insurance Limited (S&P) which was acquired on
20 December 2010 and its then subsidiary Save & Prosper Pensions Limited. The S&P business was transferred to CA during 2011. This segment also contains
the business of Protection Life, which was purchased on 28 November 2013 and the business of which was transferred to CA effective from 1 January 2015. CA
is responsible for conducting 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’.
Movestic: This segment comprises the group’s Swedish life and pensions business, Movestic Livförsäkring AB (‘Movestic’) and its subsidiary and associated
companies, which are open to new business and which are responsible for conducting both unit-linked and pensions and savings business and providing some
life and health product offerings.
Waard Group: This segment represents the group’s Dutch life and general insurance business, which was acquired on 19 May 2015 and comprised the three
insurance companies Waard Leven N.V., Hollands Welvaren Leven N.V. and Waard Schade N.V., and a servicing company, Waard Verzekering. During 2017, the
book of policies held within Hollands Welvaren Leven N.V. was successfully integrated into Waard Leven and consequently Hollands Welvaren Leven N.V. was
deregistered on 19 December 2018. The Waard Group’s policy base is predominantly made up of term life policies, although also includes unit-linked policies and
some non-life policies, covering risks such as occupational disability and unemployment.
Scildon: This segment represents the group’s latest Dutch life insurance business, which was acquired on 5 April 2017. Scildon’s policy base is predominantly
made up of individual protection and savings contracts. It is open to new business and sells protection, individual savings and group pension contracts via a
broker-led distribution model.
Other group activities: The functions performed by the parent company, Chesnara plc, are defined under the operating segment analysis as other group activities.
Also included therein are consolidation and elimination adjustments.
The accounting policies of the segments are the same as those for the group as a whole. Any transactions between the business segments are on normal
commercial terms in normal market conditions. The group evaluates performance of operating segments on the basis of the profit before tax attributable to
shareholders and on the total assets and liabilities of the reporting segments and the group. There were no changes to the measurement basis for segment profit
during the year ended 31 December 2018.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
131
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 Operating segments (continued)
(i) Segmental income statement for the year ended 31 December 2018
N(cid:457)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:564)(cid:520)(cid:653)(cid:564)(cid:3)(cid:616)(cid:457)(cid:676)(cid:457)(cid:566)(cid:653)(cid:457)(cid:3)
(cid:121)(cid:457)(cid:457)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:624)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
Net investment return
Total revenue (net of reinsurance payable)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:577)(cid:613)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
Segmental (expense)/income
N(cid:457)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:520)(cid:566)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)
N(cid:457)(cid:637)(cid:3)(cid:442)(cid:515)(cid:387)(cid:566)(cid:508)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:121)(cid:457)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:624)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
Administrative expenses:
(cid:4)(cid:564)(cid:577)(cid:616)(cid:637)(cid:520)(cid:624)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:577)(cid:566)(cid:3)(cid:624)(cid:577)(cid:505)(cid:637)(cid:677)(cid:387)(cid:616)(cid:457)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
D(cid:457)(cid:613)(cid:616)(cid:457)(cid:442)(cid:520)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:577)(cid:566)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:613)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
Other
O(cid:613)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:624)(cid:3)
(cid:121)(cid:520)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:566)(cid:508)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:546)(cid:577)(cid:624)(cid:624)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
CA
£000
Movestic
£000
(cid:1112)(cid:1113)(cid:1239)(cid:1109)(cid:1111)(cid:1117)(cid:3)(cid:3)
(cid:1111)(cid:1117)(cid:1239)(cid:1110)(cid:1113)(cid:1112)(cid:3)(cid:3)
(112,960 )
(cid:1110)(cid:1112)(cid:1239)(cid:1115)(cid:1115)(cid:1112)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1239)(cid:1114)(cid:1115)(cid:1116)(cid:3)(cid:3)
(165,091 )
Waard
Group
£000
(cid:1110)(cid:1239)(cid:1115)(cid:1118)(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1118)(cid:3)(cid:3)
629
Other group
activities
£000
Scildon
£000
(cid:1110)(cid:1115)(cid:1118)(cid:1239)(cid:1118)(cid:1118)(cid:1110)(cid:3)(cid:3)
(cid:1114)(cid:1109)(cid:1239)(cid:1109)(cid:1114)(cid:1113)(cid:3)(cid:3)
(57,870 )
(50,789 )
(127,861 )
2,346
162,175
(cid:1110)(cid:1111)(cid:1239)(cid:1116)(cid:1118)(cid:1111)(cid:3)(cid:3)
(cid:1111)(cid:1117)(cid:1239)(cid:1113)(cid:1113)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(37,997 )
(99,417 )
2,346
162,175
(cid:1114)(cid:1118)(cid:1239)(cid:1118)(cid:1113)(cid:1114)(cid:3)(cid:3)
(cid:1112)(cid:1109)(cid:1239)(cid:1112)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1111)(cid:1110)(cid:1114)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(22,034 )
(cid:1263)(cid:1117)(cid:1112)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1114)(cid:1239)(cid:1109)(cid:1110)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1110)(cid:1115)(cid:1114)(cid:1239)(cid:1109)(cid:1109)(cid:1117)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1118)(cid:1239)(cid:1114)(cid:1115)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1113)(cid:1115)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1111)(cid:1115)(cid:3)(cid:1264)(cid:3)
(13,578 )
(cid:1263)(cid:1112)(cid:1239)(cid:1118)(cid:1118)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1118)(cid:1114)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1115)(cid:1110)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1113)(cid:1239)(cid:1113)(cid:1110)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1118)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1114)(cid:1111)(cid:3)(cid:1264)(cid:3)
(2,903 )
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1112)(cid:1114)(cid:1239)(cid:1109)(cid:1118)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1118)(cid:1109)(cid:1116)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1109)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1113)(cid:1115)(cid:1117)(cid:3)(cid:1264)(cid:3)
(25,607 )
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Total
£000
(cid:1111)(cid:1110)(cid:1118)(cid:1239)(cid:1112)(cid:1117)(cid:1109)
(cid:1110)(cid:1109)(cid:1110)(cid:1239)(cid:1116)(cid:1117)(cid:1112)
(335,035 )
(13,872 )
(cid:1113)(cid:1110)(cid:1239)(cid:1111)(cid:1112)(cid:1115)
27,364
(cid:1263)(cid:1116)(cid:1114)(cid:1239)(cid:1116)(cid:1113)(cid:1114)(cid:3)(cid:1264)
(cid:1110)(cid:1118)(cid:1114)(cid:1239)(cid:1112)(cid:1111)(cid:1118)
(cid:1263)(cid:1112)(cid:1111)(cid:1239)(cid:1118)(cid:1116)(cid:1117)(cid:3)(cid:1264)
(cid:1263)(cid:1110)(cid:1239)(cid:1115)(cid:1116)(cid:1110)(cid:3)(cid:1264)
(cid:1263)(cid:1115)(cid:1113)(cid:1115)(cid:3)(cid:1264)
(67,478 )
(cid:1263)(cid:1113)(cid:1239)(cid:1117)(cid:1113)(cid:1109)(cid:3)(cid:1264)
(cid:1263)(cid:1113)(cid:1239)(cid:1112)(cid:1114)(cid:1110)(cid:3)(cid:1264)
(cid:1263)(cid:1115)(cid:1110)(cid:1115)(cid:3)(cid:1264)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
257
257
(cid:1269)(cid:3)(cid:3)
257
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(3,356 )
(cid:1263)(cid:1110)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1239)(cid:1112)(cid:1118)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
Profit before tax and consolidation adjustments
28,178
9,283
3,517
(1,106 )
(5,504 )
34,368
Other operating expenses:
C(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:387)(cid:564)(cid:577)(cid:616)(cid:637)(cid:520)(cid:624)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:449)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:1272)(cid:505)(cid:577)(cid:616)(cid:442)(cid:457)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)
C(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:387)(cid:564)(cid:577)(cid:616)(cid:637)(cid:520)(cid:624)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:449)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:442)(cid:653)(cid:624)(cid:637)(cid:577)(cid:564)(cid:457)(cid:616)(cid:3)(cid:616)(cid:457)(cid:546)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:515)(cid:520)(cid:613)(cid:624)(cid:3)
(cid:121)(cid:457)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:624)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:1263)(cid:1113)(cid:1239)(cid:1113)(cid:1118)(cid:1116)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1239)(cid:1110)(cid:1109)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1117)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1110)(cid:1239)(cid:1110)(cid:1112)(cid:1116)(cid:3)(cid:3)
(cid:1263)(cid:1115)(cid:1115)(cid:1118)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1239)(cid:1117)(cid:1111)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1115)(cid:1117)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1111)(cid:1239)(cid:1109)(cid:1118)(cid:1112)(cid:3)(cid:1264)
(cid:1263)(cid:1117)(cid:1112)(cid:3)(cid:1264)
(cid:1113)(cid:1239)(cid:1117)(cid:1111)(cid:1109)
Segmental income less expenses
23,681
7,231
2,848
(1,244 )
(5,504 )
27,012
Profit before tax
Income tax (expense)/credit
23,681
(3,125 )
7,231
(944 )
2,848
(642 )
(1,244 )
779
(5,504 )
1,044
27,012
(2,888 )
Profit/(loss) after tax
20,556
6,287
2,206
(465 )
(4,460 )
24,124
Further analysis of the segmental profit before tax and consolidation adjustments can be found on page 36 of the Financial Review section.
(ii) Segmental balance sheet as at 31 December 2018
Total assets
Total liabilities
Net assets
CA
£000
Movestic
£000
Waard
Group
£000
Other group
activities
£000
Scildon
£000
Total
£000
2,636,499
(2,476,949 )
3,033,654
(2,942,300 )
137,640
(90,585 )
1,948,490
(1,789,841 )
60,817
(71,809 )
7,817,100
(7,371,484 )
159,550
91,354
47,055
158,649
(10,992 )
445,616
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:637)(cid:577)(cid:3)(cid:566)(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1239)(cid:1117)(cid:1113)(cid:1109)(cid:3)(cid:3)
(cid:1110)(cid:1113)(cid:1239)(cid:1113)(cid:1117)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1110)(cid:1113)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1239)(cid:1117)(cid:1113)(cid:1109)
(cid:1111)(cid:1109)(cid:1239)(cid:1115)(cid:1113)(cid:1110)
132
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 132
04/04/2019 12:44
SECTION D
(iii) Segmental income statement for the year ended 31 December 2017
N(cid:457)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:564)(cid:520)(cid:653)(cid:564)(cid:3)(cid:616)(cid:457)(cid:676)(cid:457)(cid:566)(cid:653)(cid:457)(cid:3)
(cid:121)(cid:457)(cid:457)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:624)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
Net investment return
Total revenue (net of reinsurance payable)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:577)(cid:613)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
Segmental income
N(cid:457)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:520)(cid:566)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)
N(cid:457)(cid:637)(cid:3)(cid:442)(cid:515)(cid:387)(cid:566)(cid:508)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:121)(cid:457)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:624)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
Administrative expenses:
(cid:4)(cid:564)(cid:577)(cid:616)(cid:637)(cid:520)(cid:624)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:577)(cid:566)(cid:3)(cid:624)(cid:577)(cid:505)(cid:637)(cid:677)(cid:387)(cid:616)(cid:457)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
D(cid:457)(cid:613)(cid:616)(cid:457)(cid:442)(cid:520)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:577)(cid:566)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:613)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
Other
O(cid:613)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:624)(cid:3)
(cid:121)(cid:520)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:566)(cid:508)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:616)(cid:577)(cid:564)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
CA
£000
Movestic
£000
(cid:1112)(cid:1118)(cid:1239)(cid:1109)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1111)(cid:1118)(cid:1239)(cid:1109)(cid:1109)(cid:1118)(cid:3)(cid:3)
251,041
(cid:1110)(cid:1114)(cid:1239)(cid:1113)(cid:1112)(cid:1117)(cid:3)(cid:3)
(cid:1111)(cid:1114)(cid:1239)(cid:1115)(cid:1109)(cid:1117)(cid:3)(cid:3)
223,310
Waard
Group
£000
(cid:1111)(cid:1239)(cid:1111)(cid:1111)(cid:1116)(cid:3)(cid:3)
(cid:1111)(cid:1109)(cid:3)(cid:3)
7,349
Other group
activities
£000
Scildon
£000
(cid:1110)(cid:1111)(cid:1109)(cid:1239)(cid:1115)(cid:1111)(cid:1112)(cid:3)(cid:3)
(cid:1112)(cid:1114)(cid:1239)(cid:1115)(cid:1115)(cid:1113)(cid:3)(cid:3)
50,016
319,086
264,356
9,596
206,303
(cid:1110)(cid:1112)(cid:1239)(cid:1118)(cid:1117)(cid:1114)(cid:3)(cid:3)
(cid:1111)(cid:1115)(cid:1239)(cid:1116)(cid:1115)(cid:1111)(cid:3)(cid:3)
(cid:1113)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Total
£000
(cid:1110)(cid:1116)(cid:1116)(cid:1239)(cid:1112)(cid:1111)(cid:1113)
(cid:1118)(cid:1109)(cid:1239)(cid:1112)(cid:1109)(cid:1110)
531,817
799,442
(cid:1113)(cid:1109)(cid:1239)(cid:1116)(cid:1117)(cid:1118)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
101
101
(cid:1269)(cid:3)(cid:3)
333,071
291,118
9,638
206,303
101
840,231
(cid:1263)(cid:1110)(cid:1118)(cid:1110)(cid:1239)(cid:1114)(cid:1111)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1115)(cid:1115)(cid:1239)(cid:1118)(cid:1115)(cid:1118)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1112)(cid:1115)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(21,678 )
(cid:1263)(cid:1118)(cid:1114)(cid:1111)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1114)(cid:1239)(cid:1113)(cid:1113)(cid:1116)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1111)(cid:1111)(cid:1239)(cid:1118)(cid:1114)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1112)(cid:1110)(cid:1239)(cid:1118)(cid:1114)(cid:1118)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1239)(cid:1109)(cid:1114)(cid:1111)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1118)(cid:1111)(cid:3)(cid:1264)(cid:3)
(13,485 )
(cid:1263)(cid:1112)(cid:1239)(cid:1112)(cid:1109)(cid:1111)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1239)(cid:1116)(cid:1114)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1118)(cid:1113)(cid:1118)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1109)(cid:1114)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1112)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1114)(cid:1111)(cid:3)(cid:1264)(cid:3)
(3,015 )
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1115)(cid:1116)(cid:1239)(cid:1111)(cid:1111)(cid:1114)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1113)(cid:1118)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1111)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1111)(cid:1111)(cid:1118)(cid:3)(cid:1264)(cid:3)
(18,813 )
(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(10,528 )
(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1115)(cid:1117)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1115)(cid:1114)(cid:1239)(cid:1111)(cid:1113)(cid:1116)(cid:3)(cid:1264)
(cid:1263)(cid:1111)(cid:1117)(cid:1118)(cid:1239)(cid:1118)(cid:1111)(cid:1111)(cid:3)(cid:1264)
(cid:1263)(cid:1112)(cid:1114)(cid:1239)(cid:1110)(cid:1114)(cid:1111)(cid:3)(cid:1264)
(cid:1263)(cid:1111)(cid:1239)(cid:1110)(cid:1116)(cid:1115)(cid:3)(cid:1264)
(cid:1263)(cid:1114)(cid:1116)(cid:1112)(cid:3)(cid:1264)
(67,520 )
(cid:1263)(cid:1113)(cid:1239)(cid:1111)(cid:1112)(cid:1118)(cid:3)(cid:1264)
(cid:1263)(cid:1113)(cid:1239)(cid:1113)(cid:1113)(cid:1112)(cid:3)(cid:1264)
(cid:1118)(cid:1113)(cid:1118)
Profit before tax and consolidation adjustments
50,576
9,821
5,189
18,419
(12,096 )
71,908
Other operating expenses:
C(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:387)(cid:564)(cid:577)(cid:616)(cid:637)(cid:520)(cid:624)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:449)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:520)(cid:566)(cid:1272)(cid:505)(cid:577)(cid:616)(cid:442)(cid:457)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)
C(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:387)(cid:564)(cid:577)(cid:616)(cid:637)(cid:520)(cid:624)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:616)(cid:457)(cid:449)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:3)(cid:442)(cid:653)(cid:624)(cid:637)(cid:577)(cid:564)(cid:457)(cid:616)(cid:3)(cid:616)(cid:457)(cid:546)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:515)(cid:520)(cid:613)(cid:624)(cid:3)
(cid:121)(cid:457)(cid:457)(cid:624)(cid:1239)(cid:3)(cid:442)(cid:577)(cid:564)(cid:564)(cid:520)(cid:624)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:1263)(cid:1115)(cid:1239)(cid:1111)(cid:1111)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1239)(cid:1114)(cid:1111)(cid:1116)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1109)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1115)(cid:1239)(cid:1115)(cid:1109)(cid:1110)(cid:3)(cid:3)
(cid:1263)(cid:1115)(cid:1115)(cid:1111)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1239)(cid:1117)(cid:1114)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1110)(cid:1113)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1112)(cid:1239)(cid:1111)(cid:1116)(cid:1110)(cid:3)(cid:1264)
(cid:1263)(cid:1110)(cid:1109)(cid:1110)(cid:3)(cid:1264)
(cid:1110)(cid:1109)(cid:1239)(cid:1116)(cid:1113)(cid:1116)
Segmental income less expenses
44,352
12,794
4,527
19,707
(12,096 )
69,283
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:387)(cid:616)(cid:520)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:441)(cid:520)(cid:566)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1109)(cid:1239)(cid:1112)(cid:1110)(cid:1118)(cid:3)(cid:3)
(cid:1111)(cid:1109)(cid:1239)(cid:1112)(cid:1110)(cid:1118)
Profit before tax
Income tax (expense)/credit
44,352
(7,085 )
12,794
71
4,527
(1,068 )
19,707
(4,946 )
8,223
1,860
89,602
(11,168 )
Profit after tax
37,267
12,865
3,459
14,761
10,083
78,434
(iv) Segmental balance sheet as at 31 December 2017
Total assets
Total liabilities
Net assets
CA
£000
Movestic
£000
Waard
Group
£000
Other group
activities
£000
Scildon
£000
Total
£000
3,020,489
(2,849,557 )
3,148,135
(3,057,934 )
166,803
(109,421 )
2,060,569
(1,881,301 )
47,388
(93,515 )
8,443,384
(7,991,728 )
170,932
90,201
57,382
179,268
(46,127 )
451,656
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:520)(cid:566)(cid:3)(cid:387)(cid:624)(cid:624)(cid:577)(cid:442)(cid:520)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:637)(cid:577)(cid:3)(cid:566)(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)(cid:387)(cid:624)(cid:624)(cid:457)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1113)(cid:1109)(cid:1116)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1239)(cid:1117)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1110)(cid:1112)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1116)(cid:1110)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1113)(cid:1109)(cid:1116)
(cid:1111)(cid:1116)(cid:1239)(cid:1117)(cid:1115)(cid:1117)
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
133
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
8 Fees and commission income
Year ended 31 December
Fee income
Policy-based fees
Fund management-based fees
(cid:57)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:1272)(cid:441)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:505)(cid:457)(cid:457)(cid:624)(cid:3)
C(cid:515)(cid:387)(cid:566)(cid:508)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:449)(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:1269)(cid:3)(cid:508)(cid:616)(cid:577)(cid:624)(cid:624)(cid:3)
C(cid:515)(cid:387)(cid:566)(cid:508)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:449)(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)(cid:1269)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)
Total fee income
Commission income
Total fee and commission income
9 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
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
44,823
36,398
(cid:1110)(cid:1112)(cid:1239)(cid:1115)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1116)(cid:1114)(cid:1112)(cid:3)(cid:3)
(cid:1263)(cid:1114)(cid:1113)(cid:3)(cid:1264)(cid:3)
95,534
6,249
2017
£000
32,295
36,717
(cid:1110)(cid:1113)(cid:1239)(cid:1114)(cid:1117)(cid:1114)
(cid:1116)(cid:1112)(cid:1116)
(cid:1263)(cid:1115)(cid:1113)(cid:3)(cid:1264)
84,270
6,031
101,783
90,301
2018
£000
47,285
31,643
7
(365,159 )
(46,882 )
(cid:1263)(cid:1111)(cid:1239)(cid:1109)(cid:1110)(cid:1116)(cid:3)(cid:1264)(cid:3)
(cid:1117)(cid:1117)(cid:3)(cid:3)
2017
£000
39,855
34,189
15
442,445
6,306
(cid:1118)(cid:1239)(cid:1109)(cid:1109)(cid:1116)
(cid:1269)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Net investment return
(335,035 )
531,817
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 2017: £nil).
10 Other operating income
Year ended 31 December
Investment management fee rebate
Charges to policyholder funds for yield tax
Other
Total other operating income
2018
£000
37,023
3,971
242
2017
£000
37,538
2,963
288
41,236
40,789
134
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SECTION D
11 Insurance contract claims and benefits
Year ended 31 December
C(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:3)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:3)
Decrease in insurance contract provisions
Total insurance contract claims and benefits
(cid:260)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:457)(cid:616)(cid:1287)(cid:624)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:442)(cid:546)(cid:387)(cid:520)(cid:564)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Net insurance contract claims and benefits incurred
12 Change in investment contract liabilities
Year ended 31 December
2018
£000
(cid:1113)(cid:1116)(cid:1110)(cid:1239)(cid:1111)(cid:1109)(cid:1114)(cid:3)(cid:3)
(351,812 )
119,393
(cid:1263)(cid:1113)(cid:1112)(cid:1239)(cid:1115)(cid:1113)(cid:1117)(cid:3)(cid:1264)(cid:3)
2017
£000
(cid:1113)(cid:1115)(cid:1114)(cid:1239)(cid:1116)(cid:1111)(cid:1118)
(51,033 )
414,696
(cid:1263)(cid:1113)(cid:1118)(cid:1239)(cid:1113)(cid:1113)(cid:1118)(cid:3)(cid:1264)
75,745
365,247
2018
£000
2017
£000
Changes in the fair value of investment contracts designated on initial recognition as fair value through income
Changes in the fair value of policyholders’ funds held by the group designated on initial recognition as fair value through income
(182,053 )
(14,887 )
266,344
27,259
Total (decrease)/increase in investment contract liabilities
Reinsurers’ share of investment contract liabilities
Net (decrease)/increase in investment contract liabilities
Investment contract benefits comprise benefits accruing to holders of investment contracts issued by the group.
13 Fees, commission and other acquisition costs
Year ended 31 December
Directly expensed costs:
Insurance contracts
Commission, new business and renewal costs
Deferred amount
Investment contracts
Commission, new business and renewal costs
Deferred amount
Amortisation of deferred acquisition costs:
Insurance contracts
Investment contracts
Investment contracts-reinsurance
Total
(196,940 )
293,603
1,611
(3,681 )
(195,329 )
289,922
2018
£000
2017
£000
14,654
(6,055 )
12,904
(12,167 )
8,599
737
18,362
(12,401 )
24,836
(15,644 )
5,961
9,192
2,400
11,229
(31 )
8,177
6,329
(30 )
28,158
24,405
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
135
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14 Administrative expenses
Year ended 31 December
Personnel-related costs
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
Note
44
2018
£000
34,395
5,718
1,671
647
12,549
14,815
2017
£000
30,919
7,580
2,218
698
13,295
15,559
69,795
70,269
Included in other goods and services above are the following amounts payable to the auditor and its associates, exclusive of VAT.
Year ended 31 December
(cid:121)(cid:457)(cid:457)(cid:624)(cid:3)(cid:613)(cid:387)(cid:688)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)(cid:637)(cid:577)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:577)(cid:564)(cid:613)(cid:387)(cid:566)(cid:688)(cid:1287)(cid:624)(cid:3)(cid:387)(cid:653)(cid:449)(cid:520)(cid:637)(cid:577)(cid:616)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:387)(cid:653)(cid:449)(cid:520)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:442)(cid:577)(cid:564)(cid:613)(cid:387)(cid:566)(cid:688)(cid:1287)(cid:624)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:624)(cid:637)(cid:387)(cid:637)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
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)
The audit of the company’s subsidiaries pursuant to legislation*
Audit-related assurance services**
Total
2018
£000
(cid:1114)(cid:1109)(cid:3)(cid:3)
758
235
2017
£000
(cid:1114)(cid:1109)
743
462
1,043
1,255
*Includes Ernst & Young audit fees in respect of the Scildon audit in 2017.
** Includes the audit of regulatory returns submitted to the UK regulator for 2017. The group is now exempt from audit for the regulatory returns following PRA
legislation introduced in 2018.
15 Other operating expenses
Year ended 31 December
Charge for amortisation of acquired value of in-force business
Charge for amortisation of acquired value of customer relationships (AVCR)
Other
Direct operating expenses of investment properties
(cid:260)(cid:457)(cid:676)(cid:457)(cid:566)(cid:653)(cid:457)(cid:1272)(cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
N(cid:577)(cid:566)(cid:3)(cid:616)(cid:457)(cid:676)(cid:457)(cid:566)(cid:653)(cid:457)(cid:1272)(cid:508)(cid:457)(cid:566)(cid:457)(cid:616)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Recovery of cash deposit
Payment of yield tax relating to policyholder funds
Other
Total
2018
£000
2017
£000
12,093
13,271
83
101
(cid:1263)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(3 )
3,971
875
(cid:1269)
(cid:1111)
(14 )
3,286
965
4,840
4,239
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.
136
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SECTION D
16 Financing costs
Year ended 31 December
Interest expense on bank borrowings
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:457)(cid:624)(cid:637)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:3)(cid:577)(cid:566)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)
Other interest
Total financing costs
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
2,398
(cid:1110)(cid:1239)(cid:1117)(cid:1118)(cid:1118)(cid:3)(cid:3)
54
2017
£000
1,687
(cid:1111)(cid:1239)(cid:1115)(cid:1116)(cid:1113)
82
4,351
4,443
Interest expense on bank borrowings is calculated using the effective interest rate method and is the total interest expense for financial liabilities that are not
designated at fair value through income.
17 Income tax
Total income tax comprises:
Year ended 31 December
C(cid:4)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:577)(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)(cid:387)(cid:442)(cid:637)(cid:520)(cid:676)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:3)
(cid:195)(cid:577)(cid:676)(cid:457)(cid:624)(cid:637)(cid:520)(cid:442)(cid:3)(cid:1269)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:1263)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:1264)(cid:1251)(cid:442)(cid:616)(cid:457)(cid:449)(cid:520)(cid:637)(cid:3)
(cid:346)(cid:387)(cid:387)(cid:616)(cid:449)(cid:3)(cid:123)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)(cid:1269)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:3)
(cid:268)(cid:442)(cid:520)(cid:546)(cid:449)(cid:577)(cid:566)(cid:3)(cid:1269)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:442)(cid:616)(cid:457)(cid:449)(cid:520)(cid:637)(cid:1251)(cid:1263)(cid:457)(cid:687)(cid:613)(cid:457)(cid:566)(cid:624)(cid:457)(cid:1264)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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 net expense
UK business
CA and other group activities
Year ended 31 December
Current tax
Current year
Overseas tax
(cid:4)(cid:449)(cid:538)(cid:653)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:637)(cid:577)(cid:3)(cid:613)(cid:616)(cid:520)(cid:577)(cid:616)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:624)(cid:3)
Net expense
Deferred tax
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Origination and reversal of temporary differences
Total income tax expense
Reconciliation of effective tax rate on profit before tax
Year ended 31 December
Profit before tax
Income tax using the domestic corporation tax rate of 19.0% (2017: 19.25%)
Other permanent differences
E(cid:505)(cid:505)(cid:457)(cid:442)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)U(cid:182)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:441)(cid:387)(cid:624)(cid:457)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:624)
Offset of franked investment income
Variation in rate of tax on amortisation of acquired in-force value
Foreign tax
Effect of change in tax rate
Other
O(cid:676)(cid:457)(cid:616)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:449)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:3)(cid:613)(cid:616)(cid:457)(cid:676)(cid:520)(cid:577)(cid:653)(cid:624)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
(cid:1263)(cid:1111)(cid:1239)(cid:1109)(cid:1117)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1118)(cid:1113)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1115)(cid:1113)(cid:1111)(cid:3)(cid:1264)(cid:3)
(cid:1116)(cid:1116)(cid:1118)(cid:3)(cid:3)
2017
£000
(cid:1263)(cid:1114)(cid:1239)(cid:1111)(cid:1111)(cid:1114)(cid:3)(cid:1264)
(cid:1116)(cid:1110)
(cid:1263)(cid:1110)(cid:1239)(cid:1109)(cid:1115)(cid:1117)(cid:3)(cid:1264)
(cid:1263)(cid:1113)(cid:1239)(cid:1118)(cid:1113)(cid:1115)(cid:3)(cid:1264)
(2,888 )
(11,168 )
2018
£000
2017
£000
(2,369 )
(616 )
(cid:1263)(cid:1116)(cid:1115)(cid:3)(cid:1264)(cid:3)
(6,220 )
(480 )
(cid:1269)
(3,061 )
(6,700 )
980
1,475
(2,081 )
(5,225 )
2018
£000
2017
£000
18,177
32,256
(3,453 )
(2 )
1,998
(71 )
(498 )
22
(1 )
(cid:1263)(cid:1116)(cid:1115)(cid:3)(cid:1264)(cid:3)
(6,209 )
(468 )
1,753
(6 )
(390 )
48
47
(cid:1269)
Total income tax expense
(2,081 )
(5,255 )
There has been no change in tax rate during the year (tax rate 19%).
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
137
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17 Income tax (continued)
Movestic
Movestic
Year ended 31 December
Current tax
Current year expense
Adjustments for prior years
Net expense
Deferred tax
Origination and reversal of temporary differences
Total income tax (expense)/credit
Reconciliation of effective tax rate on profit before tax
Year ended 31 December
Profit before tax
Income tax using the domestic corporation tax rate of 22%
Non-taxable income in relation to unit-linked business
Impact of different tax rate for subsidiaries
Non-taxable fair value adjustment
T(cid:457)(cid:564)(cid:613)(cid:577)(cid:616)(cid:387)(cid:616)(cid:688)(cid:3)(cid:449)(cid:520)(cid:505)(cid:505)(cid:457)(cid:616)(cid:457)(cid:566)(cid:442)(cid:457)(cid:624)(cid:3)
Permanent differences
U(cid:566)(cid:616)(cid:457)(cid:442)(cid:577)(cid:508)(cid:566)(cid:520)(cid:624)(cid:457)(cid:449)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:616)(cid:457)(cid:442)(cid:577)(cid:676)(cid:457)(cid:616)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)
Non-deductible expenses
Under provided in prior years
(cid:3)(cid:3)
(cid:3)(cid:3)
Total income tax (expense)/credit
Waard Group
Waard Group
Year ended 31 December
Current tax
Current year expense
Adjustment to prior years
Net expenses
Deferred tax
Origination and reversal of temporary differences
Total income tax expense
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
2017
£000
(599 )
(384 )
(983 )
39
(944 )
(6 )
(9 )
(15 )
86
71
2018
£000
2017
£000
7,231
12,794
(1,591 )
1,505
2
(412 )
(cid:1269)(cid:3)(cid:3)
(12 )
(cid:1269)(cid:3)(cid:3)
(52 )
(384 )
(944 )
(2,815 )
2,242
(578 )
698
(cid:1113)(cid:1110)
461
(cid:1116)(cid:1111)
(41 )
(9 )
71
2018
£000
2017
£000
(924 )
1
(1,243 )
55
(923 )
(1,188 )
281
(120 )
(642 )
(1,068 )
138
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 138
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SECTION D
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Reconciliation of effective tax rate on profit before tax
Year ended 31 December
Profit before tax
Income tax using the domestic corporation tax rate of 25%
Impact of different tax rate for subsidiaries
Over provided in prior years
Total income tax expense
Scildon
Scildon
Year ended 31 December
Current tax
(cid:4)(cid:449)(cid:538)(cid:653)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:613)(cid:616)(cid:520)(cid:577)(cid:616)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
Net expense
Deferred tax
Origination and reversal of temporary differences
I(cid:564)(cid:613)(cid:387)(cid:442)(cid:637)(cid:3)(cid:637)(cid:577)(cid:3)(cid:442)(cid:515)(cid:387)(cid:566)(cid:508)(cid:457)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:616)(cid:387)(cid:637)(cid:457)(cid:624)(cid:3)
Total income tax credit/(expense)
Reconciliation of effective tax rate on profit before tax
Year ended 31 December
(Loss)/profit before tax
Income tax using the domestic corporation tax rate of 25%
Non-deductible expenses
(Over)/under provided in prior years
Total income tax credit/(expense)
18 Deferred acquisition costs
Year ended 31 December
Balance at 1 January
Additions arising from new business
Amortisation charged to income
Foreign exchange translation difference
Balance at 31 December
Current
Non-current
Total
2018
£000
2017
£000
2,848
4,527
(712 )
69
1
(1,132 )
9
55
(642 )
(1,068 )
2018
£000
(1,490 )
(cid:1263)(cid:1110)(cid:1113)(cid:3)(cid:1264)(cid:3)
2017
£000
(3,014 )
(cid:1269)
(1,504 )
(3,014 )
1,785
(cid:1113)(cid:1118)(cid:1117)(cid:3)(cid:3)
(1,932 )
(cid:1269)
779
(4,946 )
2018
£000
2017
£000
(1,244 )
19,707
311
498
(30 )
(4,927 )
(28 )
9
779
(4,946 )
2018
£000
61,858
18,541
(13,629 )
(1,731 )
2017
£000
48,318
27,685
(14,506 )
361
65,039
61,858
7,822
57,217
6,191
55,667
65,039
61,858
The amortisation charged to income is recognised in fees, commission and other acquisition costs (see Note 13).
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
139
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19 Acquired value of in-force business (AVIF)
31 December
Cost:
Balance at 1 January
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:653)(cid:441)(cid:624)(cid:520)(cid:449)(cid:520)(cid:387)(cid:616)(cid:688)(cid:3)
Foreign exchange translation difference
Balance at 31 December
Amortisation and impairment losses:
Balance at 1 January
Amortisation for the year
Foreign exchange translation difference
Balance at 31 December
Carrying amounts at 1 January
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)
2018
£000
2017
£000
221,201
(cid:1269)(cid:3)(cid:3)
(1,245 )
151,617
(cid:1115)(cid:1115)(cid:1239)(cid:1111)(cid:1118)(cid:1115)
3,288
219,956
221,201
102,162
88,674
12,093
(908 )
13,271
217
113,347
102,162
119,039
62,943
106,609
119,039
15,286
91,323
13,428
105,611
106,609
119,039
The amortisation charged to the Consolidated Statement of Comprehensive Income is recognised in Other Operating Expenses (see Note 15).
20 Goodwill
The goodwill is arising from the purchase of Sparplatsen, a Sweden based software developer by the Movestic business, in order to gain access to the use of
an automated investment advisory tool, including risk assessment, asset allocation model and investment guidance tool, for use by the company’s customers
and IFA network.
21 Software assets
31 December
Cost:
Balance at 1 January
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:653)(cid:441)(cid:624)(cid:520)(cid:449)(cid:520)(cid:387)(cid:616)(cid:688)(cid:3)
Additions
Foreign exchange translation difference
Balance at 31 December
Amortisation and impairment losses:
Balance at 1 January
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:653)(cid:441)(cid:624)(cid:520)(cid:449)(cid:520)(cid:387)(cid:616)(cid:688)(cid:3)
Amortisation charge for the year
I(cid:564)(cid:613)(cid:387)(cid:520)(cid:616)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:515)(cid:387)(cid:616)(cid:508)(cid:457)(cid:3)
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)
2018
£000
23,218
(cid:1269)(cid:3)(cid:3)
1,839
12
2017
£000
21,061
(cid:1110)(cid:1239)(cid:1109)(cid:1115)(cid:1118)
928
160
25,069
23,218
16,860
14,501
(cid:1269)(cid:3)(cid:3)
1,671
(cid:1115)(cid:1114)(cid:1109)(cid:3)(cid:3)
177
(cid:1115)(cid:1116)
2,218
(cid:1269)
74
19,358
16,860
5,711
6,358
1,579
4,132
2,260
4,098
5,711
6,358
140
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 140
04/04/2019 12:44
22 Property and equipment
31 December
Cost:
Balance at 1 January
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:653)(cid:441)(cid:624)(cid:520)(cid:449)(cid:520)(cid:387)(cid:616)(cid:688)(cid:3)
Additions
Disposals
Foreign exchange translation difference
Balance at 31 December
Amortisation and impairment losses:
Balance at 1 January
(cid:4)(cid:449)(cid:449)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:577)(cid:505)(cid:3)(cid:624)(cid:653)(cid:441)(cid:624)(cid:520)(cid:449)(cid:520)(cid:387)(cid:616)(cid:688)(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
23 Investment in associate
31 December
Balance at 1 January
(cid:268)(cid:515)(cid:387)(cid:616)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)
Foreign exchange translation difference
Balance at 31 December
Associates at 100%
Modernac S.A.
SECTION D
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
2017
£000
11,803
(cid:1269)(cid:3)(cid:3)
262
(102 )
385
2,303
(cid:1117)(cid:1239)(cid:1117)(cid:1111)(cid:1114)
211
(36 )
500
12,348
11,803
7,476
(cid:1269)(cid:3)(cid:3)
647
(80 )
12
1,784
(cid:1113)(cid:1239)(cid:1117)(cid:1109)(cid:1112)
698
(19 )
210
8,055
7,476
4,293
4,327
186
4,107
723
3,604
4,293
4,327
2018
£000
6,407
(cid:1263)(cid:1115)(cid:1110)(cid:1115)(cid:3)(cid:1264)(cid:3)
49
2017
£000
5,433
(cid:1118)(cid:1113)(cid:1118)
25
5,840
6,407
Assets
£000
Liabilities
£000
Revenues
£000
Loss
£000
39,045
27,126
9,472
(1,258 )
Total at 31 December 2018
39,045
27,126
9,472
(1,258 )
Associates at 49%
Modernac S.A
Total at 31 December 2018
Equity
at 100%
£000
Equity
at 49%
£000
49% share
of loss
£000
11,919
5,840
11,919
5,840
(616 )
(616 )
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
141
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 141
04/04/2019 12:44
IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24 Financial instruments
Group
Financial assets by measurement category at 31 December
Fair value through income
Designated at fair-value through income on initial recognition
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Mortgage loan portfolio
Insurance and other receivables
Prepayments
Total
2018
£000
2017
£000
7,030,924
(cid:1113)(cid:1113)(cid:1115)(cid:3)(cid:3)
41,191
55,849
7,309
7,610,042
(cid:1110)(cid:1239)(cid:1115)(cid:1117)(cid:1111)
48,106
59,448
7,325
7,135,719
7,726,603
Financial assets that are not held at fair value or managed on a fair value basis, consist of the ‘Mortgage Loan Portfolio’, ‘Insurance and other receivables’
and ‘Prepayments’. The cash flows for all of these assets are solely of payments of principal and interest. The fair value of the mortgage loan portfolio as at
31 December 2018 was £42.7m and the change in fair value in the year was an increase of £0.1m. For the ‘Insurance and other receivables’ and ‘Prepayments’
assets, the carrying value is considered to be a reasonable approximation of fair value. All other financial assets are held on a fair value basis and have a value
of £7,031.4m as at 31 December 2018 with a change in fair value in the year which was a decrease of £414.1m.
Fair value is the amount for which an asset or liability 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).
Fair value measurement at 31 December 2018
Financial assets
E(cid:615)(cid:653)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:546)(cid:520)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)
(cid:137)(cid:577)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:442)(cid:577)(cid:546)(cid:546)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:624)(cid:3)
D(cid:457)(cid:441)(cid:637)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:718)(cid:687)(cid:457)(cid:449)(cid:3)(cid:616)(cid:387)(cid:637)(cid:457)
(cid:123)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:577)(cid:566)(cid:449)(cid:624)(cid:3)
(cid:184)(cid:520)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)
D(cid:457)(cid:441)(cid:637)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:720)(cid:577)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:616)(cid:387)(cid:637)(cid:457)(cid:3)(cid:546)(cid:520)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)
T(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:449)(cid:457)(cid:441)(cid:637)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:256)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:505)(cid:653)(cid:566)(cid:449)(cid:624)(cid:3)(cid:515)(cid:457)(cid:546)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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
Current
Non-current
Total
Financial liabilities
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:184)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:616)(cid:457)(cid:546)(cid:387)(cid:637)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:505)(cid:653)(cid:566)(cid:449)(cid:624)(cid:3)(cid:515)(cid:457)(cid:546)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(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)
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
(cid:1113)(cid:1110)(cid:1112)(cid:1239)(cid:1117)(cid:1114)(cid:1110)(cid:3)(cid:3)
(cid:1113)(cid:1239)(cid:1117)(cid:1112)(cid:1114)(cid:1239)(cid:1115)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1117)(cid:1109)(cid:1115)(cid:1239)(cid:1109)(cid:1110)(cid:1118)(cid:3)(cid:3)
(cid:1115)(cid:1116)(cid:1117)(cid:1239)(cid:1118)(cid:1113)(cid:1111)(cid:3)(cid:3)
(cid:1114)(cid:1239)(cid:1118)(cid:1117)(cid:1116)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1113)(cid:1118)(cid:1109)(cid:1239)(cid:1118)(cid:1113)(cid:1117)(cid:3)(cid:3)
(cid:1111)(cid:1114)(cid:1118)(cid:1239)(cid:1117)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1109)(cid:1239)(cid:1115)(cid:1115)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1109)(cid:1239)(cid:1115)(cid:1115)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1113)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1110)(cid:1112)(cid:1239)(cid:1117)(cid:1114)(cid:1110)
(cid:1113)(cid:1239)(cid:1117)(cid:1112)(cid:1114)(cid:1239)(cid:1115)(cid:1111)(cid:1110)
(cid:1117)(cid:1112)(cid:1115)(cid:1239)(cid:1115)(cid:1117)(cid:1116)
(cid:1115)(cid:1116)(cid:1117)(cid:1239)(cid:1118)(cid:1113)(cid:1111)
(cid:1114)(cid:1239)(cid:1118)(cid:1117)(cid:1116)
(cid:1110)(cid:1239)(cid:1114)(cid:1111)(cid:1110)(cid:1239)(cid:1115)(cid:1110)(cid:1115)
(cid:1111)(cid:1114)(cid:1118)(cid:1239)(cid:1117)(cid:1112)(cid:1115)
(cid:1113)(cid:1113)(cid:1115)
7,000,256
31,114
–
7,031,370
4,858,901
2,172,469
7,031,370
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1114)(cid:1118)(cid:1239)(cid:1117)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1114)(cid:1239)(cid:1114)(cid:1110)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1113)(cid:3)(cid:3)
259,836
3,258,233
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
–
(cid:1112)(cid:1239)(cid:1111)(cid:1112)(cid:1114)(cid:1239)(cid:1114)(cid:1110)(cid:1118)
(cid:1111)(cid:1114)(cid:1118)(cid:1239)(cid:1117)(cid:1112)(cid:1115)
(cid:1111)(cid:1111)(cid:1239)(cid:1116)(cid:1110)(cid:1113)
3,518,069
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
142
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 142
04/04/2019 12:44
SECTION D
Fair value measurement at 31 December 2017
Financial assets
E(cid:615)(cid:653)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:546)(cid:520)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)
(cid:137)(cid:577)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:442)(cid:577)(cid:546)(cid:546)(cid:457)(cid:442)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:624)(cid:3)
D(cid:457)(cid:441)(cid:637)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:718)(cid:687)(cid:457)(cid:449)(cid:3)(cid:616)(cid:387)(cid:637)(cid:457)
(cid:123)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:577)(cid:566)(cid:449)(cid:624)(cid:3)
(cid:184)(cid:520)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)
D(cid:457)(cid:441)(cid:637)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:720)(cid:577)(cid:387)(cid:637)(cid:520)(cid:566)(cid:508)(cid:3)(cid:616)(cid:387)(cid:637)(cid:457)(cid:3)(cid:546)(cid:520)(cid:624)(cid:637)(cid:457)(cid:449)(cid:3)
T(cid:577)(cid:637)(cid:387)(cid:546)(cid:3)(cid:449)(cid:457)(cid:441)(cid:637)(cid:3)(cid:624)(cid:457)(cid:442)(cid:653)(cid:616)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:256)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:505)(cid:653)(cid:566)(cid:449)(cid:624)(cid:3)(cid:515)(cid:457)(cid:546)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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
Current
Non-current
Total
Financial liabilities
I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:520)(cid:566)(cid:442)(cid:577)(cid:564)(cid:457)(cid:3)
(cid:184)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)(cid:616)(cid:457)(cid:546)(cid:387)(cid:637)(cid:457)(cid:449)(cid:3)(cid:637)(cid:577)(cid:3)(cid:613)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:1287)(cid:3)(cid:505)(cid:653)(cid:566)(cid:449)(cid:624)(cid:3)(cid:515)(cid:457)(cid:546)(cid:449)(cid:3)(cid:441)(cid:688)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:508)(cid:616)(cid:577)(cid:653)(cid:613)(cid:3)
D(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(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)
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
(cid:1114)(cid:1110)(cid:1111)(cid:1239)(cid:1116)(cid:1111)(cid:1113)(cid:3)(cid:3)
(cid:1114)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:1239)(cid:1116)(cid:1116)(cid:1111)(cid:3)(cid:3)
(cid:1118)(cid:1115)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1113)(cid:3)(cid:3)
(cid:1115)(cid:1112)(cid:1110)(cid:1239)(cid:1113)(cid:1110)(cid:1115)(cid:3)(cid:3)
(cid:1115)(cid:1239)(cid:1109)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1114)(cid:1118)(cid:1117)(cid:1239)(cid:1115)(cid:1110)(cid:1114)(cid:3)(cid:3)
(cid:1111)(cid:1115)(cid:1114)(cid:1239)(cid:1116)(cid:1111)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1109)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1109)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1115)(cid:1117)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1110)(cid:1111)(cid:1239)(cid:1116)(cid:1111)(cid:1113)
(cid:1114)(cid:1239)(cid:1111)(cid:1109)(cid:1111)(cid:1239)(cid:1116)(cid:1116)(cid:1111)
(cid:1118)(cid:1118)(cid:1110)(cid:1239)(cid:1112)(cid:1118)(cid:1115)
(cid:1115)(cid:1112)(cid:1110)(cid:1239)(cid:1113)(cid:1110)(cid:1115)
(cid:1115)(cid:1239)(cid:1109)(cid:1109)(cid:1114)
(cid:1110)(cid:1239)(cid:1115)(cid:1111)(cid:1117)(cid:1239)(cid:1117)(cid:1110)(cid:1116)
(cid:1111)(cid:1115)(cid:1114)(cid:1239)(cid:1116)(cid:1111)(cid:1118)
(cid:1110)(cid:1239)(cid:1115)(cid:1117)(cid:1111)
7,579,840
31,884
–
7,611,724
5,048,130
2,563,594
7,611,724
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1115)(cid:1114)(cid:1239)(cid:1116)(cid:1111)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1113)(cid:1111)(cid:1109)(cid:1239)(cid:1111)(cid:1116)(cid:1111)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1118)(cid:1113)(cid:3)(cid:3)
265,729
3,442,766
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
–
(cid:1112)(cid:1239)(cid:1113)(cid:1111)(cid:1109)(cid:1239)(cid:1111)(cid:1116)(cid:1111)
(cid:1111)(cid:1115)(cid:1114)(cid:1239)(cid:1116)(cid:1111)(cid:1118)
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1118)(cid:1113)
3,708,495
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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 debt securities classified as Level 2, at 2017 and 2018 are traded in active markets with less depth or wider-bid ask spreads. This does not meet the
classification as Level 1 inputs. The fair values of debt securities not traded in active markets are determined using broker quotes or valuation techniques with
observable market inputs. Financial instruments valued using broker quotes are classified at Level 2, only where there is a sufficient range of available quotes.
These assets were valued using counterparty or broker quotes and were periodically validated against third-party models.
Within derivative financial instruments is a financial reinsurance embedded derivative related to our Movestic operation. The group has entered into a reinsurance
contract with a third party that has a section that is deemed to transfer significant insurance risk and a section that is deemed not to transfer significant insurance
risk. The element of the contract that does not transfer significant insurance risk has two components and has been accounted for as a financial liability at
amortised cost and an embedded derivative asset at fair value.
The embedded derivative represents an option to repay the amounts due under the contract early at a discount to the amortised cost, with its fair value being
determined by reference to market interest rate at the balance sheet date. It is, accordingly, determined at Level 2 in the three-level fair value determination
hierarchy set out above.
The investment contract liabilities in Level 2 of the valuation hierarchy represent the fair value of linked and non-linked liabilities valued using established actuarial
techniques utilising market observable data for all significant inputs, such as investment yields.
Except as detailed in the following table, the directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised
cost in the financial statements are approximately equal to their fair values:
31 December
Financial liabilities
Borrowings
Carrying amount
Fair value
2018
£000
2017
£000
2018
£000
2017
£000
109,202
129,202
111,456
132,204
Borrowings consist of bank loans and an amount due in relation to financial reinsurance. The fair value of the bank loans are taken as the principal outstanding
at the balance sheet date. The amount due in relation to financial reinsurance is fair valued with reference to market interest rates at the balance sheet date.
There were no transfers between Levels 1, 2 and 3 during the year. The group holds no Level 3 liabilities as at the balance sheet date.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
143
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24 Financial instruments (continued)
Company
Fair value measurement at 31 December
Holdings in collective investment schemes
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
Total
There were no Level 2 and Level 3 assets.
Investment in subsidiaries
Company
Year ended 31 December
Balance at 1 January
Capital contribution to Chesnara Holdings B.V.*(cid:3)
Balance at 31 December
C(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
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)
2018
£000
2017
£000
47,288
29,091
47,288
29,091
47,288
(cid:1269)(cid:3)(cid:3)
29,091
(cid:1269)
47,288
29,091
2018
£000
2017
£000
354,720
(cid:1269)(cid:3)(cid:3)
249,234
(cid:1110)(cid:1109)(cid:1114)(cid:1239)(cid:1113)(cid:1117)(cid:1115)
354,720
354,720
(cid:3)(cid:3)
354,720
(cid:1269)
354,720
354,720
354,720
*Chesnara plc provided a capital contribution to Chesnara Holding B.V of £105.5m to part fund the acquisition of Scildon, in 2017. The remainder of the acquisition
cost of £137.5m was funded by Chesnara Holdings B.V, upon receipt of a dividend payment from Waard Leven.
A list of investments in subsidiaries held by the group is disclosed in Note 51.
25 Mortgage loan portfolio
Year ended 31 December
Loans and receivables at amortised cost
Current
Non-current
Total
The mortgage loan portfolio was acquired in 2016 by the Waard Group and is stated at amortised cost.
2018
£000
2017
£000
41,191
48,106
9,950
31,241
18,476
29,630
41,191
48,106
144
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SECTION D
26 Insurance and other receivables
Group
Insurance and other receivables
31 December
Receivables arising from insurance contracts
Brokers
Policyholders
Receivables arising from investment contracts
Other
Other receivables
Loan to associated companies
Accrued interest income
Receivables from fund management companies
Initial margin payments on derivatives
Other
Total
Current
Non-current
Total
2018
£000
726
2,543
2017
£000
711
4,260
11,695
10,042
705
12,803
7,273
4,644
15,460
697
15,898
7,711
3,621
16,508
55,849
59,448
55,084
765
57,941
1,507
55,849
59,448
The carrying amount is a reasonable approximation of fair value.
27 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 and interest rate swap within the Scildon business.
31 December
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:457)(cid:624)(cid:637)(cid:3)(cid:616)(cid:387)(cid:637)(cid:457)(cid:3)(cid:624)(cid:677)(cid:387)(cid:613)(cid:624)(cid:3)
Exchange-traded futures
(cid:121)(cid:520)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(cid:3)(cid:457)(cid:564)(cid:441)(cid:457)(cid:449)(cid:449)(cid:457)(cid:449)(cid:3)(cid:449)(cid:457)(cid:616)(cid:520)(cid:676)(cid:387)(cid:637)(cid:520)(cid:676)(cid:457)(cid:3)
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(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)
2018
2017
Asset
£000
Liability
£000
Asset
£000
Liability
£000
(cid:1269)(cid:3)(cid:3)
210
(cid:1111)(cid:1112)(cid:1115)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1110)(cid:1239)(cid:1110)(cid:1118)(cid:1110)(cid:3)(cid:1264)(cid:3)
(1,523 )
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
635
(cid:1110)(cid:1239)(cid:1109)(cid:1113)(cid:1116)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1111)(cid:1239)(cid:1110)(cid:1116)(cid:1109)(cid:3)(cid:1264)
(324 )
(cid:1269)
446
(22,714 )
1,682
(22,494 )
269
(cid:1110)(cid:1116)(cid:1116)(cid:3)(cid:3)
(22,714 )
(cid:1269)(cid:3)(cid:3)
898
(cid:1116)(cid:1117)(cid:1113)(cid:3)(cid:3)
(22,494 )
(cid:1269)
446
(22,714 )
1,682
(22,494 )
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
145
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27 Derivative financial instruments (continued)
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 futures, with their fair value being based on market observable inputs at the balance sheet date. They are, accordingly, determined at Level 2
in the three-level fair value determination hierarchy set out in Note 24.
Exchange-traded futures (by geographical investment market)
31 December
Australia
C(cid:387)(cid:566)(cid:387)(cid:449)(cid:387)(cid:3)
(cid:268)(cid:677)(cid:520)(cid:637)(cid:707)(cid:457)(cid:616)(cid:546)(cid:387)(cid:566)(cid:449)(cid:3)
Europe
UK
(cid:137)(cid:577)(cid:566)(cid:508)(cid:3)(cid:182)(cid:577)(cid:566)(cid:508)(cid:3)
Japan
USA
D(cid:457)(cid:566)(cid:564)(cid:387)(cid:616)(cid:543)(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)
2018
2017
Asset
£000
Liability
£000
Asset
£000
Liability
£000
15
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
4
65
(cid:1112)(cid:1111)(cid:3)(cid:3)
4
90
(cid:1269)(cid:3)(cid:3)
(19 )
(cid:1263)(cid:1115)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1112)(cid:3)(cid:1264)(cid:3)
(192 )
(34 )
(cid:1263)(cid:1111)(cid:1117)(cid:3)(cid:1264)(cid:3)
(293 )
(882 )
(cid:1263)(cid:1115)(cid:3)(cid:1264)(cid:3)
2
(cid:1115)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
5
62
(cid:1111)(cid:1117)(cid:3)(cid:3)
154
378
(cid:1269)(cid:3)(cid:3)
(23 )
(cid:1269)
(cid:1263)(cid:1112)(cid:3)(cid:1264)
(73 )
(197 )
(cid:1269)
(16 )
(11 )
(cid:1263)(cid:1110)(cid:3)(cid:1264)
210
(1,523 )
635
(324 )
Financial reinsurance embedded derivative
In respect of Movestic, the group has a reinsurance contract with a third party that has an element that is deemed to transfer significant insurance risk and an
element 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 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 24.
Derivatives within the CA (S&P with-profits funds)
As part of its investment management strategy, CA enters into a limited range of derivative instruments to manage its exposure to various risks.
CA 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. CA 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.
CA also purchases exchange rate futures to mitigate exchange rate risk within its with-profits funds.
These contracts are fair valued using market observable inputs at the balance sheet date. They are, accordingly, determined at Level 2 in the three-level fair value
determination hierarchy set out in Note 24.
Derivatives within Scildon
Scildon uses various interest rate derivatives to hedge some of the risk of changes in value of its obligations under insurance contracts in non-linked funds.
146
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SECTION D
28 Cash and cash equivalents
Group
31 December
Bank and cash balances
Call deposits due within 1 month
Call deposits due after 1 month
Total cash and cash equivalents
Bank overdrafts
Cash and cash equivalents in the statement of cash flows
2018
£000
104,015
46,465
64,732
2017
£000
86,545
40,011
84,091
215,212
210,647
(958 )
(1,091 )
214,254
209,556
The effective interest rate on short-term bank deposits was 0.29% (2017: 0.20%), with an average maturity of 24 days (2017: 31 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 £92.8m (2017: £89.8m) held in unit-linked policyholders’ funds.
Company
31 December
Bank and cash balances
Cash deposits due within 1 month
Cash deposits maturing between greater than 1 month and less than 1 year
Total
29 Capital management
(a) Regulatory context
2018
£000
2,808
97
5,085
2017
£000
1,259
546
10,062
7,990
11,867
Solvency II
The Chesnara group is required to comply with the Solvency II capital regime. Solvency II came into force on 1 January 2016 and is an EU insurance legislation
that aims to unify the EU insurance market and enhance consumer protection. The Solvency II regime includes rules over the quantity and quality of capital
(known as ‘Own Funds’) that insurance companies and groups need in order to meet the regime’s required level of capital (known as the ‘Solvency Capital
Requirement’). The Chesnara group operates exclusively within the EU and as a result the Solvency II regime applies to the group and all regulated insurance
companies within the group. The regulators responsible for the supervision of the group and its subsidiaries have been shown in section (c)(i).
The Solvency II regime has specific rules regarding how Own Funds are recognised and valued. In a number of cases, the IFRS and Solvency II value of an asset
and liability are the same, but in some cases there are differences. In particular, liabilities for insurance and investment contracts are valued differently, with IFRS
remaining largely based on the previous Solvency I regime. In addition, Solvency II has differing treatments for certain intangible assets. A high level reconciliation
between the IFRS net assets and Solvency II Own Funds of the group and its subsidiaries has been provided in part (c)(ii) of this note.
Regarding the Solvency Capital Requirement (SCR) of the Chesnara group and its subsidiaries, the group has elected to use the ‘standard formula’ approach for
its calculation, which means we are applying the formulae as included in the Solvency II framework. The calculations within the standard formula have been
designed such that, on the basis that an insurance company holds Own Funds that are at least equal to its SCR, it will be able to withstand a 1 in 200 year event.
An alternative would have been to use an ‘internal model’ but this was not deemed appropriate for the size and complexity of the Chesnara group.
Company law
As well as complying with the Solvency II regime, each company within the group is required to comply with relevant company law capital and distribution rules.
(b) Objectives, policies and processes for managing capital
(i) Objectives
To manage compliance with the externally imposed capital requirements the group and its subsidiaries have established capital management policies in place.
The objectives of these policies are:
– to ensure that capital is managed in a way that is consistent with the business strategy of the group and its subsidiaries, in that they:
– promote fair customer outcomes through protecting policyholders;
– provide protection to shareholders through ensuring that the business is adequately protected against stress events; and
– provide a framework to support the decision making process for returns to shareholders via dividends.
– to ensure that capital of the group and its subsidiaries is managed in accordance with the board’s risk appetite, in particular each board’s aversion for Own Funds
to fall below the SCR.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
29 Capital management (continued)
(b) Objectives, policies and processes for managing capital (continued)
(ii) Policies
In light of the objectives for the group’s and its subsidiaries’ capital management policies, the following quantitative limits for managing Own Funds are applied
across the group:
Region
CA
Movestic
Waard
Group
Scildon
Group
Dividend paying limit: Own Funds stated as % of SCR
120%
120%
200%
200%
110%
Management actions limit: Own Funds stated as % of SCR
110%
110%
175%
175%
105%
Dividend paying limit: This is the point at which a dividend would cease to be paid, until at such time the solvency position was restored above this point.
This limit is set by the relevant board in each division with reference to its respective risk appetite, as articulated in each divisions’ capital management policy.
Management actions limit: This is the point at which, should Own Funds fall below this level, additional management actions would be taken to restore Own
Funds back above this level. In essence this represents an internal ‘ladder of intervention limit’ that is set by the group and divisional boards.
To put the above table and definitions in context, and taking group as an example, this means that the group will not pay a dividend should the payment of the
dividend take the group Own Funds to below 110% of its SCR. Should Own Funds fall below 105% of SCR additional management actions will be taken.
(iii) Process for management of capital
The following key processes and procedures are in place across the group to manage adherence to the capital management policies in place:
– Internal solvency reporting: A number of internal reports are produced that focus on the solvency position of the group/company. These include the Own Risk
& Solvency Assessment (ORSA) Report, a quarterly actuarial report and a quarterly finance report. All of these are presented to and approved by the board.
– Production of projections: On at least an annual basis, solvency projections are produced for the group and its subsidiaries. These projections are included in
both the business plans and the ORSA Report, and show how management anticipates the solvency position to develop over time. The projections process
includes assessing the impact of a number of different stress scenarios to ensure that the sensitivities of the business are understood. Both the ORSA and the
business plans are presented to and approved by the board.
– Regular review of internal limits in place: On at least an annual basis, the limits described in (b)(ii) of this note are reviewed and assessed, having regard to the
developments of the business and any other changes that may have affected the group’s/divisions’ risk appetite.
– Recovery management protocol: A protocol for management actions has been designed which, in effect, represents an internally set ‘ladder of intervention’.
The protocol includes items such as solvency monitoring frequency, what level of escalations are required and what management actions need to be considered.
– Trigger monitoring: On at least a monthly basis specific key risk indicators are monitored against pre-defined trigger points. The trigger points are set having regard
for the sensitivity of the group to certain scenarios. Trigger points and the list of risk indicators being monitored are assessed at least annually.
(iv) Compliance during year
The group, and all insurance companies within the group, have held Own Funds above their respective Solvency Capital Requirements at all times during the year.
(c) Quantitative analysis
(i) Group solvency position
The solvency position of the group and its divisions at 31 December 2018 and at 31 December 2017, which is unaudited, has been shown in the tables below.
They present a view of the solvency position which may differ to the position of the individual insurance company(ies) within that division.
31 December 2018 (unaudited)
Region
CA
£m
Movestic
£m
Waard
Group
£m
Other
group and
consolidation
Scildon adjustments
£m
£m
Own Funds (pre dividends)
Proposed dividend
184.7
(59.0 )
210.0
(2.9 )
51.7
(3.2 )
166.0
(5.2 )
(39.6 )
50.1
Group
£m
572.8
(20.2 )
Own Funds (post dividends)
125.7
207.1
48.5
160.8
10.5
552.6
SCR
Solvency surplus
Solvency ratio
Dividend paying limit (% of SCR)
Dividend paying limit (£)
Surplus over dividend paying limit
96.6
29.1
119.1
88.0
7.8
40.7
79.2
81.6
130%
174%
624%
203%
120%
115.9
9.8
120%
142.9
64.2
200%
15.6
32.9
200%
158.4
2.4
46.9
349.6
n/a
n/a
n/a
n/a
n/a
203.0
158%
110%
384.6
168.0
148
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SECTION D
31 December 2017 (unaudited)
Region
CA
£m
Movestic
£m
Waard
Group
£m
Other
group and
consolidation
Scildon adjustments
£m
£m
Own Funds (pre dividends)
Proposed dividend
198.7
(32.0 )
230.7
(2.8 )
61.2
(13.0 )
210.0
(22.2 )
(65.8 )
50.5
Group
£m
634.8
(19.6 )
Own Funds (post dividends)
166.7
227.8
48.2
187.8
(15.3 )
615.2
SCR
Solvency surplus
Solvency ratio
Dividend paying limit (% of SCR)
Dividend paying limit (£)
Surplus over dividend paying limit
128.1
38.6
149.0
10.0
81.4
53.3
78.8
38.2
106.4
130%
153%
483%
231%
120%
153.7
13.0
120%
178.9
49.0
200%
20.0
28.2
200%
162.8
25.0
n/a
n/a
n/a
n/a
n/a
(ii) Reconciliation between Solvency II Own Funds and IFRS net assets (unaudited)
The tables below show the key differences between the Solvency II Own Funds reported in part (c)(i) and the group’s IFRS net assets.
31 December 2018 (unaudited)
Region
Solvency II Own Funds (post dividends)
(cid:4)(cid:449)(cid:449)(cid:3)(cid:57)(cid:387)(cid:442)(cid:543)(cid:1238)(cid:3)(cid:260)(cid:520)(cid:566)(cid:508)(cid:1272)(cid:505)(cid:457)(cid:566)(cid:442)(cid:457)(cid:449)(cid:3)(cid:505)(cid:653)(cid:566)(cid:449)(cid:3)(cid:624)(cid:653)(cid:616)(cid:613)(cid:546)(cid:653)(cid:624)(cid:3)(cid:616)(cid:457)(cid:624)(cid:637)(cid:616)(cid:520)(cid:442)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
Add Back: Intangible assets
Add Back: Foreseeable dividends
Add Back: Difference in valuation of technical provisions
Add Back: Difference in deferred tax
Add Back: Other valuation differences
IFRS Net Assets
31 December 2017 (unaudited)
Region
Solvency II Own Funds (post dividends)
(cid:4)(cid:449)(cid:449)(cid:3)(cid:57)(cid:387)(cid:442)(cid:543)(cid:1238)(cid:3)(cid:260)(cid:520)(cid:566)(cid:508)(cid:1272)(cid:505)(cid:457)(cid:566)(cid:442)(cid:457)(cid:449)(cid:3)(cid:505)(cid:653)(cid:566)(cid:449)(cid:3)(cid:624)(cid:653)(cid:616)(cid:613)(cid:546)(cid:653)(cid:624)(cid:3)(cid:616)(cid:457)(cid:624)(cid:637)(cid:616)(cid:520)(cid:442)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
Add Back: Intangible assets
Add Back: Foreseeable dividends
Add Back: Difference in valuation of technical provisions
(cid:4)(cid:449)(cid:449)(cid:3)(cid:57)(cid:387)(cid:442)(cid:543)(cid:1238)(cid:3)D(cid:520)(cid:505)(cid:505)(cid:457)(cid:616)(cid:457)(cid:566)(cid:442)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:449)(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)
(cid:4)(cid:449)(cid:449)(cid:3)(cid:57)(cid:387)(cid:442)(cid:543)(cid:1238)(cid:3)O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:449)(cid:520)(cid:505)(cid:505)(cid:457)(cid:616)(cid:457)(cid:566)(cid:442)(cid:457)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
CA
£m
Movestic
£m
Waard
Group
£m
Other
group and
consolidation
Scildon adjustments
£m
£m
48.5
160.8
(cid:1269)(cid:3)(cid:3)
70.9
5.2
(77.5 )
(0.7 )
(0.1 )
10.5
(cid:1269)(cid:3)(cid:3)
1.3
(50.1 )
34.4
(7.0 )
(0.1 )
125.7
(cid:1114)(cid:1245)(cid:1116)(cid:3)(cid:3)
7.7
59.0
(46.3 )
7.5
0.3
207.1
(cid:1269)(cid:3)(cid:3)
89.2
2.9
(205.7 )
0.5
(2.6 )
159.6
91.4
CA
£m
Movestic
£m
166.7
(cid:1111)(cid:1115)(cid:1245)(cid:1115)(cid:3)(cid:3)
11.5
32.0
(78.5 )
(cid:1110)(cid:1111)(cid:1245)(cid:1113)(cid:3)(cid:3)
(cid:1109)(cid:1245)(cid:1111)(cid:3)(cid:3)
227.8
(cid:1269)(cid:3)(cid:3)
94.1
2.8
(233.6 )
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1109)(cid:1245)(cid:1118)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
4.4
3.2
(11.8 )
4.1
(1.3 )
47.1
Waard
Group
£m
48.2
(cid:1269)(cid:3)(cid:3)
5.0
13.0
(10.7 )
(cid:1112)(cid:1245)(cid:1117)(cid:3)(cid:3)
(cid:1263)(cid:1111)(cid:1245)(cid:1110)(cid:3)(cid:1264)(cid:3)
158.6
(11.1 )
445.6
Other
group and
consolidation
Scildon adjustments
£m
£m
187.8
(cid:1269)(cid:3)(cid:3)
70.3
22.2
(111.2 )
(cid:1110)(cid:1109)(cid:1245)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(15.3 )
(cid:1269)(cid:3)(cid:3)
1.7
(50.4 )
24.0
(cid:1263)(cid:1115)(cid:1245)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1109)(cid:1245)(cid:1111)(cid:3)(cid:3)
Group
£m
615.2
(cid:1111)(cid:1115)(cid:1245)(cid:1114)
182.6
19.6
(410.0 )
(cid:1111)(cid:1109)(cid:1245)(cid:1112)
(cid:1263)(cid:1111)(cid:1245)(cid:1114)(cid:3)(cid:1264)
421.8
193.4
146%
110%
464.0
151.2
Group
£m
552.6
(cid:1114)(cid:1245)(cid:1116)
173.5
20.2
(306.9 )
4.4
(3.9 )
IFRS Net Assets
170.9
90.2
57.4
179.6
(46.2 )
451.7
*The prior year comparatives have been re-stated to align with presentation in Note 7 – operating segments.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 Insurance contract provisions
(a) Analysis of insurance contract provisions by operating segment
31 December
CA
Movestic
Waard Group
Scildon
2018
Gross Reinsurance
£000
£000
1,702,207
84,296
83,801
1,698,710
156,309
53,174
3,827
59
Net
£000
1,545,898
31,122
79,974
1,698,651
2017
Gross Reinsurance
£000
£000
1,992,705
86,271
100,329
1,782,974
173,718
54,149
4,413
874
Net
£000
1,818,987
32,122
95,916
1,782,100
Total insurance contract provisions
3,569,014
213,369
3,355,645
3,962,279
233,154
3,729,125
Current
Non-current
Total
209,910
3,359,104
23,198
190,171
186,712
3,168,933
243,326
3,718,953
39,087
194,067
204,239
3,524,886
3,569,014
213,369
3,355,645
3,962,279
233,154
3,729,125
(b) Analysis of movement in insurance contract provisions
Year ended 31 December
2018
Gross Reinsurance
£000
£000
Net
£000
2017
Gross Reinsurance
£000
£000
Net
£000
Balance at 1 January
3,962,279
233,154
3,729,125
2,242,446
254,859
1,987,587
(cid:4)(cid:616)(cid:520)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:441)(cid:653)(cid:624)(cid:520)(cid:566)(cid:457)(cid:624)(cid:624)(cid:3)(cid:442)(cid:577)(cid:564)(cid:441)(cid:520)(cid:566)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)
Premiums received
Fees deducted
(cid:260)(cid:457)(cid:624)(cid:457)(cid:616)(cid:676)(cid:457)(cid:624)(cid:3)(cid:616)(cid:457)(cid:546)(cid:457)(cid:387)(cid:624)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:3)(cid:616)(cid:457)(cid:624)(cid:613)(cid:457)(cid:442)(cid:637)(cid:3)(cid:577)(cid:505)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
(cid:195)(cid:577)(cid:676)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:520)(cid:566)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:387)(cid:442)(cid:637)(cid:624)(cid:3)(cid:624)(cid:577)(cid:546)(cid:449)(cid:3)(cid:1269)(cid:3)(cid:195)(cid:577)(cid:676)(cid:457)(cid:624)(cid:637)(cid:520)(cid:442)
(cid:3)(cid:3)
(cid:3)(cid:3)
in current year
in prior years
Investment return
Other movements
(cid:1269)(cid:3)(cid:3)
215,417
(67,666 )
(cid:1263)(cid:1113)(cid:1112)(cid:1111)(cid:1239)(cid:1114)(cid:1111)(cid:1118)(cid:3)(cid:1264)(cid:3)
26,263
(21,030 )
(122,557 )
8,837
(cid:1269)(cid:3)(cid:3)
12,119
(1,457 )
(cid:1263)(cid:1113)(cid:1113)(cid:1239)(cid:1117)(cid:1110)(cid:1118)(cid:3)(cid:1264)(cid:3)
16,424
(13,520 )
(1,969 )
13,437
(cid:1269)(cid:3)(cid:3)
203,298
(66,209 )
(cid:1263)(cid:1112)(cid:1117)(cid:1116)(cid:1239)(cid:1116)(cid:1110)(cid:1109)(cid:3)(cid:1264)(cid:3)
9,839
(7,510 )
(120,588 )
(4,600 )
(cid:1110)(cid:1239)(cid:1116)(cid:1112)(cid:1115)(cid:1239)(cid:1112)(cid:1117)(cid:1118)(cid:3)(cid:3)
186,260
(59,961 )
(cid:1263)(cid:1113)(cid:1110)(cid:1109)(cid:1239)(cid:1117)(cid:1116)(cid:1112)(cid:3)(cid:1264)(cid:3)
30,304
(26,070 )
170,646
93,138
(cid:1110)(cid:1239)(cid:1112)(cid:1110)(cid:1113)(cid:3)(cid:3)
15,053
(1,555 )
(cid:1263)(cid:1114)(cid:1114)(cid:1239)(cid:1111)(cid:1117)(cid:1115)(cid:3)(cid:1264)(cid:3)
17,856
(17,128 )
3,273
14,768
(cid:1110)(cid:1239)(cid:1116)(cid:1112)(cid:1114)(cid:1239)(cid:1109)(cid:1116)(cid:1114)
171,207
(58,406 )
(cid:1263)(cid:1112)(cid:1114)(cid:1114)(cid:1239)(cid:1114)(cid:1117)(cid:1116)(cid:3)(cid:1264)
12,448
(8,942 )
167,373
78,370
Balance at 31 December
3,569,014
213,369
3,335,645
3,962,279
233,154
3,729,125
(c) Basis and assumptions for calculating insurance contract provisions
UK
(i) Basis
The process used to determine the assumptions underlying the calculation of IFRS 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.
The technical provision for CA (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 ReAssure. When performing
the gross liability adequacy test allowance is made for expected future bonuses paid by ReAssure. This is based on the realistic liabilities of the underlying policies
reinsured, as provided to CA by ReAssure.
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 certain group business within the PL component of CA, the technical provisions are assessed on an unearned premium method considered appropriate for
the nature and scale of the liabilities. For the remainder of the PL business, the technical provisions are calculated on a gross premiums 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 lapse or death if earlier.
The gross premiums method makes explicit allowance for future policy maintenance costs. If the net present value of future discounted cash flows is positive no
asset is recognised.
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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.
(ii) Principal assumptions:
Mortality
A base mortality table is selected which is most appropriate for each type of contract taking into account rates charged 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 CA (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:
Regular premium plans
Single premium contracts
Linked TIC*(cid:3)
2018
2017
SPI
SPP
SPI
SPP
2.625%
3.000%
3.000%
4.125%
2.625%
3.000%
2.625%
3.750%
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1114)(cid:1245)(cid:1109)(cid:1109)(cid:1109)(cid:1360)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1245)(cid:1109)(cid:1109)(cid:1109)(cid:1360)
*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 2018 for the material product types, these
lay between 0.50% and 2.10% (31 December 2017: between 0.20% and 2.05%).
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 1.5%.
Credit rating
Reduction
Aaa
Aa
A
Baa
Ba
B
Caa+
25%
40%
45%
50%
65%
75%
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 CA funds.
Taxation
It has been assumed that current tax legislation and tax rates will not change.
The sensitivities of technical provisions to changes in assumptions are set out below.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 Insurance contract provisions (continued)
(c) Basis and assumptions for calculating insurance contract provisions (continued)
UK (continued)
(iii) Valuation of options and guarantees
Contracts with discretionary participation features
The principal financial options and guarantees in CA (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.
Provisions for CA (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 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.
The cost of guaranteeing a minimum investment return on participating contracts 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.
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 year
Charge/(credit) to income
At the end of year
2018
£000
19,235
3,862
2017
£000
35,746
(16,511 )
23,097
19,235
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 £1,124,000 as at 31 December 2018 (31 December 2017: £696,000).
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 20% and allowing for future investment returns, including presumed future equity investment return of 3.6% 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 2018 was £3.9m (31 December 2017: £4.2m). 459 policies invested in the fund (31 December 2017: 485), of which
30 (31 December 2017: 36) were paying premiums (for a total of approximately £9,000 per annum (31 December 2017: £10,000)).
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
Rate of return on cash
Discount rate
Retirement age
2.16% pa
0.67% pa
0.80% 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 2018 was £0.1m (31 December 2017: £0.2m).
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SECTION D
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
70. The reserve for this option as at 31 December 2018 was £9.7m (31 December 2017: £10.0m).
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 2018 was £0.1m (31 December 2017: £0.1m).
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 2018 was £0.3m (31 December 2017: £0.3m).
Guaranteed annuity options
A limited number of pension plans offer guaranteed annuity options at retirement. The cost of this option is assessed assuming a prudent assessment of the
take-up of the option and of the cost. The reserve for this option as at 31 December 2018 is £0.1m (31 December 2017: £0.1m).
Sweden
(i) Basis
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 following Finansinspektionen guidelines.
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 and are released to income 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.
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 claims 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.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 Insurance contract provisions (continued)
(c) Basis and assumptions for calculating insurance contract provisions (continued)
Sweden (continued)
(ii) Principal assumptions:
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.
(iii) Analysis of claims development – gross
Estimate of ultimates
End of accident year
1 year later
2 years later
3 years later
4 years later
5 years later
Current estimate of ultimate claims
Cumulative payments
2013
£000
2014
£000
2015
£000
2016
£000
2017
£000
2018
£000
28,346
22,775
20,139
18,357
16,567
15,416
15,416
(13,169 )
27,917
21,299
18,099
15,177
14,182
28,041
21,373
19,016
16,329
33,650
24,566
21,494
31,315
23,236
28,670
14,182
(9,263 )
16,329
(9,542 )
21,494
(1 1,343 )
23,236
(9,824 )
28,670
(5,900)
In balance sheet
2,247
4,919
6,787
10,151
13,412
22,770
Provision for prior years
Liability in balance sheet
Analysis of claims development – net
Estimate of ultimates
End of accident year
1 year later
2 years later
3 years later
4 years later
5 years later
Current estimate of ultimate claims
Cumulative payments
In balance sheet
Provision for prior years
Liability in balance sheet
20,132
80,418
2018
£000
9,422
2013
£000
2014
£000
2015
£000
2016
£000
2017
£000
13,470
7,192
4,577
3,517
3,372
10,739
5,810
5,022
4,322
10,787
6,748
5,694
11,057
2,002
11,288
7,451
6,663
3,946
3,310
2,994
2,994
(2,313 )
3,372
(1,604 )
4,322
(1,961 )
5,694
(2,251 )
6,351
(2,002 )
9,422
(1,126 )
681
1,768
2,361
3,443
4,339
8,296
8,032
28,931
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SECTION D
Netherlands (Waard Group)
(i) Basis
For protection policies insurance contract provisions comprise a technical reserve for future claims and a claim reserve for those not settled to completion at the
reporting date.
For general insurance contracts an unearned premium reserve reflecting the non-expired term of contract is held plus claims provision.
For insurance contracts where the policy value reflects the value of supporting assets (unit-linked contracts) the Insurance Contract Provision equals the value
of assets held.
(ii) Principal assumptions
The technical reserve uses assumptions for mortality, expenses and discounting that were used in the contract pricing, reflecting a book reserve approach.
The continued appropriateness of these assumptions are assessed by undertaking a liability adequacy test.
Claims reserves for general insurance business in Waard Schade contain assessment of those Incurred But Not Reported (IBNR) which are regularly updated
reflecting analysis of recent reporting patterns.
Netherlands (Scildon)
(i) Basis
For insurance contracts where the policy value reflects the value of supporting assets (unit-linked contracts), the Insurance Contract Provision equals the value
of assets held.
For other policies, a discounted value of claims/benefits is used.
(ii) Principal assumptions
The technical reserve uses assumptions for mortality, expenses and discounting that were used in the contract pricing, reflecting a book reserve approach.
For the annuity portfolio mark to market interest assumptions are used. Term policies written after 2015 are reserved on best estimate market value reserves.
(d) Sensitivity to changes in assumptions
Impact on reported profits and equity to changes in key variables:
Change in variable
100 basis point increase credit spreads*
100 basis point increase in Investment return
100 basis point decrease in Investment return
10% increase in mortality/morbidity
10% increase in mortality alone
(cid:1110)(cid:1109)(cid:1360)(cid:3)(cid:520)(cid:566)(cid:442)(cid:616)(cid:457)(cid:387)(cid:624)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:564)(cid:577)(cid:616)(cid:441)(cid:520)(cid:449)(cid:520)(cid:637)(cid:688)(cid:3)(cid:387)(cid:546)(cid:577)(cid:566)(cid:457)(cid:3)
10% increase in policy maintenance expenses
(cid:3)(cid:3)
5% increase in loss ratio
Gross before reinsurance
Net after reinsurance
5% decrease in loss ratio
Gross before reinsurance
Net after reinsurance
CA
Change in net of tax
profits and equity
2018
£m
2017
£m
Scildon
Change in net of tax
profits and equity
2018
£m
2017
£m
Movestic
Change in net of tax
profits and equity
2017
2018
£m
£m
(2.2 )
0.9
(1.9 )
2.0
2.6
(cid:1263)(cid:1109)(cid:1245)(cid:1115)(cid:3)(cid:1264)(cid:3)
(4.5 )
n/a
n/a
n/a
n/a
n/a
(1.1 )
(1.7 )
1.5
2.9
(cid:1263)(cid:1109)(cid:1245)(cid:1115)(cid:3)(cid:1264)(cid:3)
(4.4 )
n/a
n/a
n/a
n/a
(37.5 )
(26.9 )
29.5
(0.3 )
(0.3 )
(cid:1269)(cid:3)(cid:3)
n/a
n/a
n/a
n/a
n/a
(19.2 )
(30.5 )
33.1
(0.1 )
(0.1 )
(cid:1269)(cid:3)(cid:3)
n/a
n/a
n/a
n/a
n/a
n/a
0.4
(0.6 )
n/a
n/a
(cid:566)(cid:1251)(cid:387)(cid:3)(cid:3)
n/a
(3.9 )
(1.1 )
3.1
1.1
n/a
n/a
n/a
n/a
n/a
(cid:566)(cid:1251)(cid:387)
n/a
(3.2 )
(1.2 )
3.2
1.2
*The 2018 stress includes corporate bonds and non-local government bonds (i.e. excludes Dutch and German government bonds, but includes other government
bonds). The 2017 stress only includes corporate bonds. The stress approach has been updated for 2018, given there is a known exposure to these bonds and
changes in spreads.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 Insurance contract provisions (continued)
UK businesses (CA)
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 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 above 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.
The sensitivities overleaf 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 overleaf 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 and subject to treating customers fairly.
The main expense risk is that of unforeseen changes to third party administration expenses: the impact shown overleaf quantifies a 10% increase in those expenses.
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 overleaf.
Dutch business (Waard Group)
The most material sensitivity within Waard Group is interest rates. Due to the fact that Waard measures its insurance contract liabilities using historical rates of
interest, a rise in interest rates results in a fall in the value of fixed-interest assets with no change in the value of liabilities. The impact on net of tax profits and
equity at 2018 is negative £2.3m.
Dutch business (Scildon)
The key sensitivity within Scildon is interest rates. Similarly to Waard Group, Scildon measures the majority of its insurance contract liabilities using historical
rates of interest. This means that a rise in interest rates results in a fall in the value of fixed-interest assets with only a small reduction in the value of liabilities.
The impact on net of tax profits and equity at 2018 is negative £26.9m.
31 Investment contracts at fair value through income and amounts deposited with reinsurer
Analysis by operating segment
31 December
Investment
contract
liability
£000
2018
Amount
deposited
with
reinsurer
£000
Investment
contract
liability
£000
Net
£000
2017
Amount
deposited
with
reinsurer
£000
Net
£000
(cid:3)(cid:3)
(cid:3)(cid:3)
692,318
(cid:1111)(cid:1239)(cid:1114)(cid:1113)(cid:1112)(cid:1239)(cid:1111)(cid:1109)(cid:1110)(cid:3)(cid:3)
34,349
(cid:1269)(cid:3)(cid:3)
657,969
(cid:1111)(cid:1239)(cid:1114)(cid:1113)(cid:1112)(cid:1239)(cid:1111)(cid:1109)(cid:1110)(cid:3)(cid:3)
776,551
(cid:1111)(cid:1239)(cid:1115)(cid:1113)(cid:1112)(cid:1239)(cid:1116)(cid:1111)(cid:1111)(cid:3)(cid:3)
38,776
(cid:1269)(cid:3)(cid:3)
737,775
(cid:1111)(cid:1239)(cid:1115)(cid:1113)(cid:1112)(cid:1239)(cid:1116)(cid:1111)(cid:1111)
3,235,519
34,349
3,201,170
3,420,273
38,776
3,381,497
98,788
(cid:1112)(cid:1239)(cid:1110)(cid:1112)(cid:1115)(cid:1239)(cid:1116)(cid:1112)(cid:1110)(cid:3)(cid:3)
34,349
(cid:1269)(cid:3)(cid:3)
64,439
(cid:1112)(cid:1239)(cid:1110)(cid:1112)(cid:1115)(cid:1239)(cid:1116)(cid:1112)(cid:1110)(cid:3)(cid:3)
797,615
(cid:1111)(cid:1239)(cid:1115)(cid:1111)(cid:1111)(cid:1239)(cid:1115)(cid:1114)(cid:1117)(cid:3)(cid:3)
38,776
(cid:1269)(cid:3)(cid:3)
758,839
(cid:1111)(cid:1239)(cid:1115)(cid:1111)(cid:1111)(cid:1239)(cid:1115)(cid:1114)(cid:1117)
3,235,519
34,349
3,201,170
3,420,273
38,776
3,381,497
CA
(cid:195)(cid:577)(cid:676)(cid:457)(cid:624)(cid:637)(cid:520)(cid:442)(cid:3)
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
Total
The fair values of the groups’ investment contract liabilities have been disclosed according to a three-level valuation hierarchy in Note 24.
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SECTION D
32 Liabilities relating to policyholders’ funds held by the group
Unit-linked
31 December
Balance at I January
Deposits received
Fees deducted from account balances
Investment yield
Foreign exchange translation difference
Other movements
Balance at 31 December
Current
Non-current
Total
2018
£000
2017
£000
265,729
229,397
64,093
(2,941 )
(14,887 )
(8,098 )
(44,060 )
52,449
(2,095 )
10,453
1,093
(25,568 )
259,836
265,729
10,243
249,593
16,210
249,519
259,836
265,729
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 24.
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 24.
33 Borrowings
Group
31 December
Bank loan
(cid:4)(cid:564)(cid:577)(cid:653)(cid:566)(cid:637)(cid:3)(cid:449)(cid:653)(cid:457)(cid:3)(cid:520)(cid:566)(cid:3)(cid:616)(cid:457)(cid:546)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:637)(cid:577)(cid:3)(cid:718)(cid:566)(cid:387)(cid:566)(cid:442)(cid:520)(cid:387)(cid:546)(cid:3)(cid:616)(cid:457)(cid:520)(cid:566)(cid:624)(cid:653)(cid:616)(cid:387)(cid:566)(cid:442)(cid:457)(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
2018
£000
69,580
(cid:1112)(cid:1118)(cid:1239)(cid:1115)(cid:1111)(cid:1111)(cid:3)(cid:3)
2017
£000
89,457
(cid:1112)(cid:1118)(cid:1239)(cid:1116)(cid:1113)(cid:1114)
109,202
129,202
25,785
83,417
32,379
96,823
109,202
129,202
2018
£000
2017
£000
69,580
89,457
15,306
54,274
22,029
67,428
69,580
89,457
The bank loan as at 31 December 2018 comprises the following:
– on 3 April 2017 tranche one of a new facility was drawn down, amounting to £40.0m. This facility is unsecured and is repayable in ten 6-monthly instalments on
the anniversary of the draw down date. The outstanding principal on the loan bears interest at a rate of 2.00 percentage points above the London Inter-Bank Offer
Rate and is repayable over a period which varies between 1 and 6 months at the option of the borrower. The proceeds of this loan facility were utilised, together
with existing group cash, to repay in full, the pre-existing loan facilities totalling £52.8m.
– on 3 April 2017 tranche two of the new loan facility was drawn down, amounting to €71.0m. As with tranche one, this facility is unsecured and is repayable in
ten 6-monthly instalments on the anniversary of the draw down date. The outstanding principal on the loan bears interest at a rate of 2.00 percentage points
above the European Inter-Bank Offer Rate and is repayable over a period which varies between 1 and 6 months at the option of the borrower.
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
33 Borrowings (continued)
– in April 2018 we converted our existing debt arrangement with RBS into a syndicated facility. This will provide access to higher levels of debt financing from a
wider panel of lenders, which in turn will enable us to fulfil our appetite of financing future deals up to the maximum levels of gearing set out in our debt and
leverage policy, without being restricted by the lending capacity of one individual institution. This facility enables Chesnara to access an increased level of funds
efficiently, which in turn supports our acquisition strategy.
The fair value of the sterling denominated bank loan at 31 December 2018 was £27.0m (31 December 2017: £35.0m).
The fair value of the euro denominated bank loan at 31 December 2018 was £42.8m (31 December 2017: £55.0m).
The fair value of amounts due in relation to financial reinsurance was £41.6m (31 December 2017: £42.2m).
Bank loans are presented net of unamortised arrangement fees. Arrangement fees are recognised in profit or loss using the effective interest rate method.
34 Defined benefit obligations
Scildon operates a defined benefit pension scheme for the benefit of its present and past employees. A summary of the scheme assets and liabilities as at the
balance sheet date and the movements in the post-acquisition period are provided below.
The amount included in the balance sheet arising from the obligations in respect of the scheme is as follows:
As at period ended
(cid:256)(cid:616)(cid:457)(cid:624)(cid:457)(cid:566)(cid:637)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:449)(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:3)(cid:577)(cid:441)(cid:546)(cid:520)(cid:508)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)(cid:3)
Fair value of plan assets
Surplus
Effect of asset ceiling test
Net liability arising from defined benefit obligation
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
2017
£000
(cid:1114)(cid:1109)(cid:1239)(cid:1116)(cid:1117)(cid:1110)(cid:3)(cid:3)
(50,886 )
(cid:1113)(cid:1116)(cid:1239)(cid:1113)(cid:1114)(cid:1118)
(48,354 )
(105 )
105
–
(895 )
895
–
As at 31 December 2018, there was a surplus in the Pension Fund of £0.1m. The Scildon defined benefit scheme is accounted for under the provisions of IAS 19.
As such, pension surplus assets are not recognisable on the face of the balance sheet and as a consequence are subject to an asset ceiling test, which effectively
reduces the asset value to nil. The company is unable to recognise the surplus position in terms of potential refunds of past contributions made or through lower
future contributions to the scheme.
Amounts recognised in income in respect of the scheme are as follows:
Service cost:
Current service cost
(cid:256)(cid:387)(cid:624)(cid:637)(cid:3)(cid:624)(cid:457)(cid:616)(cid:676)(cid:520)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:3)
Net interest income
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Components of defined benefit costs recognised in profit or loss
The costs charged to the profit and loss account are recorded under operating expenses as personnel costs.
Amounts recognised in the statement of comprehensive income are as follows:
The return on plan assets (excluding amounts included in net interest expense)
Actuarial gains and losses arising from changes in assumptions
Actuarial gains and losses arising from experience adjustments
Adjustment for the effect of asset ceiling test
Foreign exchange translation
Tax effect
Total profit for the year not recognised in income
2018
£000
2017
£000
1,780
(cid:1269)(cid:3)(cid:3)
(20 )
1,760
1,413
(cid:1263)(cid:1113)(cid:1112)(cid:1117)(cid:3)(cid:1264)
(3 )
972
2018
£000
2017
£000
(598 )
(423 )
302
789
5
(19 )
56
(365 )
626
794
(895 )
5
(41 )
124
158
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION D
Movements in the present value of defined benefit obligations in the period since acquisition were as follows:
Balance 1 January
Current service cost
Interest cost
Contributions from the plan participants
Actuarial gains and losses arising from changes in assumptions
Actuarial gains and losses arising from experience adjustments
(cid:57)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
Individual settlements
(cid:256)(cid:387)(cid:624)(cid:637)(cid:3)(cid:624)(cid:457)(cid:616)(cid:676)(cid:520)(cid:442)(cid:457)(cid:3)(cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
Foreign exchange translation
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Balance at 31 December
Movements in the fair value of plan assets in the period since acquisition were as follows:
Balance 1 January/6 April
(cid:57)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
Contributions from the employer
Contributions from the plan participants
Assets distributed on settlements
Interest income
The return on plan assets (excluding amounts included in net interest expense)
Foreign exchange translation
(cid:3)(cid:3)
(cid:3)(cid:3)
Balance at 31 December
The cost of defined benefit pension amounts:
Pension costs
Current service pension costs
Total pension costs
Net interest
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:457)(cid:624)(cid:637)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:613)(cid:616)(cid:457)(cid:624)(cid:457)(cid:566)(cid:637)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:577)(cid:505)(cid:3)(cid:613)(cid:616)(cid:577)(cid:564)(cid:520)(cid:624)(cid:457)(cid:449)(cid:3)(cid:616)(cid:457)(cid:637)(cid:520)(cid:616)(cid:457)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)
Interest income on assets
N(cid:457)(cid:637)(cid:3)(cid:520)(cid:566)(cid:637)(cid:457)(cid:616)(cid:457)(cid:624)(cid:637)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:566)(cid:457)(cid:637)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:688)(cid:3)(cid:449)(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:3)
(cid:256)(cid:387)(cid:624)(cid:637)(cid:3)(cid:624)(cid:457)(cid:616)(cid:676)(cid:520)(cid:442)(cid:457)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:3)
Total charged to profit and loss account
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
47,459
1,790
895
359
423
(302 )
(cid:1263)(cid:1113)(cid:1117)(cid:1109)(cid:3)(cid:1264)(cid:3)
83
(cid:1269)(cid:3)(cid:3)
554
2017
£000
44,864
1,413
648
270
(626 )
(794 )
(cid:1263)(cid:1112)(cid:1111)(cid:1118)(cid:3)(cid:1264)
640
(cid:1263)(cid:1113)(cid:1112)(cid:1117)(cid:3)(cid:1264)
1,811
50,781
47,459
2018
£000
48,354
(cid:1263)(cid:1113)(cid:1117)(cid:1109)(cid:3)(cid:1264)(cid:3)
1,701
359
83
915
(598 )
552
2018
£000
45,813
(cid:1263)(cid:1112)(cid:1111)(cid:1118)(cid:3)(cid:1264)
(176 )
270
640
651
(365 )
1,850
50,886
48,354
2018
£000
1,780
1,780
(cid:1117)(cid:1118)(cid:1114)(cid:3)(cid:3)
(915 )
(cid:1263)(cid:1111)(cid:1109)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
1,760
2017
£000
1,413
1,413
(cid:1115)(cid:1113)(cid:1117)
(651 )
(cid:1263)(cid:1112)(cid:3)(cid:1264)
(cid:1263)(cid:1113)(cid:1112)(cid:1117)(cid:3)(cid:1264)
972
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
159
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
34 Defined benefit obligations (continued)
The principal actuarial assumptions applied to the scheme valuation are as follows:
Discount rate
Interest income on assets
General salary increases
Deferred pension increases
I(cid:566)(cid:720)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)
Distribution of plan assets:
Equity type instruments
(cid:121)(cid:520)(cid:687)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:637)(cid:457)(cid:616)(cid:457)(cid:624)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:123)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:577)(cid:566)(cid:449)(cid:624)(cid:3)
Cash
Other
Total
Period ended 31 December
E(cid:615)(cid:653)(cid:520)(cid:637)(cid:688)(cid:3)(cid:637)(cid:688)(cid:613)(cid:457)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)
(cid:121)(cid:520)(cid:687)(cid:457)(cid:449)(cid:3)(cid:520)(cid:566)(cid:637)(cid:457)(cid:616)(cid:457)(cid:624)(cid:637)(cid:3)(cid:520)(cid:566)(cid:624)(cid:637)(cid:616)(cid:653)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:1269)(cid:3)(cid:123)(cid:577)(cid:676)(cid:457)(cid:616)(cid:566)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:577)(cid:566)(cid:449)(cid:624)(cid:3)
C(cid:387)(cid:624)(cid:515)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
31 December 31 December
2017
2018
2.00%
2.00%
2.00%
0.80%
(cid:1111)(cid:1245)(cid:1109)(cid:1109)(cid:1360)(cid:3)(cid:3)
1.90%
1.90%
2.00%
0.60%
(cid:1111)(cid:1245)(cid:1109)(cid:1109)(cid:1360)
(cid:3)(cid:3)
31 December 31 December
2017
2018
(cid:3)(cid:3)
7,587
(cid:1113)(cid:1111)(cid:1239)(cid:1117)(cid:1116)(cid:1110)(cid:3)(cid:3)
46
382
8,253
(cid:1112)(cid:1118)(cid:1239)(cid:1114)(cid:1111)(cid:1116)
196
378
50,886
48,354
Quoted
market
price in an
active
market
2018
£000
(cid:1116)(cid:1239)(cid:1114)(cid:1117)(cid:1116)(cid:3)(cid:3)
(cid:1113)(cid:1111)(cid:1239)(cid:1117)(cid:1116)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
2018
£000
(cid:1116)(cid:1239)(cid:1114)(cid:1117)(cid:1116)(cid:3)(cid:3)
(cid:1113)(cid:1111)(cid:1239)(cid:1117)(cid:1116)(cid:1110)(cid:3)(cid:3)
(cid:1113)(cid:1115)(cid:3)(cid:3)
(cid:1112)(cid:1117)(cid:1111)(cid:3)(cid:3)
Not
quoted
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1113)(cid:1115)(cid:3)(cid:3)
(cid:1112)(cid:1117)(cid:1111)(cid:3)(cid:3)
Quoted
market
price in an
active
market
2017
£000
(cid:1117)(cid:1239)(cid:1111)(cid:1114)(cid:1112)
(cid:1112)(cid:1118)(cid:1239)(cid:1114)(cid:1111)(cid:1116)
(cid:1269)
(cid:1269)
2017
£000
(cid:1117)(cid:1239)(cid:1111)(cid:1114)(cid:1112)(cid:3)(cid:3)
(cid:1112)(cid:1118)(cid:1239)(cid:1114)(cid:1111)(cid:1116)(cid:3)(cid:3)
(cid:1110)(cid:1118)(cid:1115)(cid:3)(cid:3)
(cid:1112)(cid:1116)(cid:1117)(cid:3)(cid:3)
Not
quoted
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1118)(cid:1115)(cid:3)(cid:3)
(cid:1112)(cid:1116)(cid:1117)(cid:3)(cid:3)
Total
50,886
428
50,458
48,354
574
47,780
The plan assets do not include investments that are issued by the company and do not include assets used by the company.
Actual return on plan assets
2018
£000
2017
£000
317
286
160
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION D
The risks faced by the company in connection with the pension commitments are determined by the duration of these obligations. The table below shows how
these obligations are distributed among active and non-active participants.
As at 31 December 2018
Active members
Deferred members
Wholly or partially disabled members
Pensioners
Total
Cash value
of defined
benefit
number
Duration
years
32,095
12,549
2,186
9,783
56,613
28.6
24.0
18.5
1 1.1
32.4
The present value of the defined benefit obligations is sensitive to a change in the assumptions used. The table below shows the sensitivity of the value of
pension rights and service costs, to changes in the underlying assumptions used:
As at 31 December 2018
Discount rate
Plus
Minus
Salary increase
Plus
Minus
Mortality
Age set back
Defined
benefit
obligation
change
Funding
cost
change
Change
0.50%
0.50%
(5,503 )
6,661
0.50%
0.50%
802
(802 )
(320 )
385
89
(89 )
1 year
1,761
74
The pension fund holds investments which take account of the risk profile of the underlying scheme liabilities, as part of the asset and liability management
employed by the scheme.
The employer contribution expected to be paid in respect of 2019 is £1.9m (2018: £1.9m).
Risks associated with the Scildon defined benefit scheme are not considered by the group to be material.
35 Deferred tax assets and liabilities
Deferred tax liabilities comprise:
31 December
Net deferred tax liabilities:
CA and other group activities
Movestic
Waard Group
Scildon
Total
Current
Non-current
Total
2018
£000
2017
£000
(1,996 )
(253 )
(175 )
(17,039 )
(2,976 )
(302 )
(455 )
(19,061 )
(19,463 )
(22,794 )
(904 )
(18,559 )
(1,184 )
(21,610 )
(19,463 )
(22,794 )
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
161
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
35 Deferred tax assets and liabilities (continued)
CA and other group activities
(a) Recognised deferred tax assets and liabilities
31 December
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:387)(cid:616)(cid:520)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:616)(cid:387)(cid:566)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:637)(cid:577)(cid:3)(cid:566)(cid:457)(cid:677)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:616)(cid:457)(cid:508)(cid:520)(cid:564)(cid:457)(cid:3)
Deferred acquisition costs
Deferred income
Acquired value in force
Unrealised and deferred investment gains
Excess expenses of management
Share-based payments
Total
Comprising:
Net deferred tax liabilities
Total
31 December
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:387)(cid:616)(cid:520)(cid:624)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:616)(cid:387)(cid:566)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:637)(cid:577)(cid:3)(cid:566)(cid:457)(cid:677)(cid:3)(cid:637)(cid:387)(cid:687)(cid:3)(cid:616)(cid:457)(cid:508)(cid:520)(cid:564)(cid:457)(cid:3)
Deferred acquisition costs
Deferred income
Acquired value in force
Unrealised and deferred investment gains
Excess expenses of management
Share-based payments
Total
Comprising:
Net deferred tax liabilities
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)
2017
Assets/
(liabilities )
£000
(Charge )
/credit
in year
£000
2018
Assets/
(liabilities )
£000
(cid:1263)(cid:1110)(cid:1239)(cid:1109)(cid:1109)(cid:1117)(cid:3)(cid:1264)(cid:3)
(388 )
739
(2,657 )
(23,062 )
23,062
338
(cid:1111)(cid:1109)(cid:1111)(cid:3)(cid:3)
66
(123 )
785
11,585
(11,585 )
50
(cid:1263)(cid:1117)(cid:1109)(cid:1115)(cid:3)(cid:1264)
(322 )
616
(1,872 )
(11,477 )
11,477
388
(2,976 )
980
(1,996 )
(2,976 )
(2,976 )
980
980
(1,996 )
(1,996 )
2016
Assets/
(liabilities )
£000
(Charge )
/credit
in year
£000
2017
Assets/
(liabilities )
£000
(cid:1263)(cid:1110)(cid:1239)(cid:1111)(cid:1112)(cid:1116)(cid:3)(cid:1264)(cid:3)
(469 )
877
(3,849 )
(23,042 )
23,042
202
(cid:1111)(cid:1111)(cid:1118)(cid:3)(cid:3)
81
(138 )
1,192
(20 )
20
136
(cid:1263)(cid:1110)(cid:1239)(cid:1109)(cid:1109)(cid:1117)(cid:3)(cid:1264)
(388 )
739
(2,657 )
(23,062 )
23,062
338
(4,476 )
1,500
(2,976 )
(4,476 )
1,500
(2,976 )
(4,476 )
1,500
(2,976 )
Note (i) The deferred tax (charge)/credit to the Consolidated Statement of Comprehensive Income for the year is classified as follows:
Year ended 31 December
Income tax credit
2018
£000
2017
£000
992
1,500
162
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SECTION D
(b) Items for which no deferred tax asset is recognised
31 December
BLAGAB transitional amounts
Unrelieved expenses
Total
2018
£000
1,906
132,241
2017
£000
2,382
87,136
134,147
89,518
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. The movement in this balance reflects an increase in
deferred deemed gains on Collective Investment Schemes in the period, which has decreased the unrelieved expenses at the balance sheet date.
Movestic
(c) Recognised deferred tax assets and liabilities
As at the balance sheet date, Movestic had a recognised deferred tax liability of £0.3m (31 December 2017: £0.3m), in respect of fair value adjustments arising
upon acquisition. Unrecognised deferred tax assets was nil at the balance sheet date in respect of corporation tax recoverable (31 December 2017: £0.2m).
Waard Group
(d) Recognised deferred tax assets and liabilities
31 December
Intangible assets
Fair value adjustment on acquisition
Valuation differences
Total
Comprising:
Net deferred tax liabilities
Total
Scildon
(e) Recognised deferred tax assets and liabilities
31 December
(cid:121)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:387)(cid:449)(cid:538)(cid:653)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:577)(cid:566)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)
D(cid:457)(cid:505)(cid:457)(cid:616)(cid:616)(cid:457)(cid:449)(cid:3)(cid:387)(cid:442)(cid:615)(cid:653)(cid:520)(cid:624)(cid:520)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:3)
D(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:3)(cid:613)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:624)(cid:442)(cid:515)(cid:457)(cid:564)(cid:457)(cid:3)(cid:577)(cid:441)(cid:546)(cid:520)(cid:508)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
(cid:260)(cid:457)(cid:676)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:577)(cid:505)(cid:3)(cid:441)(cid:653)(cid:520)(cid:546)(cid:449)(cid:520)(cid:566)(cid:508)(cid:624)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:520)(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:345)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:449)(cid:520)(cid:505)(cid:505)(cid:457)(cid:616)(cid:457)(cid:566)(cid:442)(cid:457)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)(cid:637)(cid:457)(cid:442)(cid:515)(cid:566)(cid:520)(cid:442)(cid:387)(cid:546)(cid:3)(cid:613)(cid:616)(cid:577)(cid:676)(cid:520)(cid:624)(cid:520)(cid:577)(cid:566)(cid:624)(cid:3)
(cid:345)(cid:387)(cid:546)(cid:653)(cid:387)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:449)(cid:520)(cid:505)(cid:505)(cid:457)(cid:616)(cid:457)(cid:566)(cid:442)(cid:457)(cid:624)(cid:3)(cid:577)(cid:566)(cid:3)I(cid:566)(cid:676)(cid:457)(cid:624)(cid:637)(cid:564)(cid:457)(cid:566)(cid:637)(cid:624)(cid:3)(cid:387)(cid:637)(cid:3)(cid:505)(cid:387)(cid:520)(cid:616)(cid:3)(cid:676)(cid:387)(cid:546)(cid:653)(cid:457)(cid:3)(cid:637)(cid:515)(cid:616)(cid:577)(cid:653)(cid:508)(cid:515)(cid:3)(cid:613)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:546)(cid:577)(cid:624)(cid:624)(cid:3)
U(cid:566)(cid:637)(cid:387)(cid:687)(cid:457)(cid:449)(cid:3)(cid:616)(cid:457)(cid:624)(cid:457)(cid:616)(cid:676)(cid:457)(cid:624)(cid:3)
(cid:256)(cid:616)(cid:577)(cid:613)(cid:457)(cid:616)(cid:637)(cid:688)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:457)(cid:615)(cid:653)(cid:520)(cid:613)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)
(cid:3)(cid:3)
(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
Comprising:
Net deferred tax liabilities
Total
2017
Assets/
(liabilities )
£000
(Charge )
/credit
in year
£000
Foreign
exchange
translation
difference
£000
2018
Assets/
(liabilities )
£000
(1,258 )
803
(455 )
(455 )
(455 )
319
(38 )
281
281
281
(8 )
7
(1 )
(1 )
(1 )
(947 )
772
(175 )
(175 )
(175 )
2017
Assets/
(liabilities )
£000
(Charge ) Recognised
through
equity
£000
/credit
in year
£000
Foreign
exchange
translation
difference
£000
2018
Assets/
(liabilities )
£000
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1113)(cid:1239)(cid:1114)(cid:1110)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1115)(cid:1239)(cid:1110)(cid:1113)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1115)(cid:1239)(cid:1110)(cid:1115)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1116)(cid:1115)(cid:1109)(cid:3)(cid:3)
(cid:1263)(cid:1113)(cid:1239)(cid:1116)(cid:1109)(cid:1114)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1114)(cid:1117)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1112)(cid:1113)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1239)(cid:1115)(cid:1116)(cid:1111)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1109)(cid:1114)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1111)(cid:1114)(cid:1117)(cid:3)(cid:3)
(cid:1111)(cid:1239)(cid:1114)(cid:1115)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1116)(cid:1109)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1114)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1112)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:3)(cid:3)
(cid:1263)(cid:1113)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1112)(cid:1116)(cid:3)(cid:3)
(cid:1263)(cid:1114)(cid:1110)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1116)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1113)(cid:1239)(cid:1115)(cid:1112)(cid:1109)(cid:3)(cid:1264)
(cid:1113)(cid:1239)(cid:1114)(cid:1109)(cid:1117)
(cid:1263)(cid:1110)(cid:1113)(cid:3)(cid:1264)
(cid:1110)(cid:1109)(cid:1116)
(cid:1263)(cid:1113)(cid:1239)(cid:1118)(cid:1114)(cid:1110)(cid:3)(cid:1264)
(cid:1112)(cid:1239)(cid:1112)(cid:1114)(cid:1116)
(cid:1263)(cid:1113)(cid:1239)(cid:1116)(cid:1114)(cid:1115)(cid:3)(cid:1264)
(cid:1263)(cid:1115)(cid:1115)(cid:1109)(cid:3)(cid:1264)
(19,061 )
2,285
(84 )
(179 )
(17,039 )
(19,061 )
2,285
(19,061 )
2,285
(84 )
(84 )
(179 )
(17,039 )
(179 )
(17,039 )
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
163
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
36 Reinsurance payables
Payable to reinsurers
31 December
Payables in respect of insurance contracts
Payables in respect of investment contracts
Reinsurers’ share of deferred acquisition costs and claims deposits
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
Total
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
£000
10,299
14
222
2017
£000
10,746
14
646
10,535
11,406
10,535
(cid:1269)(cid:3)(cid:3)
11,406
(cid:1269)
10,535
11,406
The carrying value of payables to reinsurers is a reasonable approximation of fair value.
37 Payables related to direct insurance and investment contracts
31 December
Accrued claims
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:564)(cid:457)(cid:449)(cid:520)(cid:387)(cid:616)(cid:520)(cid:457)(cid:624)(cid:1287)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
(cid:256)(cid:577)(cid:546)(cid:520)(cid:442)(cid:688)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:3)(cid:613)(cid:616)(cid:457)(cid:564)(cid:520)(cid:653)(cid:564)(cid:3)(cid:546)(cid:520)(cid:387)(cid:441)(cid:520)(cid:546)(cid:520)(cid:637)(cid:520)(cid:457)(cid:624)(cid:3)
O(cid:637)(cid:515)(cid:457)(cid:616)(cid:3)
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
Total
2018
Gross Reinsurance
£000
£000
65,216
(cid:1110)(cid:1239)(cid:1110)(cid:1113)(cid:1109)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1239)(cid:1112)(cid:1117)(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1113)(cid:1117)(cid:1114)(cid:3)(cid:3)
17,640
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Net
£000
47,576
(cid:1110)(cid:1239)(cid:1110)(cid:1113)(cid:1109)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1239)(cid:1112)(cid:1117)(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1113)(cid:1117)(cid:1114)(cid:3)(cid:3)
2017
Gross Reinsurance
£000
£000
66,785
(cid:1112)(cid:1239)(cid:1115)(cid:1114)(cid:1109)(cid:3)(cid:3)
(cid:1111)(cid:1112)(cid:1239)(cid:1112)(cid:1116)(cid:1117)(cid:3)(cid:3)
(cid:1112)(cid:1239)(cid:1112)(cid:1114)(cid:1109)(cid:3)(cid:3)
25,888
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Net
£000
40,897
(cid:1112)(cid:1239)(cid:1115)(cid:1114)(cid:1109)
(cid:1111)(cid:1112)(cid:1239)(cid:1112)(cid:1116)(cid:1117)
(cid:1112)(cid:1239)(cid:1112)(cid:1114)(cid:1109)
91,229
17,640
73,589
97,163
25,888
71,275
91,229
(cid:1269)(cid:3)(cid:3)
17,640
(cid:1269)(cid:3)(cid:3)
73,589
(cid:1269)(cid:3)(cid:3)
97,163
(cid:1269)(cid:3)(cid:3)
25,888
(cid:1269)(cid:3)(cid:3)
71,275
(cid:1269)
91,229
17,640
73,589
97,163
25,888
71,275
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
The carrying value of payables related to the direct insurance and investment contracts is a reasonable approximation of fair value.
38 Deferred income
31 December
Balance at 1 January
Release to income
Balance at 31 December
Current
Non-current
Total
The release to income is included in fees and commission income (see Note 8).
2018
£000
4,701
(753 )
2017
£000
5,438
(737 )
3,948
4,701
476
3,472
3,948
634
4,067
4,701
164
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 164
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39 Other payables
Group
31 December
Accrued expenses
VAT
Employee tax
Other
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
Total
Company
31 December
Accrued expenses
Other
Total
Current
N(cid:577)(cid:566)(cid:1272)(cid:442)(cid:653)(cid:616)(cid:616)(cid:457)(cid:566)(cid:637)(cid:3)
Total
SECTION D
2018
£000
14,374
48
3,115
27,219
2017
£000
13,876
53
3,240
27,815
44,756
44,984
44,756
(cid:1269)(cid:3)(cid:3)
44,984
(cid:1269)
44,756
44,984
2018
£000
2,156
655
2017
£000
2,274
2,377
2,811
4,651
2,811
(cid:1269)(cid:3)(cid:3)
4,651
(cid:1269)
2,811
4,651
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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 other payables is a reasonable approximation of fair value.
40 Share capital and share premium
Group
31 December
Share capital
149,847,736
43,767
149,885,761
43,766
2018
2017
Number
of shares
issued
Share
capital
£000
Number
of shares
issued
Share
capital
£000
Share
premium
£000
142,053
Share
premium
£000
141,983
The number of shares in issue at the balance sheet date included nil shares held in treasury (31 December 2017: 86,040).
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
165
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
40 Share capital and share premium (continued)
Share capital for the group includes the impact of ‘reverse acquisition 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 £41.5m, 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.
On 15 December 2016, 23.3m new shares were issued to new and existing shareholders, as part of a fund raising exercise in respect of the proposed acquisition
of Legal & General Nederland. The gross amount of new equity raised was £70.0m. Transaction costs of £3.3m were incurred in respect of the fund raising and
have been deduced from equity.
Company
31 December
Authorised:
Ordinary shares of 5p each
Issued:
Ordinary shares of 5p each
2018
2017
Number
of shares
Share
capital
£000
Number
of shares
Share
capital
£000
201,000,000
10,050
201,000,000
10,050
149,908,956
7,495
149,885,761
7,494
Share
premium
£000
142,053
Share
premium
£000
141,983
The number of shares in issue at the balance sheet date included nil shares held in treasury (31 December 2017: 86,040).
41 Treasury shares
Group and company 31 December
Balance at 31 December
42 Other reserves
Group
31 December
Capital redemption reserve
Foreign exchange translation reserve
Balance at 31 December
Company
31 December
Capital redemption reserve
2018
£000
2017
£000
–
98
2018
£000
50
27,108
2017
£000
50
27,614
27,158
27,664
2018
£000
2017
£000
50
50
166
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LB5111 Chesnara 2018 Sec D_IFRS_AW_Stg7.indd 166
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SECTION D
43 Retained earnings
Group
31 December
Retained earnings attributable to equity holders of the parent company comprise:
Balance at 1 January
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
Revaluation of pension obligations
Share based payment
Dividends
(cid:121)(cid:520)(cid:566)(cid:387)(cid:546)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1115)(cid:3)
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:520)(cid:564)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:3)
(cid:121)(cid:520)(cid:566)(cid:387)(cid:546)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:3)
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:520)(cid:564)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)(cid:3)
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)
2018
£000
2017
£000
238,341
188,598
(cid:1111)(cid:1113)(cid:1239)(cid:1110)(cid:1111)(cid:1113)(cid:3)(cid:3)
56
501
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1118)(cid:1239)(cid:1114)(cid:1116)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1109)(cid:1239)(cid:1117)(cid:1109)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1116)(cid:1117)(cid:1239)(cid:1113)(cid:1112)(cid:1113)
124
669
(cid:1263)(cid:1110)(cid:1118)(cid:1239)(cid:1109)(cid:1109)(cid:1111)(cid:3)(cid:1264)
(cid:1263)(cid:1110)(cid:1109)(cid:1239)(cid:1113)(cid:1117)(cid:1111)(cid:3)(cid:1264)
(cid:1269)(cid:3)
(cid:1269)(cid:3)
232,638
238,341
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
The interim dividend in respect of 2016, approved and paid in 2017 was paid at the rate of 7.00p per share. The final dividend in respect of 2017, approved and
paid in 2018, was paid at the rate of 13.07p per share so that the total dividend paid to the equity shareholders of the parent company in respect of the year
ended 31 December 2017 was made at the rate of 20.07p per share.
A final dividend of 13.46p per share in respect of the year ended 31 December 2018 payable on 24 May 2019 to equity shareholders of the parent company
registered at the close of business on 12 April 2019, the dividend record date, was approved by the directors after the balance sheet date. The resulting total
final dividend of £20.2m has not been provided for in these financial statements and there are no income tax consequences.
The interim dividend in respect of 2018, approved and paid in 2018, was paid at the rate of 7.21p per share to equity shareholders of the parent company registered
at the close of business on 5 September 2018, the dividend record date.
The following summarises dividends per share in respect of the year ended 31 December 2017 and 31 December 2018:
Year ended 31 December
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:520)(cid:564)(cid:3)(cid:1269)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
(cid:121)(cid:520)(cid:566)(cid:387)(cid:546)(cid:3)(cid:1269)(cid:3)(cid:613)(cid:616)(cid:577)(cid:613)(cid:577)(cid:624)(cid:457)(cid:449)(cid:1251)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)
Total
Company
Year ended 31 December
Balance at 1 January
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
Share based payment
Dividends paid
(cid:121)(cid:520)(cid:566)(cid:387)(cid:546)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1115)(cid:3)
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:520)(cid:564)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:3)
(cid:121)(cid:520)(cid:566)(cid:387)(cid:546)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1116)(cid:3)
I(cid:566)(cid:637)(cid:457)(cid:616)(cid:520)(cid:564)(cid:3)(cid:387)(cid:613)(cid:613)(cid:616)(cid:577)(cid:676)(cid:457)(cid:449)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:613)(cid:387)(cid:520)(cid:449)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:1111)(cid:1109)(cid:1110)(cid:1117)(cid:3)
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)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
P
(cid:1116)(cid:1245)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1110)(cid:1112)(cid:1245)(cid:1113)(cid:1115)(cid:3)(cid:3)
2017
P
(cid:1116)(cid:1245)(cid:1109)(cid:1109)
(cid:1110)(cid:1112)(cid:1245)(cid:1109)(cid:1116)
20.67
20.07
2018
£000
158,571
(cid:1115)(cid:1113)(cid:1239)(cid:1117)(cid:1115)(cid:1109)(cid:3)(cid:3)
501
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1118)(cid:1239)(cid:1114)(cid:1116)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1263)(cid:1110)(cid:1109)(cid:1239)(cid:1117)(cid:1109)(cid:1115)(cid:3)(cid:1264)(cid:3)
2017
£000
164,921
(cid:1111)(cid:1111)(cid:1239)(cid:1113)(cid:1115)(cid:1114)
669
(cid:1263)(cid:1110)(cid:1118)(cid:1239)(cid:1109)(cid:1109)(cid:1111)(cid:3)(cid:1264)
(cid:1263)(cid:1110)(cid:1109)(cid:1239)(cid:1113)(cid:1117)(cid:1111)(cid:3)(cid:1264)
(cid:1269)
(cid:1269)
193,548
158,571
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Details of dividends, approved and paid, are set out in the ‘group’ section above.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
167
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
44 Employee benefit expense, including directors
Year ended 31 December
Wages and salaries
Social security costs
(cid:256)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:1272)(cid:449)(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3)(cid:442)(cid:577)(cid:566)(cid:637)(cid:616)(cid:520)(cid:441)(cid:653)(cid:637)(cid:520)(cid:577)(cid:566)(cid:3)(cid:613)(cid:546)(cid:387)(cid:566)(cid:624)(cid:3)
(cid:256)(cid:457)(cid:566)(cid:624)(cid:520)(cid:577)(cid:566)(cid:3)(cid:442)(cid:577)(cid:624)(cid:637)(cid:624)(cid:1272)(cid:449)(cid:457)(cid:718)(cid:566)(cid:457)(cid:449)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:3)(cid:613)(cid:546)(cid:387)(cid:566)(cid:624)(cid:3)
CA
£000
Movestic
£000
2,670
330
(cid:1110)(cid:1117)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
8,614
2,819
(cid:1110)(cid:1239)(cid:1118)(cid:1111)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Waard
Group
£000
Other group
activities
£000
Scildon
£000
1,161
162
(cid:1110)(cid:1110)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
10,256
1,390
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1117)(cid:1109)(cid:1118)(cid:3)(cid:3)
2,487
308
(cid:1110)(cid:1115)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
2018
£000
25,188
5,009
(cid:1111)(cid:1239)(cid:1112)(cid:1117)(cid:1118)(cid:3)(cid:3)
(cid:1110)(cid:1239)(cid:1117)(cid:1109)(cid:1118)(cid:3)(cid:3)
2017
£000
22,782
5,076
(cid:1111)(cid:1239)(cid:1111)(cid:1114)(cid:1114)
(cid:1117)(cid:1109)(cid:1115)
Total
3,181
13,358
1,437
13,455
2,964
34,395
30,919
Monthly average number of employees
Company
Subsidiaries
Total
Directors
Note 45 provides detail of compensation to directors of the company.
UK
UK-based employees are all employed by Chesnara plc.
37
326
363
34
295
329
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.
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. Options have been granted to executive directors in the period, in relation
to the share-based payment components of the new executive incentive schemes that was introduced under the 2014 terms. Further details can be found in
the Directors’ Remuneration Report section and in Note 45 – share based payments on page 169.
Waard
The Waard business participates in a defined contribution scheme.
Scildon
Scildon has a defined benefit plan. The pension scheme is an indexed average pay scheme with a pension of 1.75% per year of service. Indexation is conditional
since 1 January 2013. The pension scheme is administered by Stichting Pensionfonds Legal & General Nederland. The company has agreed to contribute to the
premium for the unconditional part of the pension. Apart from the obligations which may arise from the collective agreement provisions, the company is not
obliged to make additional contributions to the claims brought under the pension fund. The company is not entitled to refunds or discounts.
Part of the plan consists a defined contribution scheme. The company pays a contribution to the scheme and subsequently has no further financial obligations
with respect to this part of the scheme. This contribution is recognised as an expense when paid.
The costs of the defined benefit plan are calculated using the projected unit credit method. This means that the cost of providing pensions charged to the income
statement are placed over the service lives of employees, according to actuarial calculations. The obligations are calculated as the difference between the present
value of pension obligations, net of the fair value of the existing plan assets.
The present value of pension liabilities is determined by discounting the expected future retirement benefits at the rate of return on high quality corporate bonds in
euros, which have a similar remaining period to when the pension payments are expected to be incurred. Any deficiency is recognised as a liability in the
consolidated balance sheet. Any surplus is recognised as a receivable. A claim however, will only be considered if the company can enforce law in the form of
refunds or reductions in future contributions.
Actuarial gains and losses arising from deviations from expected outcomes are recognised as revaluations under IFRS through other comprehensive income and
recognised directly in equity.
The company commissions Milliman to produce an annual scheme valuation report. The last available valuation report was as at 31 December 2018.
Further information is shown in Note 34 net liability benefit obligations.
168
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION D
Movestic
The Swedish business participates in a combined defined benefit and defined contribution scheme operated by Försäkringsbranschens Pensionskassa, ‘FPK’
(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 1971 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 1972 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 2017, totalled £3.6m.
During 2018 further contributions of £0.7m were made.
The employers within the Scheme are collectively responsible 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 2017.
The Annual Report states that the Scheme’s surplus is £193.9m as at 31 December 2018 (£162.5m as at 31 December 2017).
As at 31 December 2018, the fund had assets under management of £1.3bn (£1.3bn as at 31 December 2017). During 2018 there have been 121 (31 December 2017:
126) employer insurance companies participating in the Scheme and 26,000 (31 December 2017: 26,000) 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.
The Swedish business participates in a combined defined benefit and defined contribution scheme operated by Försäkringsbranschens Pensionskassa, ‘FPK’
(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 1971 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 1972 or later, the scheme operates on a defined contribution basis.
45 Share-based payments
The group issues equity-settled share based payments to the two executive directors based on the 2014 terms. Equity settled share-based payments are measured
at fair value at the date of the grant, and expensed on a straight-line over the vesting period, based on the group’s estimate of shares that will eventually vest.
The executive bonus scheme consists of two components:
(a) Short-Term Incentive Scheme (STI)
(b) Long-Term Incentive Scheme (LTI)
The STI Scheme is based upon a 1 year performance period measured against IFRS, EcV operating profit and strategic group objectives. In relation to 2018, upon
meeting the necessary performance targets, the company granted an award in the form of a right to receive a cash amount of up to 75% of the gross salary.
In the event that the gross cash payment due is greater than £20,000, a mandatory 35% of the cash award was deferred into shares, which had a vesting period
of 3 years. Therefore the award was 65% settled in cash and 35% settled by a share option award, which cannot be exercised for 3 years.
Under the LTI Scheme, options are granted with a vesting period of 3 years. These awards are subject to performance conditions tied to the company’s financial
performance in respect of growth in Economic Value and total shareholder return (‘TSR’).
For Schemes with market performance criteria, the number of options expected to invest is adjusted only for expectations of leavers prior to vesting. Fair value
of the options is measured by use of the Monte Carlo model at the issuing date.
The LTI Scheme also contains a target of Economic Value growth. As this is a non-market performance condition, the number of options expected to vest is
recalculated at each balance sheet date based on expectations of performance against target. The movement in cumulative expense since the previous balance
sheet date is recognised in the income statement, with a corresponding entry in reserves.
If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves
the group before options vest and is deemed to be a ‘Bad Leaver’.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
169
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
45 Share-based payments (continued)
(a) 2018 award under the Short-Term Incentive Scheme (STI)
Details of the short-term incentive awards made in the year are as follows:
2018 Short-Term Incentive Scheme Awards made in year
Amount paid as cash bonus through the income statement (65%)
Amount deferred into shares for 3 years and subject to forfeiture (35%)
Total bonus award for the year
Amount of deferred expense recorded in the current year
2018
£000
2017
£000
140
76
216
18
376
203
579
48
The deferred share award will be made following the end of the performance period by the Remuneration Committee. The deferred amount will be divided by
the share price on the award date and the number of share awards will be awarded. The share awards will be accounted for per IFRS 2, under Equity Settled
share-based payments.
(b) 2018 award made under the Long-Term Incentive Scheme (LTI)
In April 2018, the group granted 167,000 nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to
the company’s financial performance in respect of growth in embedded value and total shareholder return (‘TSR’).
The fair value of the non-market base condition was determined to be 410.00p, which was the share price as at 28 April 2018, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2018 Long-Term Incentive Scheme
2018
Weighted
average
exercise
price
£
Options
number
000
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:508)(cid:520)(cid:566)(cid:566)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:123)(cid:616)(cid:387)(cid:566)(cid:637)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
E(cid:687)(cid:457)(cid:616)(cid:442)(cid:520)(cid:624)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1115)(cid:1117)(cid:3)(cid:3)
(cid:1110)(cid:1115)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)
(cid:1269)
(cid:1269)
(cid:1269)
The weighted average contractual life is 10 years.
The inputs into the Monte Carlo model are as follows:
Valuation method
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value of options granted (pence)
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Monte Carlo
410.00
Nil
229.78
25.77
3 years
1.190%
0%
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised total expense of £81,000 related to equity-settled share based payments transactions in 2018.
170
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SECTION D
(c) 2017 award made under the Short-Term Incentive Scheme (STI)
The group has recorded an expense of £48,000 with regards to the 35% element that has been deferred over the vesting period.
(d) 2017 award made under the Long-Term Incentive Scheme (LTI)
In April 2017, the group granted 174,000 nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to
the company’s financial performance in respect of growth in embedded value and total shareholder return (‘TSR’).
The fair value of the non-market base condition was determined to be 382.75p, which was the share price as at 28 April 2017, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2017 Long-Term Incentive Scheme
2018
2017
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:508)(cid:520)(cid:566)(cid:566)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:123)(cid:616)(cid:387)(cid:566)(cid:637)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
E(cid:687)(cid:457)(cid:616)(cid:442)(cid:520)(cid:624)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1110)(cid:1116)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1116)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1116)(cid:1113)(cid:3)(cid:3)
(cid:1110)(cid:1116)(cid:1113)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)
(cid:1269)
(cid:1269)
(cid:1269)
The weighted average contractual life is 10 years.
The inputs into the Monte Carlo model are as follows:
Valuation method
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value of options granted (pence)
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Monte Carlo
382.75
Nil
211.73
26.97
3 years
0.70%
0%
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised total expense of £89,000 related to equity-settled share based payments transactions in 2018.
(e) 2016 award under the Short-Term Incentive Scheme (STI)
The group has recorded an expense of £66,000 with regards to the 35% element that has been deferred over the vesting period.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
45 Share-based payments (continued)
(f) 2016 award made under the Long-Term Incentive Scheme (LTI)
In April 2016, the group granted 255,000 nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to
the company’s financial performance in respect of growth in embedded value and total shareholder return (‘TSR’).
The fair value of the non-market base condition was determined to be 312.00p, which was the share price as at 28 April 2016, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2016 Long-Term Incentive Scheme
2018
2017
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:508)(cid:520)(cid:566)(cid:566)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:123)(cid:616)(cid:387)(cid:566)(cid:637)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1111)(cid:1114)(cid:1114)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1113)(cid:3)(cid:1264)(cid:3)
(cid:1111)(cid:1111)(cid:1110)(cid:3)(cid:3)
(cid:1269)
(cid:1269)
(cid:1269)
The weighted average contractual life is 10 years.
The inputs into the Monte Carlo model are as follows:
Valuation method
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value of options granted (pence)
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Monte Carlo
312.00
Nil
179.72
28.07
3 years
0.86%
0%
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised total expense of £141,000 related to equity-settled share based payments transactions in 2018.
(g) 2015 award under the Short-Term Incentive Scheme (STI)
The group has recorded an expense of £40,000 with regards to the 35% element that has been deferred over the vesting period.
172
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SECTION D
(h) 2015 award made under the Long-Term Incentive Scheme (LTI)
In April 2015, the group granted 181,000 nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to
the company’s financial performance in respect of growth in embedded value and total shareholder return (‘TSR’).
The fair value of the non-market base condition was determined to be 319.00p, which was the share price as at 28 April 2015, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2015 Long-Term Incentive Scheme
2018
2017
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:508)(cid:520)(cid:566)(cid:566)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:121)(cid:577)(cid:616)(cid:505)(cid:457)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1110)(cid:1115)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1115)(cid:1114)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1110)(cid:1117)(cid:1110)(cid:3)(cid:3)
(cid:1263)(cid:1110)(cid:1115)(cid:3)(cid:1264)(cid:3)
(cid:1110)(cid:1115)(cid:1114)(cid:3)(cid:3)
(cid:1269)
(cid:1269)
(cid:1269)
The weighted average contractual life is 10 years.
The inputs into the Monte Carlo model are as follows:
Valuation method
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value of options granted (pence)
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Monte Carlo
319.00
nil
187.62
30.21%
3 years
1.07%
0%
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised total expense of £10,000 related to equity-settled share based payments transactions in 2018.
(i) 2014 award under the Short-Term Incentive Scheme (STI)
The group has recorded an expense of £5,000 with regards to the 35% element that has been deferred over the vesting period.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
173
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IFRS FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(j) 2014 award made under the Long-Term Incentive Scheme (LTI)
In May 2014, the group granted 169,000 nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to
the company’s financial performance in respect of growth in embedded value and total shareholder return (‘TSR’).
Fair value is measured by use of the Monte Carlo model of the TSR condition. The LTI Scheme also contains embedded value growth. As these are non-market
performance conditions they are not included in the determination of fair value of share options at the grant date. The fair value of the non-market base condition
was determined to be 310.25p, which was the share price as at 20 May 2014, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2014 Long-Term Incentive Scheme
2018
2017
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:441)(cid:457)(cid:508)(cid:520)(cid:566)(cid:566)(cid:520)(cid:566)(cid:508)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:121)(cid:577)(cid:616)(cid:505)(cid:457)(cid:520)(cid:637)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
E(cid:687)(cid:457)(cid:616)(cid:442)(cid:520)(cid:624)(cid:457)(cid:449)(cid:3)(cid:449)(cid:653)(cid:616)(cid:520)(cid:566)(cid:508)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
O(cid:653)(cid:637)(cid:624)(cid:637)(cid:387)(cid:566)(cid:449)(cid:520)(cid:566)(cid:508)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
E(cid:687)(cid:457)(cid:616)(cid:442)(cid:520)(cid:624)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)(cid:387)(cid:637)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:457)(cid:566)(cid:449)(cid:3)(cid:577)(cid:505)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1118)(cid:1110)(cid:3)(cid:3)
(cid:1263)(cid:1112)(cid:1112)(cid:3)(cid:1264)(cid:3)
(cid:1114)(cid:1117)(cid:3)(cid:1264)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:1269)
(cid:1112)(cid:1118)(cid:1115)(cid:1245)(cid:1116)(cid:1113)
(cid:1269)
(cid:1269)
(cid:1269)
The weighted average contractual life is 10 years.
The inputs into the Monte Carlo model are as follows:
Valuation method
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value of options granted (pence)
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Monte Carlo
310.25
nil
183.08
32.10%
3 years
1.46%
0%
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised total expense of £nil related to equity-settled share based payments transactions in 2018.
46 Earnings per share
Earnings per share are based on the following:
Year ended 31 December
(cid:256)(cid:616)(cid:577)(cid:718)(cid:637)(cid:3)(cid:505)(cid:577)(cid:616)(cid:3)(cid:637)(cid:515)(cid:457)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:3)(cid:387)(cid:637)(cid:637)(cid:616)(cid:520)(cid:441)(cid:653)(cid:637)(cid:387)(cid:441)(cid:546)(cid:457)(cid:3)(cid:637)(cid:577)(cid:3)(cid:624)(cid:515)(cid:387)(cid:616)(cid:457)(cid:515)(cid:577)(cid:546)(cid:449)(cid:457)(cid:616)(cid:624)(cid:3)(cid:1263)(cid:1331)(cid:1109)(cid:1109)(cid:1109)(cid:1264)(cid:3)
Weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
2017
(cid:1111)(cid:1113)(cid:1239)(cid:1110)(cid:1111)(cid:1113)(cid:3)(cid:3)
149,847,736
16.10p
16.01p
(cid:1116)(cid:1117)(cid:1239)(cid:1113)(cid:1112)(cid:1113)
149,749,517
52.38p
52.13p
The weighted average number of ordinary shares in respect of the year ended 31 December 2018 is based upon 149,908,956 shares. The weighted average
number of ordinary shares in respect of the year ended 31 December 2018 was based upon 149,908,956 shares in issue. No shares were held in treasury.
There were 845,346 share options outstanding at 31 December 2018 (2017: 877,000). Accordingly, there is dilution of the average number of ordinary shares in
issue in respect of 2017.
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SECTION D
47 Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
Operating lease rentals
Year ended 31 December
Less than 1 year
Between 1 and 2 years
(cid:57)(cid:457)(cid:637)(cid:677)(cid:457)(cid:457)(cid:566)(cid:3)(cid:1111)(cid:3)(cid:387)(cid:566)(cid:449)(cid:3)(cid:1114)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:624)(cid:3)
(cid:195)(cid:577)(cid:616)(cid:457)(cid:3)(cid:637)(cid:515)(cid:387)(cid:566)(cid:3)(cid:1114)(cid:3)(cid:688)(cid:457)(cid:387)(cid:616)(cid:624)(cid:3)
Non-
investment
properties
£000
85
3,027
(cid:1112)(cid:1111)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Expenses recognised in the year in respect of operating leases
3,441
2018
Motor
vehicles
£000
21
25
(cid:1269)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
65
Non-
investment
properties
£000
922
815
(cid:1115)(cid:1109)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
Total
£000
106
3,052
(cid:1112)(cid:1111)(cid:1117)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
3,506
1,071
2017
Motor
vehicles
£000
139
142
(cid:1118)(cid:1118)(cid:3)(cid:3)
(cid:1269)(cid:3)(cid:3)
188
Total
£000
1,061
957
(cid:1110)(cid:1114)(cid:1118)
(cid:1269)
1,259
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.
48 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.
49 Capital commitments
There were no capital commitments as at 31 December 2018 or as at 31 December 2017.
50 Related parties
(a) Identity of related parties
The shares of the company were widely held and no single shareholder exercised significant influence or control over the company.
The company has related party relationships with:
(i) key management personnel who comprise only the directors of the company;
(ii) its subsidiary companies;
(iii) its associated company;
(iv) other companies over which the directors have significant influence; and
(v) transactions with persons related to key management personnel.
(b) Related party transactions
(i) Transactions with key management personnel.
Key management personnel comprise of the directors of the company. Key management compensation is as follows:
(cid:268)(cid:515)(cid:577)(cid:616)(cid:637)(cid:1272)(cid:637)(cid:457)(cid:616)(cid:564)(cid:3)(cid:457)(cid:564)(cid:613)(cid:546)(cid:577)(cid:688)(cid:457)(cid:457)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)
(cid:256)(cid:577)(cid:624)(cid:637)(cid:1272)(cid:457)(cid:564)(cid:613)(cid:546)(cid:577)(cid:688)(cid:564)(cid:457)(cid:566)(cid:637)(cid:3)(cid:441)(cid:457)(cid:566)(cid:457)(cid:718)(cid:637)(cid:624)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(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
2018
£000
(cid:1118)(cid:1117)(cid:1117)(cid:3)(cid:3)
(cid:1115)(cid:1117)(cid:3)(cid:3)
2017
£000
(cid:1110)(cid:1239)(cid:1112)(cid:1111)(cid:1113)
(cid:1115)(cid:1115)
1,056
1,390
In addition, to their salaries the company also provides non-cash benefits to directors, and contributes to a post employment defined contribution pension plan
on their behalf, or where regulatory contribution limits are reached, pay an equivalent amount as an addition to base salary.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF CHESNARA PLC
IFRS FINANCIAL STATEMENTS
50 Related parties (continued)
(b) Related party transactions (continued)
The following amounts were payable to directors in respect of bonuses and incentives:
Annual bonus scheme (included in the short-term employee benefits above)
2018
£000
2017
£000
216
588
These amounts have been included in accrued expenses as disclosed in Note 39. The amounts payable under the annual bonus scheme were payable within 1 year.
(ii) Transactions with subsidiaries
The company undertakes centralised administration functions, the costs of which it charges back to its operating subsidiaries. The following amounts which
effectively comprised a recovery of expenses at no mark up were credited to the Consolidated Statement of Comprehensive Income of the company for the
respective periods:
Year ended 31 December
Recovery of expenses
(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
2018
£000
2017
£000
3,976
3,272
2018
£000
(8,253 )
5,460
(1,561 )
2017
£000
(9,667 )
5,820
(2,843 )
(4,354 )
(6,690 )
(2,700 )
(2,442 )
Movestic Livförsäkring AB had the following amounts outstanding at the balance sheet date:
2018
2017
Amounts
owed by
associate
£000
Amounts
owed to
associate
£000
Amounts
owed by
associate
£000
Amounts
owed to
associate
£000
Modernac S.A.
–
2,700
–
2,442
These amounts have been included in other payables as disclosed in Note 39 and other receivables as disclosed in Note 26.
(iv) Transactions with persons related to key management personnel
During the year, there were no transactions with persons related to key management personnel.
176
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SECTION D
52 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.
Group subsidiary companies
Name
Countrywide Assured plc
Country of
incorporation
United Kingdom
Countrywide Assured Life Holdings Limited
United Kingdom
Countrywide Assured Services Limited
United Kingdom
Countrywide Assured Trustee Company Limited
United Kingdom
Ownership
interest
31 December
2018
100% of all share
capital (1)
100% of all share
capital
100% of all share
capital
100% of all share
capital
Ownership
interest
31 December
2017
100% of all share
capital (1)
100% of all share
capital
100% of all share
capital
100% of all share
capital
Functional
Currency
Sterling
Sterling
Sterling
Sterling
Registered address
2nd Floor, Building 4, West Strand Business Park,
West Strand Road, Preston, Lancashire PR1 8UY
Movestic Livförsäkring AB
Movestic Kapitalforvältning AB
Registered address
Box 7853, S -103 99 Stockholm, Sweden
Sweden
Sweden
100% of all share
capital
100% of all share
capital (2)
100% of all share
capital
100% of all share
capital (2)
Swedish krona
Swedish krona
Movestic Fund Management S.A.
Luxembourg
100% of all share
capital (6)
100% of all share
capital (6)
Swedish krona
Registered address
12 Rue Gabriel Lippmann, L-5365 Munsbach, Luxembourg
Modernac S.A.
Registered address
BP 593 L-2015 Luxemburg, Luxembourg
Chesnara Holdings B.V.
Waard Leven N.V.
Waard Schade N.V.
Waard Verzekering
Luxembourg
49% of all share
capital (2)
49% of all share
capital (2)
Swedish krona
Netherlands
Netherlands
Netherlands
Netherlands
100% of all share
capital (3)
100% of all share
capital (4)
100% of all share
capital (4)
100% of all share
capital (4)
100% of all share
capital (3)
100% of all share
capital (4)
100% of all share
capital (4)
100% of all share
capital (4)
100% of all share
capital (5)
Euro
Euro
Euro
Euro
Euro
Hollands Welvaren Leven N.V. (7)
Netherlands
n/a
Registered address
Geert Scholtenslaan II 1687 CL Wognum, Netherlands
Scildon N.V
Registered address
Laapersveld 68 Hilversum, Netherlands
Netherlands
100% of all share
capital (4)
100% of all share
capital (4)
Euro
(1) Held indirectly through Countrywide Assured Life Holdings Limited.
(2) Held indirectly through Movestic Livförsäkring AB.
(3) Company formed on 25 November 2014.
(4) Held indirectly through Chesnara Holdings B.V.
(5) Held indirectly through Waard Leven N.V.
(6) Company formed on 6 March 2017.
(7) Company deregistered on 19 December 2018.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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SECTION E:
ADDITIONAL
INFORMATION
178
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180 Financial calendar
180 Key contacts
181 Notice of Annual General Meeting
183 Explanatory notes to the notice of the
Annual General Meeting
187 Reconciliation of metrics
188 Glossary
189 Note on terminology
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179
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FINANCIAL
CALENDAR
29 March 2019
Results for the year ended
31 December 2018 announced
11 April 2019
Ex dividend date
12 April 2019
Dividend record date
17 April 2019
Published Report and Accounts issued
to shareholders
01 May 2019
Last date for dividend reinvestment
plan elections
14 May 2019
Annual General Meeting
24 May 2019
Dividend payment date
29 August 2019
Half year results for the 6 months
ending 30 June 2018 announced
ADDITIONAL INFORMATION
KEY
CONTACTS
Bankers
National Westminster Bank plc
135 Bishopsgate
London
EC2M 3UR
The Royal Bank of Scotland
8th Floor, 135 Bishopsgate
London
EC2M 3UR
Lloyds Bank plc
3rd Floor, Black Horse House
Medway Wharf Road
Tonbridge
Kent
TN9 1QS
Public Relations Consultants
FWD
145 Leadenhall Street
London
EC3V 4QT
Corporate Advisors
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
Registered and Head Office
2nd Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
Tel: 01772 972050
www.chesnara.co.uk
Advisors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2HA
Addleshaw Goddard LLP
One St Peter’s Square
Manchester
M2 3DE
Auditor
Deloitte LLP
Statutory Auditor
Saltire Court
2 Hardman Street
Manchester
M3 3HF
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Joint Stockbrokers
Panmure Gordon
One New Change
London
EC4M 9AF
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
180
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SECTION E
NOTICE OF THE 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 advisor.
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.
Chesnara plc has a policy of not paying to have access to governance and sustainability analysts’ databases on which voting recommendations
and reports are produced. We encourage early, open and timely engagement to ensure the accuracy of the information contained in any analysis
and reports issued in respect of Chesnara plc.
Company No. 4947166
Notice is given that the 2019 Annual General Meeting of Chesnara plc will
be held at the offices of Panmure Gordon (UK) Limited, One New Change,
London EC4M 9AF on 14 May 2019 at 11am. For the business set out below.
Resolutions 1 to 14 inclusive will be proposed as ordinary resolutions and
resolutions 15 to 18 inclusive will be proposed as special resolutions.
1. To receive and adopt the audited accounts for the financial year ended
31 December 2018, together with the reports of the directors and auditor
thereon.
2. To approve the Directors’ Remuneration Report (other than the part of it
which contains the Directors’ Remuneration Policy) for the year ended
31 December 2018.
3. To declare a final dividend of 13.46 pence per ordinary share for the financial
year ended 31 December 2018.
4. To re-elect John Deane as a director.
5. To re-elect David Rimmington as a director.
6. To re-elect Jane Dale as a director.
7. To re-elect Peter Mason as a director.
8. To re-elect Veronica Oak as a director.
9. To re-elect David Brand as a director.
10. To elect Mark Hesketh as a director.
11. 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.
12. To authorise the directors to determine the auditor’s remuneration.
13. That, from the passing of this resolution 13 until the earlier of the close of
business on 28 June 2020 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;
(b) to make donations to political organisations other than political parties; and
(c) to incur political expenditure up to an aggregate total amount of
£50,000, with the individual amount authorised for each of (a) to (c)
above being limited to £50,000. 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.
14. That the directors be and they are hereby generally and unconditionally
authorised in accordance with Section 551 of the Companies Act 2006
(the ‘Act’), to exercise all the powers of the company, to allot shares in the
company and/or to grant rights to subscribe for or to convert any security
into shares in the company (‘Allotment Rights’):
(a) up to an aggregate nominal amount of £2,498,483 such amount to
be reduced by the aggregate nominal amount of any equity securities
allotted pursuant to the authority in paragraph (b) below in excess
of £2,498,483; and
(b) up to an aggregate nominal amount of £4,996,965 (such amount to
be reduced by the nominal aggregate amount of any shares allotted
or rights granted pursuant to the authority in paragraph (a) above)
in connection with an offer by way of a rights issue:
i) to holders of ordinary shares in proportion (as nearly as may be
practicable) to their respective holdings; and
ii) to holders of other equity securities as required by the rights of
those securities or as the directors otherwise consider necessary,
but subject to such exclusions or other arrangements as the directors
may deem necessary or expedient in relation to treasury shares,
fractional entitlements, record dates, legal or practical problems in or
under the laws of any territory or the requirements of any regulatory body
or stock exchange, provided that this authority shall, unless renewed,
varied or revoked by the company, expire at the conclusion of the
company’s next Annual General Meeting (or, if earlier, at the close of
business on 30 June 2020) save that the company may, before such
expiry, make offers or agreements which would or might require
securities to be allotted or Allotment Rights to be granted after such
expiry and the directors may allot securities or grant Allotment Rights in
pursuance of such offer or agreement notwithstanding the expiry of the
authority conferred by this resolution.
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ADDITIONAL INFORMATION
NOTICE OF THE ANNUAL GENERAL MEETING (CONTINUED)
15. That, subject to the passing of resolution 14 in this notice, the directors be
and are hereby empowered pursuant to Section 570 of the Companies Act
2006 (‘the Act’) to allot equity securities (as defined in Section 560 of the Act)
for cash, pursuant to the authority conferred on them by resolution 14 of this
notice or by way of a sale of treasury shares as if Section 561 of the Act did
not apply to any such allotment, provided that this power is limited to:
17. That the company be and is hereby generally and unconditionally
authorised for the purposes of Section 701 of the Companies Act 2006
(‘the Act’) to make one or more market purchases (as defined in Section
693(4) of the Act) of ordinary shares in the capital of the company,
provided that:
(a) the maximum aggregate number of ordinary shares hereby
(a) the allotment of equity securities in connection with any rights issue or
authorised to be purchased is 14,990,896;
open offer (each as referred to in the Financial Conduct 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 (other than pursuant to paragraph
(a) above) with an aggregate nominal value of £374,772
and shall expire on the revocation or expiry (unless renewed) of the authority
conferred on the directors by resolution 14 of this notice, 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
and the directors may allot equity securities under any such offer or
agreement as if the power had not expired.
16. That, subject to the passing of resolution 14 of this notice and, in addition
to the power contained in resolution 15 of this notice, the directors be and
are hereby empowered pursuant to Section 570 of the Companies Act 2006
(‘the Act’) to allot equity securities (as defined in Section 560 of the Act) for
cash, pursuant to the authority conferred on them by resolution 14 of this
notice or by way of sale of treasury shares as if Section 561 of the Act did
not apply to any such allotment, provided that this power is:
(a) limited to the allotment of equity securities up to an aggregate nominal
value of £374,772; and
(b) used only for the purposes of financing (or refinancing, if the power is
to be exercised within 6 months after the date of the original transaction)
a transaction which the directors determine to be an acquisition or other
capital investment of a kind contemplated by the Statement of Principles
on Disapplying Pre-Emption Rights most recently published by the
Pre-Emption Group prior to the date of the notice of this meeting,
and shall expire on the revocation or expiry (unless renewed) of the authority
conferred on the directors by resolution 14 of this notice 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
and the directors may allot equity securities under any such offer or
agreement as if the power had not expired.
(b) the minimum price (exclusive of expenses) which may be paid
for such ordinary shares is its nominal value;
(c) the maximum price (exclusive of expenses) which may be paid for
such ordinary shares is the maximum price permitted under the
Financial Conduct 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 those shares (as derived from the Daily
Official. List of London Stock Exchange plc) for the 5 business days
immediately preceding the date on which the terms of the tender offer
are announced;
(d) the authority hereby conferred shall expire at the conclusion of the
company’s next Annual General Meeting (or, if earlier, at the close
of business on 30 June 2020); and
(e) the company may enter into contracts 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.
18. 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
Alastair Lonie
Company Secretary
2nd Floor, Building 4
West Strand Business Park,
West Strand Road,
Preston
Lancashire
PR1 8UY
28 March 2019
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SECTION E
EXPLANATORY NOTES TO THE NOTICE OF
THE ANNUAL GENERAL MEETING
1. Any member who is entitled to attend and vote at this 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. You will not receive a form of proxy for the AGM in the post. Instead, you will
receive instructions to enable you to vote electronically and how to register
to do so. You will still be able to vote in person at the AGM, and may request
a physical copy proxy form directly from the registrars, Link Asset Services,
34 Beckenham Road, Beckenham, BR3 4TU (telephone number: 0371 664 0300).
If you request a physical copy proxy form, it must be completed in accordance
with the instructions that accompany it and then delivered (together with any
power of attorney or other authority under which it is signed, or a certified copy
of such item) to [Link Asset Services, PXS1, 34 Beckenham Road, Beckenham,
Kent BR3 4TU so as to be received by 11am on Friday 10 May 2019]. The return
of the form of proxy will not, however, prevent you from attending the Meeting
and voting, in person, should you wish to do so.
3. 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. Members may appoint a proxy online by following the
instructions for the electronic appointment of a proxy at www.signalshares.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 11am on Friday
10 May 2019. 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.
4. CREST members who wish to appoint one or more proxies 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 Link Asset Services (ID RA10), by
11am on Friday 10 May 2019, 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.
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EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING (CONTINUED)
ADDITIONAL INFORMATION
5. Copies of directors’ service contracts and letters of appointment are
11. 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.
12. Members meeting the threshold requirements in Sections 338 and 338A
of the Companies Act 2006 have the right to require the company (i) to give
to members entitled to receive notice of the meeting notice of a resolution
which may properly be moved and is intended to be moved at the meeting
and/or (ii) to include in the business to be dealt with at the meeting any
matter (other than a proposed resolution) which may be properly included in
the business. A resolution may properly be moved or a matter may properly
be included in the business unless (a) (in the case of a resolution only) it
would, if passed, be ineffective (whether by reason of inconsistency with any
enactment or the company’s constitution or otherwise), (b) it is defamatory
of any person, or (c) it is frivolous or vexatious. Such a request may be in hard
copy form or in electronic form, must identify the resolution of which notice
is to be given or (as applicable) the matter to be included in the business,
must be authenticated by the person or persons making it, must be received
by the company not later than 11am on 2nd April 2019, and (in the case
of a matter to be included in the business only) must be accompanied by
a statement setting out the grounds for the request.
The notes on the following pages give an explanation of the proposed
resolutions.
available for inspection at the registered office of the company during
normal business hours each business day. They will also be available
for inspection at the Annual General Meeting for at least 15 minutes prior
to and during the Annual General Meeting.
6. 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 close of business on Friday 10 May 2019.
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.
7. 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.
8. As at 23 March 2019 (being the last practicable date prior to the
publication of this document), the company’s issued share capital consisted
of 149,908,956 ordinary shares, carrying one vote each. No shares were
held by the company in treasury. Therefore, the total voting rights in
the company as at 23 March 2019 (being the last practicable date prior
to the publication of this document) were 149,908,956.
9. 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 may not be used to communicate with
the company for any purposes other than those expressly stated.
10. 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.
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SECTION E
Resolution 1
Resolutions 11 and 12
Report and Accounts
The Companies Act 2006 requires the directors of a public company to lay its
Annual Report and Accounts before the company in general meeting, giving
shareholders the opportunity to ask questions on the contents. The Annual
Report and Accounts comprise the Audited Financial Statements, the Auditor’s
Report, the Directors’ Report, the Directors’ Remuneration Report, and the
Directors’ Strategic Report.
Resolution 2
Approval of the Directors’ Remuneration Report
In accordance with the Companies Act 2006, the company proposes an ordinary
resolution to approve the Directors’ Remuneration Report for the financial year
ended 31 December 2018. The Directors’ Remuneration Report can be found
on pages 62 to 79 of the 2018 Report and Accounts and, for the purposes
of this resolution, does not include the parts of the Directors’ Remuneration
Report containing the Directors’ Remuneration Policy set out on pages 73 to
79. The vote on this resolution is advisory only and the directors’ entitlement to
remuneration is not conditional on it being passed. The Companies Act 2006
requires the Directors’ Remuneration Policy to be put to shareholders for
approval annually unless the approved policy remains unchanged, in which case
it need only be put to shareholders for approval at least every 3 years. The
company is not proposing any changes to the Directors’ Remuneration Policy
approved at the annual general meeting in 2017.
Resolution 3
Final dividend
The declaration of the final dividend requires the approval of shareholders in
general meeting. If the 2019 Annual General Meeting approves resolution 3,
the final dividend of 13.46 pence per share will be paid on 24 May 2019
to ordinary shareholders who are on the register of members at the close
of business on 12 April 2019 in respect of each ordinary share.
Resolutions 4 – 10 inclusive
Election and Re-election of directors
The company’s Articles of Association provide that any director who has not
been elected or re-elected by the shareholders at either of the two preceding
annual general meetings is required to retire at the next Annual General
Meeting. Additionally, the Articles of Association require such further directors
to retire at the annual general meeting as would bring the total number of
directors retiring up to one-third of their number.
Notwithstanding the provisions of the company’s Articles of Association,
the board of directors has determined that all the directors shall retire from
office at this year’s annual general meeting in line with the best practice
recommendations of the UK Corporate Governance Code 2018 (the ‘Code’).
Each of the directors intends to stand for re-election by the shareholders.
Biographical details of each director can be found on pages 50 and 51 of this
document. The Chairman confirms that each of the directors proposed
continues to make an effective and valuable contribution and demonstrates
commitment to their responsibilities. This is supported by the annual
performance evaluation that was undertaken recently. The board unanimously
recommend that each of these directors be re-elected as a director of
the company.
In accordance with the Code, the board has reviewed the independence
of its Non-Executive Directors and has determined that they remain fully
independent of management. The company notes that the guidance within
the Corporate Governance Code is that the Chairman should not normally
remain in place after serving 9 years. However, with the experienced SID
Mike Evans stepping down in October 2018, the board feel that the interests
of the shareholders and other stakeholders are best served by Peter Mason
continuing as Chairman.
Re-appointment and remuneration of auditor
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.
The Audit & Risk Committee has recommended the re-appointment of
Deloitte LLP and has confirmed that such recommendation is free from
influence by a third party and that no restrictive contractual terms have been
imposed on the company. Deloitte LLP has indicated that it is willing to
continue to act as the company’s auditor.
Resolution 11, therefore, proposes Deloitte’s reappointment as auditor to hold
office until the next general meeting at which the company’s accounts are
laid before shareholders. Resolution 12 authorises the directors to determine
the auditor’s remuneration.
Resolution 13
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 (‘the Act’) 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 14
Power to allot shares
The Companies Act 2006 provides that the directors may only allot shares if
authorised by shareholders to do so. The directors’ current allotment authority
is due to lapse at the 2019 Annual General Meeting. The board is, therefore,
seeking to renew its authority over shares having an aggregate nominal
amount of £2,498,483, representing approximately one-third of the issued
ordinary share capital of the company (excluding treasury shares) as at
23 March 2019 (being the latest practicable date prior to the publication
of this document). The board is also seeking authority to allot shares having
an aggregate nominal amount of £4,996,965, representing approximately
two-thirds of the issued share capital of the company (excluding treasury
shares) as at 23 March 2019 by way of a rights issue.
The allotment authority sought is in line with the Share Capital Management
guidelines issued by the Investment Association. For the avoidance of doubt,
the authority sought pursuant to this resolution will give the directors the
ability to allot shares (or grant rights to shares) up to a maximum aggregate
nominal amount of £4,996,965.
As at 23 March 2019, the company held no treasury shares.
The authority will expire at the earlier of the conclusion of the company’s next
Annual General Meeting and the close of business on 30 June 2020.
Passing resolution 14 will ensure that the directors have flexibility to take
advantage of any appropriate opportunities that may arise. At present the
directors have no intention of exercising this authority.
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EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING (CONTINUED)
ADDITIONAL INFORMATION
Resolutions 15 and 16
Resolution 17
Disapplication of statutory pre-emption rights
The directors are currently authorised, subject to certain limitations, to issue
shares for cash without first offering them to existing shareholders in
proportion to their existing shareholdings. That authority will expire at the
conclusion of the 2019 Annual General Meeting and, in accordance with
the Statement of Principles issued by the Pre-Emption Group, resolutions
15 and 16 (which will be proposed as special resolutions) seek to renew the
directors’ authority to disapply pre-emption rights as referenced below.
Resolution 15, if passed, will allow the directors to (a) allot shares in the
company for cash in connection with a rights issue or other pre-emptive offer;
and (b) otherwise allot shares in the company for cash up to a maximum
aggregate nominal value of £374,772, in each case as if the pre-emption rights
of Section 561 of the Companies Act 2006 did not apply. This aggregate
nominal amount equates to approximately 5% of the issued ordinary share
capital of the company (excluding treasury shares) as at 23 March 2019 (being
the latest practicable date prior to the publication of this notice of annual
general meeting).
Resolution 16 is proposed as a separate special resolution. In line with
the Pre-Emption Group’s Statement of Principles, the company is seeking
authority, to issue up to an additional 5% of its issued ordinary share
capital for cash without pre-emption rights applying. In accordance with
the Statement of Principles, the company will only allot shares under this
additional authority in connection with an acquisition or specific capital
investment (within the meaning given in the Statement of Principles) which
is announced contemporaneously with the allotment, or which has taken
place in the preceding 6 month period and is disclosed in the announcement
of the allotment.
The board also confirms its intention to follow the provisions of the
Statement of Principles regarding cumulative usage of authorities within
a rolling 3 year period. Those provisions provide 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 3 year period, other than to existing shareholders, without
prior consultation with shareholders. This limit excludes any ordinary
shares issued pursuant to a general disapplication of pre-emption rights
in connection with an acquisition or specified capital investment.
Authority to purchase own shares
This resolution, which will be proposed as a special resolution, seeks to renew
the company’s authority to purchase its own shares. It specifies the maximum
number of shares which may be acquired as 10% of the company’s issued
ordinary share capital (excluding treasury shares) as at 23 March 2019, being
the latest practicable date prior to the publication of this document, and
specifies the minimum and maximum prices at which shares may be bought.
The directors will only use this authority if, in the light of market conditions
prevailing at the time, they believe that the effect of such purchases will be
(where such shares are to be purchased for cancellation) to increase earnings
per share, and that taking into account other investment opportunities,
purchases will be in the best interests of the shareholders generally. Any
shares purchased in accordance with this authority will be cancelled or held in
treasury for subsequent transfer to an employee share scheme. The directors
have no present intention of exercising this authority, which will expire at the
earlier of the conclusion of the company’s next Annual General Meeting and
the close of business on 30 June 2020.
The company has options and awards outstanding under existing share
schemes over an aggregate of 845,346 ordinary 5p shares, representing
0.56% of the company’s issued ordinary share capital (excluding treasury
shares) as at 23 March 2019 (the latest practicable date prior to the
publication of this document). This would represent approximately 0.63%
of the company’s issued share capital (excluding treasury shares) if the
proposed authority being sought at the Annual General Meeting to buy back
14,990,896 ordinary shares was exercised in full (and all of the repurchased
ordinary shares were cancelled).
Resolution 18
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 once again approve the calling of meetings
on not less than 14 clear days’ notice. Resolution 18 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 statutory requirements for electronic
voting 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.
Directors’ recommendation
The directors recommend all shareholders to vote in favour of all of the above
resolutions, as the directors intend to do in respect of their own shares
(save in respect of those matters in which they are interested), and consider
that all resolutions are in the best interests of the company and its shareholders
as a whole.
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SECTION E
RECONCILIATION OF METRICS
Within these Report and Accounts and as described on page 10, we use alternative performance measures to detail
the position and performance of the group and its divisions. We believe that these measures are of greater
commercial relevance than IFRS to the users of the Report and Accounts. The diagram below shows the interaction
between the measures:
FINANCIAL STATEMENTS
ADDITIONAL METRICS
IFRS profits
I
R
Capital requirements
Solvency capital
requirement
SCR plus
management
buffer
IFRS net assets
Solvency II valuation
(Own Funds)
P
I
R
B
Solvency
Stakeholder focus:
P
I
R
B
Policyholders
Investors
Regulators
Business partners
Key performance indicators
Percentage
Absolute
I
Economic Value
I
B
Cash generation
Balance sheet
Earnings
Group
Divisional
As shown above, the key interaction between our statutory reporting rules under IFRS and the alternative performance measures is with the Solvency II
valuation and the Own Funds balance. A reconciliation from IFRS net assets to Solvency II Own Funds is shown below:
£m
31 Dec
2018
31 Dec
2017
Rationale
Group IFRS net assets
445.6
451.7
Removal of intangible assets; AVIF, DAC and DIL
(173.5)
(182.6)
Intangible assets that cannot be sold separately have no intrinsic value under
Solvency II rules.
Removal of IFRS reserves, net of reinsurance
6,817.6
7,378.9
Inclusion of SII technical provisions,
net of reinsurance
(6,510.7)
(6,968.9)
Actuarial reserves are calculated differently between the two methodologies
and hence IFRS reserves are replaced with Solvency II technical provisions.
The main differences in methodology are discussed further below.
Other valuation differences
3.9
2.5
Other immaterial valuation differences.
Deferred tax valuation differences
(4.4)
(20.3)
These are the deferred tax impacts as a result of the adjustments above.
Foreseeable dividends
(20.2)
(19.6)
Ring-fenced surpluses
(5.7)
(26.5)
Group Solvency II Own Funds
552.6
615.2
Under Solvency II rules, future ‘foreseeable dividends’ are required to be
recognised within Own Funds. Under IFRS rules, dividends are recognised
when paid.
Solvency II requires that Own Funds are reduced by any surpluses that are
restricted. For Chesnara this relates to surpluses within the two S&P with-profits
funds, which are temporarily restricted. These restrictions are removed through
periodic capital transfers.
The main differences between the two methodologies for calculating actuarial reserves are as follows:
– IFRS reserves continue to be largely based on the Solvency I regimes in place in each of the divisions. The main difference between IFRS and Solvency I
is the inclusion of an additional cost of guarantee reserve in each of the with-profits funds in CA plc.
– IFRS assumptions contain prudence margins, whereas the Solvency II assumptions are best estimate.
– Solvency II requires the establishment of contract boundaries to determine whether an insurance obligation or reinsurance obligation is to be treated as
existing or future business, with only existing business considered in scope for the calculation of technical provisions.
– Solvency II requires the inclusion of a risk margin to reflect inherent uncertainties within the estimated liabilities.
– Other valuation differences, such as IFRS future liability cash flows are discounted using a valuation rate of interest based on the risk-adjusted yield on held
assets, whereas Solvency II uses a swaps-based risk-free discount curve, as prescribed by EIOPA.
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ADDITIONAL INFORMATION
GLOSSARY
Annual General Meeting.
Asset Liability Management – management of risks that arise
due to mismatches between assets and liabilities.
Annual Premium Equivalent – an industry wide measure that is
used for measuring the annual equivalent of regular and single
premium policies.
Countrywide Assured plc.
London
Stock Exchange
LTI
London Stock Exchange plc.
Long-Term Incentive Scheme – A reward system designed to
incentivise executive directors’ long-term performance.
Movestic
Movestic Livförsäkring AB.
Modernac
Modernac SA, an associated company which is 49% owned
by Movestic.
Countrywide Assured Life Holdings Limited and its subsidiary
companies.
New business
The present value of the expected future cash inflows arising
from business written in the reporting period.
AGM
ALM
APE
CA
CALH
BAU cash
generation
Cash
generation
This represents divisional cash generation plus the impact of
non-exceptional group activity.
This represents the operational cash that has been generated in
the period. The cash generating capacity of the group is largely
a function of the movement in the solvency position of the
insurance subsidiaries within the group, and takes account of
the buffers that management has set to hold over and above
the solvency requirements imposed by our regulators. Cash
generation is reported at a group level and also at an underlying
divisional level reflective of the collective performance of each
of the divisions prior to any group level activity.
Divisional cash This represents the cash generated by the three operating
divisions of Chesnara (UK, Sweden and the Netherlands),
generation
exclusive of group level activity.
DNB
DPF
De Nederlandsche Bank is the central bank of the Netherlands
and is the regulator of our Dutch subsidiaries.
Discretionary Participation Feature – A contractual right under
an insurance contract to receive, as a supplement to guaranteed
benefits, additional benefits whose amount or timing is
contractually at the discretion of the issuer.
Dutch business Scildon and the Waard Group, consisting of Waard Leven N.V.,
Hollands Welvaren Leven N.V., Waard Schade N.V. and Waard
Verzekeringen B.V.
Economic
Profit
EcV
A measure of pre-tax profit earned from investment market
conditions in the period and any economic assumption changes
in the future (alternative performance metrice – APM).
Economic Value is a financial metric that is derived from Solvency
II Own Funds that is broadly similar in concept to European
Embedded Value. It provides a market consistent assessment
of the value of existing insurance businesses, plus adjusted net
asset value of the non-insurance business within the group.
FCA
FI
Financial Conduct Authority.
Finansinspektionen, being the Swedish Financial Supervisory
Authority.
Form of proxy
The form of proxy relating to the General Meeting being sent to
shareholders with this document.
FSMA
The Financial Services and Markets Act 2000 of England and
Wales, as amended.
Group
The company and its existing subsidiary undertakings.
Group cash
generation
Group
Own Funds
Group SCR
This represents the absolute cash generation for the period at
total group level, comprising divisional cash generation as well as
both exceptional and non-exceptional group activity.
In accordance with the UK’s regulatory regime for insurers it
is the sum of the individual capital resources for each of the
regulated related undertakings less the book-value of investments
by the group in those capital resources.
In accordance with the UK’s regulatory regime for insurers it is
the sum of individual capital resource requirements for the insurer
and each of its regulated undertakings.
Group solvency Group solvency is a measure of how much the value of the
company exceeds the level of capital it is required to hold in
accordance with Solvency II regulations.
HCL
IFRS
IFA
KPI
LGN
HCL Insurance BPO Services Limited.
International Financial Reporting Standards.
Independent Financial Adviser.
Key performance indicator.
LGN or Legal & General Nederland refers to the legal entity
Legal & General Nederland Levensverzekering Maatschappij N.V
acquired by Chesnara in April 2017.
Official List
The Official List of the Financial Conduct Authority.
Operating
Profit
A measure of the pre-tax profit earned from a company’s
ongoing core business operations, excluding any profit earned
from investment market conditions in the perSSiod and any
economic assumption changes in the future (alternative
performance metric – APM).
Ordinary shares Ordinary shares of five pence each in the capital of the company.
Own Funds
Own Funds – in accordance with the UK’s regulatory regime for
insurers it is the sum of the individual capital resources for each
of the regulated related undertakings less the book-value of
investments by the company in those capital resources.
ORSA
PRA
QRT
Own Risk and Solvency Assessment.
Prudential Regulation Authority.
Quantitative Reporting Template.
ReAssure
ReAssure Limited.
Resolution
The resolution set out in the notice of General Meeting set out
in this document.
RMF
Scildon
Risk Management Framework.
Scildon.
Shareholder(s) Holder(s) of Ordinary Shares.
Solvency II
SICAV
STI
SCR
Swedish
business
S&P
TCF
TSR
UK or
United Kingdom
A fundamental review of the capital adequacy regime for the
European insurance industry. Solvency II aims to establish a set
of EU-wide capital requirements and risk management standards
and has replaced the Solvency I requirements.
A type of open-ended investment fund in which the amount of
capital in the fund varies according to the number of investors.
Shares in the fund are bought and sold based on the fund’s
current net asset value.
Short-Term Incentive Scheme – A reward system designed to
incentivise executive directors’ short-term performance.
In accordance with the UK’s regulatory regime for insurers it is
the sum of individual capital resource requirements for the insurer
and each of its regulated undertakings.
Movestic and its subsidiaries and associated companies.
Save & Prosper Insurance Limited and Save & Prosper Pensions
Limited.
Treating Customers Fairly – a central PRA principle that aims to
ensure an efficient and effective market and thereby help
policyholders achieve fair outcomes.
Total Shareholder Return, measured with reference to both
dividends and capital growth.
The United Kingdom of Great Britain and Northern Ireland.
UK business
CA and S&P.
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SECTION E
NOTE ON TERMINOLOGY
As explained in Note 7 to the IFRS financial statements, the principal reporting segments of the group are:
CA
which comprises the original business of Countrywide Assured plc, the group’s original UK operating subsidiary; City of
Westminster Assurance Company Limited, which was acquired by the group in 2005, the long-term business of which
was transferred to Countrywide Assured plc during 2006; S&P which was acquired on 20 December 2010. This business
was transferred from Save & Prosper Insurance Limited and Save & Prosper Pensions Limited to Countrywide Assured
plc on 31 December; and Protection Life Company Limited which was acquired by the group in 2013, the long-term
business of which was transferred into Countrywide Assured plc in 2014;
Movestic
which was purchased on 23 July 2009 and comprises the group’s Swedish business, Movestic Livförsäkring AB and its
subsidiary and associated companies;
The Waard Group
which was acquired on 19 May 2015 and comprises of two insurance companies; Waard Leven N.V., and Waard Schade
N.V.; and a service company, Tadas Verzekering; and
Scildon
which was acquired on 5 April 2017; and
Other group activities which represents the functions performed by the parent company, Chesnara plc. Also included in this segment are
consolidation adjustments.
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ADDITIONAL INFORMATION
NOTES
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SECTION E
NOTES
CHESNARA ANNUAL REPORT AND ACCOUNTS 2018
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Registered and Head Office
Building Four, West Strand Business Park,
West Strand Road, Preston, Lancashire PR1 8UY
T +44 (0)1772 972050 F +44 (0)1772 482244
www.chesnara.co.uk
Registered Number: 4947166
Designed by The Chase
CAUTIONARY STATEMENT This document may contain forward-looking statements with respect to certain of the plans and current expectations relating to the future financial
condition, business performance and results of Chesnara plc. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances
that are beyond the control of Chesnara plc including, amongst other things, UK domestic, Swedish domestic, Dutch domestic and global economic and business conditions, market-related
risks such as fluctuations in interest rates, currency exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, delays in implementing proposals, the
timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other
legislation and other regulations in the jurisdictions in which Chesnara plc and its subsidiaries operate. As a result, Chesnara plc’s actual future condition, business performance and results
may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements.
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