ANNUAL REPORT
& ACCOUNTS
20
22
WELCOME TO THE
CHESNARA ANNUAL
REPORT & ACCOUNTS
FOR YEAR ENDED
31 DECEMBER 2022
1
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION A 2022 FINANCIAL HIGHLIGHTS
CASH GENERATION†
EXCLUDING THE IMPACT OF ACQUISITIONS
£82.7M
2021: £20.3m
GROUP SOLVENCY
197%
2021: 152%
FUNDS UNDER MANAGEMENT †
£10.6BN
2021: £9.1bn
DIVIDEND GROWTH
3%
INCREASE IN ANNUAL DIVIDEND
FOR 18TH CONSECUTIVE YEAR
IFRS LOSS BEFORE TAX
£146.9M
2021: £28.8m PROFIT
M&A DELIVERY
2 ACQUISITIONS COMPLETED WITH A
3RD ANNOUNCED DURING 2022
† Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further
information on APMs can be found in the additional information section of this Annual Report and Accounts.
2
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022OVERVIEW CONTENTS
Section A Overview
Section D IFRS financial statements
06 An introduction to Chesnara
132
Independent Auditor’s Report to
08
Delivering our strategy
10
2022 highlights
the members of Chesnara plc
140
Consolidated Statement of
12
Measuring our performance
Comprehensive Income
14
Chair’s Statement
141 Consolidated Balance Sheet
16 Chief Executive Officer’s Report
142 Company Balance Sheet
Section B Strategic report
24
Overview of our strategy,
business model and culture & values
26
Our strategy
28
Our culture & values
30
Section 172 reporting
38
Business review
45
Capital management
48
Financial review
55
Financial management
57
Risk management
143 Consolidated Statement of Cash Flows
144 Company Statement of Cash Flows
145
Consolidated Statement of Changes
in Equity
145 Company Statement of Changes in Equity
146
Notes to the Consolidated Financial
Statements
Section E Additional information
226 Financial calendar
226 Key contacts
227 Notice of the Annual General Meeting
66
Corporate and social responsibility
229
Explanatory notes to the notice of the
Section C Corporate governance
234 Appendix to AGM Notice
Annual General Meeting
238 Alternative Performance Measures
240 Reconciliation of metrics
242 Glossary
243 Note on terminology
88
Board profile and board of directors
90
Governance overview from the Chair
92
Corporate Governance Report
96
Nomination & Governance
Committee Report
98
Directors’ Remuneration Report
119
Audit & Risk Committee Report
126
Directors’ Report
129
Directors’ Responsibilities Statement
SECTION A OVERVIEW
SECTION A
OVERVIEW
Southbank, London
4
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION A
06 An introduction to Chesnara
08 Delivering our strategy
10 2022 highlights
12 Measuring our performance
14 Chair’s Statement
16 Chief Executive Officer’s Report
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
5
OVERVIEW
AN INTRODUCTION TO CHESNARA
Chesnara plc is a life assurance and pensions consolidator
with operations in the UK, Sweden and the Netherlands.
At Chesnara, with customers at the forefront of all we do,
we focus on three things:
1. The efficient management of life assurance and pension
books and policies.
2. Creating value through acquiring new companies or books
of business.
3. Writing new business where we are confident that conditions
will ensure the products are value adding and ultimately support
longer-term cash generation.
This focus has enabled us to deliver strong levels of cash
generation, a growing dividend and a robust and stable solvency
position over the last 18 years. And we look forward with
confidence in our ability to continue this delivery in the future.
Who we are and where we
What do we do?
OUR STR ATEGIC OBJEC TIVES:
– We help protect customers and their dependants
through the provision of life, health and disability
cover and by providing savings and pensions
to enable policyholders to meet their financial
needs in the future.
came from
– Chesnara plc is a responsible and well
capitalised European life and pensions
consolidator, formed in 2004 and listed on
the London Stock Exchange.
– The group comprises both open-book and
closed-book operations.
– 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 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 pages 7 to 9 for further detail
on our history and businesses.
– We are committed to transitioning to be
a sustainable and net zero group across
our operational and financed emissions and
this commitment is at the heart of our
decision making.
01
MAXIMISE VALUE FROM
EXISTING BUSINESS
02
ACQUIRE LIFE AND
PENSIONS BUSINESSES
03
ENHANCE VALUE THROUGH
PROFITABLE NEW BUSINESS
OUR CULTURE & VALUES –
RESPONSIBLE RISK-BA SED
MANAGEMENT
6
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION A
How we create value
Customers
– We deliver effective customer service operations
with good standards of service, clear
communication and competitive fund performance.
– Customers can also be confident in the security
of their policies through the robust solvency levels
we operate our businesses to.
– We treat customers fairly and prioritise good
investment returns and service levels. Product
reviews help ensure good customer outcomes,
recognising Consumer Duty requirements for
UK customers.
Shareholders
– 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 shareholder dividend yield
and support our wish to be a share held for the
long term by our shareholders. The diagram
below illustrates the primary sources of growth
that contribute towards surplus emergence.
– Growth from both our 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
and supports longer-term cash generation.
– Customers are charged AMCs (annual
management charges) for unit-linked products
and pay premiums for insurance policies.
The categories of potential upside
(which are not shown to scale)
will emerge over time
Economic Value
(illustrative)
Future acquisitions
New business
Synergies
Real world returns
Risk margin
Total potential
Commercial Value
(illustrative)
How we operate
– Chesnara has a centrally defined governance
and Risk Management Framework operating
across the group and all its divisions.
– Our management teams have clear
responsibilities and are accountable for the
delivery of set objectives and the identification
and management of risks and opportunities,
including those arising from climate change.
– We are committed to transitioning to be a
sustainable and net zero group and this
commitment is at the heart of our decision making.
– Our team has significant experience and a
proven track record in governing, acquiring
and successfully integrating life and pension
businesses.
– Acquisitions form a key part of our strategy
and are assessed against stringent financial
criteria adopting a robust risk-based due
diligence process.
– We maintain robust solvency and liquidity
levels as part of our wider Capital Management
Framework.
– Chesnara’s governance and Risk Management
Framework is designed to deliver long-term
peace of mind to our customers, shareholders,
employees, regulators, outsourcing partners
and local communities.
– 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.
* post Conservatrix acquisition, completed 1 January 2023.
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
UK
FUNDS UNDER MANAGEMENT†
£4.4bn
POLICIES: c272,000
SWEDEN
FUNDS UNDER MANAGEMENT
£3.8bn
POLICIES: c316,000
NETHERL ANDS
FUNDS UNDER MANAGEMENT*
£2.8bn
POLICIES: c415,000*
CHESNAR A GROUP
FUNDS UNDER MANAGEMENT*
£11.0bn
POLICIES: c1,003,000*
7
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
OVERVIEW
DELIVERING OUR STRATEGY • WHAT WE’VE DONE
Eleven successful acquisitions across
three territories with one more completed
post year end
Our deals demonstrate flexibility and creativity:
– From value enhancing ‘bolt-on’ deals to more
transformative deals
– Capability to find value in the UK, Netherlands and beyond
– Flexible and efficient deal funding solutions
– Ability to find expedient solutions to de-risk where required
We have a well-established and robust framework against
which we assess M&A ensuring that activity has:
– Enhanced cash generation in the medium term
– Been within Chesnara’s risk appetite
– Been subject to appropriate due diligence
– Been either neutral or positive in terms of customer outcomes
Focusing on our three strategic
objectives has enabled us to deliver
sustainable growth in cash generation
over the long term. And we are
confident we can continue this
delivery in the future.
8
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
DIVIDEND HISTORY
CASH GENERATION†
18 successive years of dividend growth
We recognise the importance of providing stable and
attractive dividends to our shareholders. A full-year 2022
dividend of 23.28p per share represents an increase
of 3% on the prior year and is Chesnara’s 18th successive
year of dividend growth. Chesnara has paid cumulative
dividends of £430m.
Dividend per share history Pence per share
2022
23.3
22.6
21.9
21.3
20.7
20.1
Cumulative commercial cash generation† of £207m has
exceeded our dividends by 28% over the last 5 years
The group generates cash to service its dividends and reinvest
in the business including through acquisitions. We define
cash generation as the movement in the group’s surplus Own
Funds above the group’s internally required capital.
Our commercial cash generation† metric looks through the
impact of technical components like the symmetric adjustment
to show the group’s view of the surplus being generated.
Cumulative commercial cash generation over the last five years
represents 128% of the total dividends over the same period.
19.5
18.9
18.4
17.9
17.4
16.9
16.4
16.0
15.6
15.1
13.1
12.5
11.9
Economic Value history £m
430
396
362
329
298
267
237
EcV
Cumulative dividend
209
185
163
142
123
103
85
512
624
637
670
626
723
603
455
417
376
311
295
355
263
183
187
189
176
126
69
53
37
23
10
2004
2022
2004
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
ECONOMIC VALUE† GROWTH
305% of value growth since 2004
Long-term Economic Value (EcV)† growth is achieved through
a combination of efficient management of the existing policies,
investment returns above year end rates of return, acquisitions
and writing profitable new business. The growth since
incorporation includes £148m of new equity and is net of
cumulative dividend payments. EcV growth supports
longer-term cash generation.
CUSTOMERS
Our primary responsibilities remain to our customers
– Post the Conservatrix acquisition, we look after over 1 million
customers that have their pension, life assurance or other
savings and investments with us.
– Customers and their advisors can be confident that they hold
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.
9
SECTION ACHESNARA ANNUAL REPORT AND ACCOUNTS 2022 OVERVIEW
2022 HIGHLIGHTS
CASH GENERATION
£82.7M 2021 £20. 3m
GROUP CASH GENERATION7
(excluding the impact of acquisitions)
£46.6M 2021 £53.0m
COMMERCIAL CASH GENERATION9
A strong cash result was delivered in 2022 with group cash generation of £82.7m (excluding the day 1 impact of the two
acquisitions completed in the year), which includes £61.9m8 of cash generation from our divisions. The result has benefitted
from the positive impact of the symmetric adjustment (which has been beneficial as a result of falling equity prices in the year).
Commercial cash generation, which adjusts for items such as the symmetric adjustment, gives a view of the underlying cash
generation in Chesnara and is analysed in more detail on page 51. Commercial cash generation of £46.6m more than covers
the 2022 dividend. Both cash metrics include the impact (£36.5m) of having hedged an element of our FX exposure during the
year.
Financial review p50
SOLVENCY
197% 2021 152%
GROUP SOLVENCY
FuM
£10.6BN 2021 £9.1bn
FUNDS UNDER MANAGEMENT3
The group solvency improvement is largely due to the impact
Tier 2 debt raised, being significantly higher than the strains
from the acquisitions completed in the period. Looking
through these transaction impacts, the underlying solvency
has increased by 10 percentage points.
Capital management p45
FuM growth since the start of the year has been primarily
delivered through our two completed acquisitions. Volatile
economic conditions impacted asset values which has had
an adverse impact on FuM.
Financial statements p141
ECONOMIC VALUE
£511.7M 2021 £624.2m
ECONOMIC VALUE4
The EcV result was particularly affected by falls in equity
markets and bond prices in the year, moving in line with our
published sensitivities. Other negative factors include
the impact of dividend distributions (£34.3m). Acquisitions
completed in the year contributed £21.4m to EcV.
Financial review p53
£9.5M 2021 £9.6m
COMMERCIAL NEW BUSINESS PROFIT6
£(106.1)M 2021 £57.8m
ECONOMIC VALUE EARNINGS5
The year-on-year swing is predominantly due to volatile economic
conditions in the period.
Financial review p52
Profits from Scildon remain stable but challenging equity market conditions in Sweden have had a negative impact on their
new business result versus 2021.
Business review pages 40-43
IFRS
£146.9M 2021 £28.8m profit
IFRS PRE-TAX LOSS
The result contains large losses arising from economic
conditions1 of £151.8m (2021: £11.8m), largely in our Dutch
businesses. Our reserving approach in Scildon means that
the result bears the full impact of interest rate increases on
asset values but no credit is recognised for the associated
reduction in liabilities.
10
10
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
£91.9M 2021 £3.8m profit
TOTAL COMPREHENSIVE LOSS
There was a relatively modest foreign exchange impact of
£5.8m in 2022 compared to the prior year (loss of £23.9m).
Total comprehensive income benefits from a £48.6m tax
credit (2021: £1.5m tax charge).
Financial review p54
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
DIVIDEND
FULL YEAR DIVIDEND INCREASED FOR THE 18TH CONSECUTIVE YEAR
Total dividends for the year increased by 3% to 23.28p per share (8.12p interim and 15.16p proposed final).
This compares with 22.60p in 2021 (7.88p interim and 14.72p final). The two completed acquisitions, and one recently
announced acquisition, are expected to positively support future cash generation.
ECONOMIC BACKDROP
2022 HAS SEEN VOLATILE ECONOMIC CONDITIONS WITH RISING INTEREST RATES,
FALLING EQUITY MARKETS AND INFLATIONARY PRESSURE
The financial results have been heavily impacted by the economic conditions in 2022, particularly in the first half of the year.
The war in Ukraine and uncertainty in financial markets have been reflected in falling equity values and rising interest rates which,
coupled with the impact of inflationary pressures, have led to negative investment returns and economic losses across the operating
divisions. The impact of these economic factors has been felt, to varying degrees, across all of our financial metrics.
GROWTH AND ACQUISITIONS
THE GROUP CONTINUES TO EXPAND THROUGH M&A
In 2022, we completed the two acquisitions announced late in 2021 and announced a further acquisition in the Netherlands.
The acquisitions of Sanlam Life & Pensions UK Limited (now renamed CASLP) and Robein Leven in the Netherlands, both
completed successfully during the second quarter of 2022, delivered a combined 9% uplift in policies within the group portfolio
and a total day 1 EcV gain of £21.4m.
Expansion in the Netherlands has continued under the Waard Group in 2022, following the announcement of the acquisition of
the insurance portfolio of Conservatrix NV, which subsequently completed early in 2023. This transaction is expected to deliver
a material increase in Waard’s policies under administration of c60%. We remain optimistic about the outlook for future deals.
Notes: Items 1 to 9 below are Alternative Performance Measures (APMs) used by the group to supplement the required statutory disclosures under IFRS and Solvency II,
providing additional information to enhance the understanding of financial performance. Further information on these APMs can be found on page 12, throughout the Financial
Review and in the APM appendix on pages 238 and 239.
1. Economic profit is a measure of pre-tax profit earned from investment market conditions in the period and any economic assumption changes in the future.
2. Operating profit is 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 period and any economic assumption changes in the future.
3. Funds Under Management (FuM) represents the sum of all financial assets on the IFRS balance sheet.
4. Economic Value (EcV) is a financial metric derived from Solvency II. 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.
5. Economic Value earnings are a measure of the value generated in the period, recognising the longer-term nature of the group’s insurance and investment contracts.
6. Commercial new business represents the best estimate of cash flows expected to emerge from new business written in the period. It is deemed to be a more commercially
relevant and market consistent measurement of the value generated through the writing of new business, in comparison to the restrictions imposed under the Solvency II regime.
7. Group cash generation represents the surplus cash that the group has generated in the period. Cash generation is largely a function of the movement in the solvency position,
used by the group as a measure of assessing how much dividend potential has been generated, subject to ensuring other constraints are managed.
8. Divisional cash generation represents the cash generated by the three operating divisions of Chesnara (UK, Sweden and the Netherlands), exclusive of group level activity.
9. Commercial cash generation is used as a measure of assessing how much dividend potential has been generated, subject to ensuring other constraints are managed. It excludes
the impact of technical adjustments, modelling changes and corporate acquisition activity; representing the group’s view of the commercial cash generated by the business.
11
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION A MEASURING OUR PERFORMANCE
Throughout our Report and Accounts we use measures to assess and report how well we have performed. The
range of measures is broad and includes many measures that are not based on IFRS. The financial analysis of a
life and pensions business also needs to recognise the importance of Solvency II figures, the basis of regulatory
solvency. In addition, the measures aim to assess performance from the perspective of all stakeholders.
Financial analysis of a life and pension business
The IFRS results form the core of the Report and Accounts and hence
retain prominence as a key financial performance metric. However, this
Report and Accounts also adopts several Alternative Performance
Measures (APMs).
These measures complement the IFRS metrics and present additional
insight into the financial position and performance of the business, from
the perspective of all stakeholders.
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.
Further detail on APMs can be found in the appendix on pages 238 and 239.
FINANCIAL STATEMENTS
ADDITIONAL METRICS
IFRS net assets
(£333.1m)
(£333.1m)
Solvency II valuation
(Own Funds)
(Own Funds)
(£605.1m)
(£605.1m)
I
R
See page 240
for reconciliation
of IFRS to SII.
Capital requirements
Solvency Capital
Requirement
SCR plus
management
buffer
IFRS profits
Stakeholder focus:
P
I
R
B
Policyholders
Investors
Regulators
Business partners
Key performance indicators
I
I
Economic Value
P
I
R
B
Solvency
Balance sheet
Earnings
Percentage
Absolute
New business
I
B
Cash generation
EcV
Commercial
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 than Own Funds. 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.
An element of the EcV earnings each period is the
Economic Value of new business. By factoring in
real world investment returns and removing the
impact of risk margins, the group determines the
value of new business on a commercial basis.
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.
Commercial cash generation excludes the impact
of technical adjustments, modelling changes and
corporate acquisition activity; representing the
group’s view of cash generated by the business.
Further details on pages 45 to 47 and 240 and 241.
Further details on pages 52 and 53 and 238 and 239.
Further details on pages 50 and 51 & 238 to 241.
12
OVERVIEWCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 OPERATIONAL AND OTHER PERFORMANCE MEASURES
In addition to the financial performance measures, this Report and Accounts includes measures that consider and
assess the performance of all our key stakeholder groups. The diagram below summarises the performance measures
adopted throughout the Report and Accounts.
KEY STAKEHOLDERS
r
e
d
l
o
h
y
c
i
l
o
P
s
r
o
t
a
l
u
g
e
R
s
s
e
n
i
s
u
B
*
r
e
n
t
r
a
p
r
o
t
s
e
v
n
I
Measure
Customer
service levels
Broker
satisfaction
Policy
investment
performance
Industry
performance
assessments
Emissions and
water/energy
usage
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.
38-43
Broker satisfaction is important because they sell our 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.
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, and options available to invest in funds that focus on environmental, social
and governance factors.
40-43
38-43
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.
38-43
Tracking our scope 1, 2 and 3 (non-financed) emissions is a core part of our transition to be a
net zero and sustainable group.
81-84
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.
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.
7
7
55
40-43
40-43
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 (defined as debt divided by debt plus equity).
The appropriate use of debt is an efficient source of funding.
55
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. This
includes holding the management teams accountable for the delivery of set objectives and the
proper assessment of known and emerging risks and opportunities, e.g. those arising from
climate change.
83-89
KEY
Primary interest
Secondary interest
*For the purposes of this key performance indicator assessment business partners refers to major suppliers and outsource partners.
13
SECTION ACHESNARA ANNUAL REPORT AND ACCOUNTS 2022
OVERVIEW
CHAIR’S STATEMENT
‘ I am delighted to report that
our divisions have continued
to deliver a strong level of cash
generation despite significant
economic volatility during the
year. This has supported
an increase in our dividend for
an 18th consecutive year.’
LUKE SAVAGE, CHAIR
14
14
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CASH EMERGENCE, DIVIDEND
AND FINANCIAL STABILITY
Chesnara has a strong track record of delivering cash generation†
across a variety of market conditions. 2022 has been no different,
with total divisional cash generation of £61.9m leaving us well
positioned to further extend our 18 years of continued
dividend growth. Our shareholders will receive 23.28p per share,
an increase of 3%.
Financial stability is at the heart of the Chesnara business and
its financial model. First and foremost, it is fundamental to
providing financial security to our customers. Strong and stable
solvency is also critical to the investment case for both our
equity and debt investors.
In light of this, I am pleased to report our solvency position
remains robust, with a closing Solvency II ratio of 197%,
significantly above our normal operating range, providing us with
considerable strategic optionality. Our solvency position remains
underpinned by a well-diversified business model, a focus on
responsible risk-based management and resilient and reliable
cash flows from our businesses. Our previously announced
Tier 2 debt raise in February 2022 was also a material contributor
to our improved solvency ratio.
PEOPLE AND DELIVERY
Following the initial impact from the pandemic, operating conditions
have stabilised and across the group we have settled into effective
and flexible hybrid working conditions. However, while operating
conditions have become less challenging, we are aware that our
workforce is becoming increasingly challenged by the wider cost of
living crisis. With this in mind, we have supported all UK staff whose
salaries are below the higher rate tax threshold with two one-off
payments in August and December, broadly in line with the
estimated increase in average household expenditure witnessed to
date. We have also offered pay increases which are sympathetic to
inflationary pressures our employees are exposed to. Beyond financial
reward we have rolled out a Wellness Support programme. This
offers tailored one to one lifestyle coaching designed to help staff
manage the challenges associated with increasingly stressful but
often sedentary lifestyles. The programme initially covers the UK head
office but delivery of similar programmes will become a core
requirement across the wider group as a key objective of our
Sustainability Programme.
Across the group our people have continued to deliver. We have
completed the acquisitions of Sanlam Life & Pensions UK Limited
in the UK and Robein Leven in the Netherlands. On both deals, our
teams have been working hard integrating those new businesses
into the group. Positive progress has been made on the Sanlam
integration, including planning for the Part VII process. The
integration of Robein Leven is now largely complete. Furthermore,
we completed the acquisition of the insurance portfolio of
Conservatrix in the Netherlands on 1 January 2023. This
transaction transforms our Dutch closed life business, Waard,
increasing its policies under administration by over 60% and
creating a second material closed-book consolidation business
alongside Chesnara’s existing UK platform.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION A
A group-wide sustainability programme has been initiated during
the period which is building on the excellent work done in
the divisions thus far. The programme has executive and
non-executive sponsorship, with David Rimmington leading
executive oversight of the programme and Jane Dale chairing our
new Group Sustainability Committee. This work will look to
transform Chesnara into a sustainable business. The scale of the
task for us and the rest of the industry is huge and an initial
priority for the programme will be to formally measure our scope
3 financed emissions, to go with our understanding of the
impact of our operating framework. This will allow us to establish
a formal road map to the ultimate net zero target and an action-
based transition plan to demonstrate how we will deliver the
associated real world change. We have produced our inaugural
Annual Sustainability Report (available on the Chesnara website)
which provides details on our commitments and long-term targets,
as well as key activities for the wider sustainability strategy.
OUTLOOK
Sources of future growth remain strong. The reduction in Economic
Value† during the period has been driven largely by the impact of the
war in Ukraine and wider geopolitical factors have had on equity
markets. However, we retain our view that, despite such short-term
market volatility, equities continue to offer a source of long-term value
enhancement. Furthermore, with completion of the Conservatrix
acquisition we expect a material level of value recovery during the
first quarter of 2023.
In addition, the outlook for acquisitions is positive. We continue
to expect the market to be active and we have taken actions to
enhance our ability to participate in that market, including the
issuance of our inaugural Tier 2 bond in February 2022.
In Sweden, there has been a strong focus on improving the transfer
ratio with a marked reduction in the rate at which business transfers
out from our portfolio. There are also positive early signs of improved
new business as local management focus on maximising the
expected opportunity from recent regulatory changes in Sweden.
Staff have also been working hard to ensure we can meet the
requirements of IFRS 17 which became effective from the start of
2023. Our programme is progressing well and we are on track to
produce the half year 2023 figures as required. We retain our view
that the transition to IFRS 17 will have minimal commercial impact
on how we manage the business, the risks it is exposed to or the
financial outcomes we expect. This, together with the successful
Tier 2 debt raise in February 2022, leaves us well placed to fund
future acquisition activity.
One final action I wanted to highlight is the implementation of a
foreign currency hedge during the second half of the year. This has
materially reduced our exposure to FX movements between sterling
and both the euro and Swedish krona. In addition to reducing the
real world exposure the hedge has also materially reduced the level
of currency risk capital we have to hold thereby increasing the
headline solvency ratio by c11 percentage points.
Of course, these major developments are in addition to continuing to
deliver all customer and regulatory business-as-usual responsibilities.
In short, it has been a period of significant operational delivery and
I would like to take this opportunity to thank staff for their continued
commitment and efforts.
PURPOSE
At Chesnara, we help protect customers and their dependants
through the provision of life, health, and disability cover or by
providing savings and pensions to meet future financial needs.
These are very often customers that have come to us through
acquisition, and we are committed to ensuring that they are
positively supported by us.
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.
Our equity investors are a key stakeholder, and I am pleased
that we have announced a 3% increase in the 2022 dividend to
23.28 pence per share. Our debt investors have also received
their first full year’s worth of debt coupon payments since the
Tier 2 raise in February 2022.
Luke Savage
Chair
29 March 2023
We have also been fully respectful of environmental, social
and governance (‘ESG’) matters. In particular, we have positioned
governance as being a core foundation to the business model and
have a well-established governance framework.
Over recent years we have increased our focus on environmental
matters and we have accelerated and deepened this focus
during the year. As we take stock of our environmental status
we continue to believe that our current position is relatively
strong across all divisions and there are many examples of
positive environmental actions. That said, we are also extremely
conscious that we need to more formally substantiate our
environmental footprint and, based on this assessment, agree
and report targets for how we commit to reduce to net zero.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual
Report and Accounts.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
15
15
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
INTRODUCTION & RESULTS
As I look back on 2022, it is hard to underestimate the extreme
and volatile economic and geopolitical backdrop we have all
witnessed and operated in. As part of my annual 2021 report
I highlighted Chesnara’s track record of delivering through a very
wide range of market conditions over its history and we have
done so yet again in 2022, both in terms of cash generation† and
acquisitions. We have generated £46.6m of commercial cash†,
representing 133% coverage of the 2022 total dividend.
Commercial cash provides good insight into the underlying cash
generation dynamics of the group. The symmetric adjustment
(a feature of our capital model which means we hold more capital
when equity markets rise sharply and can then release capital if
we see corresponding falls) and the implementation of a FX
hedge have generated additional cash, resulting in total group
cash generation of £82.7m (excluding the impact of acquisitions).
This level of cash generation, against such a negative external
market backdrop, clearly demonstrates the resilience of our
business model and is expected to enable our divisions to pay
c£74m of dividends to Chesnara plc in early 2023. Our solvency
position remains strong and well above our normal operating
range of 140%-160%, leaving us well positioned to fund our M&A
strategy and withstand future financial volatility.
In 2022, we have re-energised our strategy whilst remaining
focused on doing three things:
1. Running in-force insurance and pensions books efficiently
and effectively.
– We now look after 1 million policyholders and customers who
have c£11.0bn of their assets with us following the acquisition
of Conservatrix’s insurance portfolio which completed on
1 January 2023.
– We have seen the benefits of positive retention activity. In
Sweden, we have seen a marked reduction in the rate at which
policies have been transferring out from the Movestic portfolio.
– Our business model has meant there has been a relatively
immaterial impact on our balance sheet from the high inflationary
backdrop across the UK and Europe.
OVERVIEW
16 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
16
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CHIEF EXECUTIVE OFFICER’S REPORT ‘The acquisition of the Conservatrix insurance portfolio was the third transaction Chesnara has announced over the past year, highlighting the renewed growth momentum behind our M&A strategy.’STEVE MURRAY, CEO SECTION A
2. Seeking out and delivering value enhancing M&A opportunities:
RESILIENT CASH GENERATION
– This is an area where we have seen extensive activity across the
group compared to recent years. During 2022, we completed the
acquisitions of CASLP and Robein Leven and the integration of
these businesses within the group is well underway.
– In July 2022, we also announced the acquisition of the insurance
portfolio of Conservatrix in the Netherlands and the deal
completed on 1 January 2023. A capital contribution of £35m has
been provided by the group to support the solvency position of the
Conservatrix business, ensuring that Conservatrix customers will
benefit from becoming part of a well-capitalised group after a
significant period of uncertainty. Our updated expectation is the
transaction will add c£21m to Economic Value† and deliver steady
state cash generation of c£4m each year, supporting our dividend
strategy. As a reminder, CASLP and Robein Leven combined
added £21.4m in EcV and should deliver additional steady state
cash generation of c£6m each year.
– Our February Tier 2 debt raise of £200m proved to be very well
timed to support this activity with capital resources required to
support our three announced transactions, totalling over £110m
(of which £85m was funded from holding company cash reserves).
And it provides financial flexibility to support further acquisitions
where we continue to have material resources of over £100m.
3. Writing focused, profitable new business where we are satisfied
an appropriate return can be made.
– During the period, we have delivered record market shares of term
new business in Scildon. Against a backdrop where the overall term
market shrank in 2022, we have seen a 3.5% period on period
increase in total volumes. In Movestic we have seen increments
return to pre COVID-19 levels plus an encouraging trend in new
transfer business. The inflated levels of transfers out we have seen
over the last 24 months are also now back in line with our
longer-term assumptions.
Remaining focused on these three strategic aims has had a positive
impact on the results in the period and importantly enhanced the
outlook for the group. However, these positive impacts have been
more than offset by the adverse short-term impacts of very volatile
economic and market conditions on the IFRS and Economic Value
(EcV)† results during the period, where we have reported losses of
£146.9m and £106.1m respectively.
CONTINUED DELIVERY OF RESILIENT CASH
GENERATION AND ROBUST SOLVENCY
At the heart of the Chesnara financial model and investment
case is resilient cash generation and stable solvency.
The total group cash generation† (excluding the impact of
acquisitions) during the year was £82.7m (2021: £20.3m). As a
reminder, we define cash as the movement in the group’s surplus
Own Funds above the group’s internally required capital. The surplus
can be impacted by equity markets and currency movements in the
near term and by consolidation adjustments. The divisional results
pre-consolidation give a good reflection of the dividend potential
rather than looking at the consolidated group figures in isolation.
The total divisional cash generation† for the year was £61.9m
(2021: £31.1m) and creates significant future dividend paying
capacity. The headline divisional cash generation was positively
impacted by £36.0m through technical factors such as the
symmetric adjustment*. As I mentioned above, this is a feature of
the Solvency II Standard Formula whereby reduced capital levels
need to be held following periods of sharp equity market falls, such
as we have seen this year.
To get a further sense of the inherent cash generation in Chesnara,
our alternative commercial cash metric looks through the symmetric
adjustment and foreign exchange translation impacts, along with
other less material technical impacts (see financial review section on
page 51 for more detailed cash generation analysis).
At a total divisional level, we have generated £25.9m of commercial
cash. We have options to complement any base cash generation
by taking capital enhancing management actions. During the latter
part of the year we triggered one such management action and
took out a hedge to reduce our exposure to foreign exchange rate
movements which created c£26m of additional solvency surplus.
This together with the divisional results provides coverage well in
excess of the shareholder dividend.
Cash generation by territory:
Divisional cash generation (£m) Commercial cash generation (£m)
5.0
20.8
46.6
16.1
£61.9M
(1.1)
5.0
22.0
25.9
40.8
UK
Sweden
Netherlands
Other group
* Symmetric adjustment: the Solvency II capital requirement calculation includes an
adjusting factor that reduces or increases the level of the equity capital required
depending on historical market conditions. Following periods of market growth, the factor
tends to increase the level of capital required and conversely, in falling markets the capital
requirement becomes less onerous.
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
17
17
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CHIEF EXECUTIVE OFFICER’S REPORT (CONTINUED)
The closing headline solvency ratio of 197% is significantly above
our normal operating range of between 140% and 160%. The
solvency ratio does not adopt any of the temporary benefits available
from Solvency II transitional arrangements (though we do apply the
volatility adjustment in our UK and Dutch divisions). However, the
ratio is impacted by the symmetric adjustment; a feature of the
Solvency II Standard Formula whereby additional capital needs to
be held following periods of strong equity growth. At the end of
2021 the symmetric adjustment was suppressing the solvency ratio
by 8%. We noted that this suppressing impact was likely to reverse
out over time. This is indeed exactly what we have observed
during 2022 when equity markets have fallen, with the symmetric
adjustment shifting to a position where it is now enhancing the
headline ratio by 10 percentage points.
Solvency ratio movement
49%
(1%)
(13%)
11%
10%
(10%)
(1%)
152%
S11%
31 Dec
2021
Tier 2
impact
Robein
impact
SLP
impact
FX
hedge
Symmetric
adjustment
impact
Annual
dividend
payments
Normal
business
197%
S11%
31 Dec
2022
We expect to utilise this additional capital surplus as we undertake
acquisitions, which should result in the ratio reverting back within
the robust and stable 140% to 160% historical range. The recently
completed Conservatrix acquisition is expected to reduce the
solvency ratio by approximately 15 percentage points to 182% on a
pro-forma basis as at 31 December 2022. Strategically, it is our
intention to deploy further capital in support of value enhancing
acquisitions in the future.
TOTAL COMMERCIAL CASH GENERATION
REPRESENTS 133% COVERAGE OF
THE 2022 SHAREHOLDER DIVIDEND
The Chesnara parent company cash and instant access liquidity fund
balance at 31 December 2022 has increased to £108.1m
(31 December 2021: £46.1m), which provides future acquisition
funding capacity and further supports the sustainable funding of the
group dividend. Cash reserves have increased, largely as a result of
the £200m Tier 2 debt raise in February 2022. This has been offset
by the repayment of the pre-existing RCF balances of £31.2m,
£62.9m funding for the Sanlam Life & Pensions UK Limited (now
renamed CASLP) acquisition and a £21.5m capital injection to Waard
to support the Conservatrix acquisition (total capital injection of
£35m with the remaining £13.5m funded directly by Waard). Waard
were able to fund the acquisition of Robein Leven without additional
capital support from the group. Excluding these items, the underlying
balance has remained largely constant as divisional dividend receipts
have broadly matched the shareholder dividend payment and other
working capital outflows.
Looking forward, we continue to have a strong line of sight to future
cash generation over the medium and longer term from the unwind
of risk margin and SCR, investment returns above risk free rates,
wider synergies and management actions. And that’s before further
potential benefits from new business and further acquisitions.
STRONG SOLVENCY
During the year we have seen a sharp increase in the group solvency
ratio to 197%. The waterfall chart to the right illustrates that this
increase is largely due to the Tier 2 debt issuance, partly offset by
the capital resources (mainly the payment of consideration) required
to complete the CASLP and Robein Leven acquisitions, together with
the impact of a swing in the scale and direction of the symmetric
adjustment. Excluding these individually material movements the ratio
has continued to remain stable.
Solvency ratio
Normal operating solvency range
160%
140%
158%
155%
156%
152%
197%
Absolute
surplus
£202.4m
Absolute
surplus
£210.8m
Absolute
surplus
£204.0m
Absolute
surplus
£190.7m
Absolute
surplus
£298.4m
2018
2019
2020
2021
2022
18
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022OVERVIEW Over time, we expect improvements to operational effectiveness to
be a source of value creation, be that through M&A synergies, scale or
other positive management actions. During the first half of the year,
Countrywide Assured in particular has benefitted from synergies from
the CASLP acquisition. Over recent years, including 2021, we have
suffered some operational losses particularly relating to investments
made in IT systems in Scildon, some regulatory changes, and higher than
expected pension transfer outflows in Sweden. It is hugely encouraging to
report that there has been a marked reduction in the rate at which
business has transferred from the Swedish portfolio in 2022 and we start
2023 with outflow rates being back in line with the long-term assumption.
The Countrywide Assured expense synergies together with the positive
transfer experience in Sweden mean the outlook for operational value
growth is much improved.
The other value growth components have all been a source of actual
growth during the period. The Own Funds of the group have increased
by £20.0m directly as a result of risk margin reductions. Acquisitions
completed in the period have also added £21.4m of EcV on a marginal
costing basis and the Conservatrix deal completed on 1 January 2023 is
expected to add a further c£21m of EcV.
THE LONG-TERM OUTLOOK FOR
GROWTH REMAINS POSITIVE,
PARTICULARLY THROUGH M&A
In our 2021 full-year accounts, we introduced the concept of the Chesnara
‘fan’ which illustrates the additional areas of growth potential the group
may benefit from that aren’t reflected in our Economic Value† metric.
The categories of potential upside
(which are not shown to scale)
will emerge over time
Economic Value
(illustrative)
Future acquisitions
New business
Synergies
Real world returns
Risk margin
Total potential
Commercial Value
(illustrative)
We also stated that ‘Over the medium term, we expect all components
of the growth model to be positive, although there can be a level of
shorter-term volatility in each element.’
Although a one year time period is short, it is worth looking at how
the results for 2022 map against the value growth components of the
Chesnara ‘fan’.
A key element of the growth model is real world investment returns.
The reported EcV of the group assumes risk free returns on shareholder
and policyholder assets. Given the direct link to external market
performance this source of value is the most volatile of the growth sources.
In 2021, real world returns represented growth of c£110m. A large
proportion of this has reversed with a corresponding loss in 2022 of c£109m.
Despite this volatility in the short term, over the long term we expect
average returns in excess of risk free, as we have seen historically. Valuing
the group assuming relatively conservative returns above the risk free
yield, for example using an average of 5% total equity returns per annum,
would add significantly upwards of £150m of incremental EcV. In addition,
we might reasonably expect a significant proportion of the recent losses to
be reversed in the event that markets recovered.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information
on APMs can be found in the additional information section of this Annual Report and Accounts.
19
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION A ‘We now look after 1 million policyholders and customers who have c£11bn of their assets with us’STEVE MURRAY, CEO CHIEF EXECUTIVE OFFICER’S REPORT (CONTINUED)
FOCUSED WRITING OF NEW BUSINESS
Writing new business is the third area of focus in the Chesnara strategy.
Not only is new business value adding in its own right, importantly it adds
scale which in turn enhances operational effectiveness and improves the
sustainability of the financial model. During 2022, we have seen steady
commercial new business† profits of £9.5m.
EQUITY MARKET PERFORMANCE HAS
DRIVEN A MARKED REDUCTION IN ECV
Despite a degree of recovery towards the end of the year, we have seen
falls in equity markets over the period, particularly in Sweden, and this has
been the primary reason why we are reporting a group EcV loss of £106.1m
for the year. The overall movement in the group’s EcV over the period
includes a £21.4m positive impact of the two acquisitions that we completed
in the year.
We have grown our Funds Under Management (FuM)† in 2022, primarily
through the completion of CASLP and Robein Leven. This growth was
largely offset by the negative effects of increasing yields and falling equity
markets on the value of funds.
Growth in FuM†
Funds Under Management (£bn)
Growth of 54% including the latest
acquisition announced
11.0
0.4
3.1
7.1
7.7
8.5
9.1
7.5
2018
FuM
2019
2020
2021
2022
FuM (acquisitions)
FuM pro-forma
Conservatrix
Growth in policies in force
Policies ‘000
The group now supports over 1m customers
1,003
70
81
891
894
877
852
2019
2020
2021
2022
Policies
Policies (acquisitions)
Policies pro-forma
Conservatrix
1,000
800
600
400
200
0
AN INCREASED FOCUS ON
ACQUISITION ACTIVITY
The primary purpose of Chesnara when it was formed back in 2004 was to
acquire other closed-book businesses and acquisition activity has been a core
component of our historical EcV growth. As well as the immediate benefit from
any price discount to EcV, acquisitions also improve the future growth outlook
by enhancing the potential from the other value elements of the Chesnara ‘fan’.
Successful acquisitions have been key to Chesnara’s development
historically and will remain so in the future. During 2022, we completed two
acquisitions, Robein Leven in the Netherlands and CASLP in the UK. Robein
Leven added further scale to Waard, the group’s Dutch closed-book operations,
and CASLP increased the UK Funds Under Management by £2.9bn.
Together they added £21.4m of EcV on a marginal cost basis and are expected
to create additional steady cash generation potential of c£6m per annum.
In July 2022, we announced the acquisition of Conservatrix in the Netherlands.
This deal completed on 1 January 2023 and our updated expectation is that
this deal will deliver an immediate increase of c£21m of EcV, with further
value generated from future real world investment returns and the run-off of
the risk margin. The new portfolio is expected to generate c£4m of steady
state incremental cash per annum meaning the enlarged Waard business
will generate c£8m of cash per year, covering about one quarter of the
shareholder dividend. Taken together, accessing these value enhancing
acquisitions will have required us to deploy over £110m of capital resources
(of which £85m was funded from holding company cash reserves), primarily
from the £200m inaugural Tier 2 debt raise we executed in February 2022.
CONFIDENCE IN OUR ABILITY
TO EXECUTE FUTURE M&A
We remain optimistic about the prospect of future acquisitions and believe
that we can deliver further value accretive deals. Even relatively small
transactions can have a material positive cumulative impact, as the group
delivers synergies from integrating businesses and portfolios into its
existing operations.
2022 has continued to see an active M&A market across European insurance
with sources of capital readily available to support transactions, large
international insurance groups refocusing their strategies away from legacy
businesses and management teams that actively managed their business
portfolios being rewarded by shareholders.
Even with the current market volatility, we expect positive activity levels
in insurance M&A to continue. A market with plenty of activity provides
opportunities for Chesnara as a consolidator. We continue to believe there is
also likely to be a little less competition in the sub £250m deal valuation end
of the market that we currently participate in. The three deals that
we have announced in recent times should provide positive reference points
for sellers and their advisors about our renewed ability to execute M&A.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
20
OVERVIEWCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
These commitments will shape what we do and how we do it. We are
working to put sustainability at the heart of everything we do and 2023
will further embed this. Our reporting will evolve as our plans and targets
become more established so please take a look at our first ASR and we
look forward to updating you on our progress.
OUTLOOK
Chesnara has an excellent track record of sustainable long-term cash
generation over its history through recessions, pandemics, global financial
crisis and other variable market conditions. 2022 has seen us continue this
impressive record of cash generation in difficult markets.
The war in Ukraine played a large role in the volatile start to 2022 that we saw
across global markets. The Chesnara business model has delivered positive
cash generation in uncertain markets before, and we have confidence it will
continue to do so in future. We are not dismissive of the material reduction
in Economic Value that equity market falls and interest rate rises have
created during 2022 but equally, we do not see the value loss in the period
as being a factor that at all compromises the medium to longer-term outlook.
In fact, we start 2023 with even greater optimism about the prospects we see
in relation to potential acquisitions.
We have ambitious plans to grow the business and the achievements during
2022 leave us well positioned to do so.
Finally, I want to thank our people across the UK, Sweden and the Netherlands
for all their remarkable efforts during an exceptionally busy period. Their
efforts, the robustness of our business model and positive outlook for M&A
give me every confidence that the future remains bright for Chesnara.
Steve Murray
Chief Executive Officer
29 March 2023
We continue to have material cash resources to deploy following the £200m
Tier 2 debt issue and, after paying down existing debt, funding the CASLP
deal and Conservatrix capital injection, we hold cash balances of £108m at
a group level (of which a good proportion is readily available for deployment).
Our revolving credit facility creates an additional level of working capital
flexibility. For more transformational deals, we retain the ability to raise equity
and are mindful of the potential benefits from other funding arrangements
such as joint ventures or vendor part-ownership.
Our assessment of the market potential, our track record of delivery and the
actions we have taken to enhance our ability to execute M&A (including the
people changes highlighted below) means we are confident that acquisitions
will continue to contribute to Chesnara’s success in the future.
PEOPLE CHANGES
We announced that Sam Perowne was joining our executive team early in
2022. Sam, along with two new Independent NED appointments in
February, Karin Bergstein and Carol Hagh, has extensive M&A experience.
In August, we announced two further changes to our senior leadership team
with Al Lonie moving from Company Secretary to become my Chief of
Staff and Amanda Wright joining from abrdn to become General Counsel and
Company Secretary.
These changes will further enhance the capacity, capability and experience
we have available to pursue further strategic opportunities.
In February this year, we also announced that our Scildon CEO, Gert-Jan
Fritzsche, will be leaving the business as we enter the next phase of Scildon’s
strategic development. I want to thank him for all his efforts over the past six
years as Scildon CEO. Our market search for his replacement is well under way.
A SUSTAINABLE CHESNARA
We are committed to becoming a sustainable group. As a steward and a
safe harbour for our c1 million policyholders and c£11bn of policyholder and
shareholder assets, we have a real responsibility to help drive the change
needed to deliver decarbonisation and a sustainable society and economy.
As a business, we are still at the beginning of our journey and our principles
are: ’Do no harm. Do good. Act now for later’. We’re determined to get there
and we know that speed is of the essence.
To drive our sustainability agenda, we have established our Group
Sustainability Committee chaired by our Senior Independent Director,
Jane Dale, which will help oversee our group sustainability programme that
is being led by Dave Rimmington. The committee consists of senior
management from across the group, including myself. Our inaugural Annual
Sustainability Report (ASR), which we’ve published alongside this Annual
Report and Accounts, details our vision and commitments. This first ASR
positions what we’re going to do and how we’re going to do it, alongside
why being sustainable is so important to us. Simply put, we will make
decisions based on all of our stakeholders, including the planet and its
natural resources. Positive outcomes for any particular stakeholder at the
cost of inappropriate outcomes for other stakeholders is not acceptable.
Based on this, we’re committed to:
1. Supporting a sustainable future, including our net zero transition plans
2. Making a positive impact, including our plans to invest in positive solutions
3. Creating a fairer world, ensuring our group is an inclusive environment
for all employees, customers and stakeholders
21
SECTION ACHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION B:
STRATEGIC
REPORT
Hammarby Sjöstad, Stockholm
22 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
24
Overview of strategy, business
model and culture & values
26 Our strategy
28 Our culture & values
30 Section 172 reporting
38 Business review
45 Capital management
48 Financial review
55 Financial management
57 Risk management
66 Corporate and social
responsibility
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
23
OVERVIEW OF OUR STRATEGY, BUSINESS MODEL, AND
CULTURE & VALUES
Our strategy focuses on delivering value to customers and shareholders through
our three strategic pillars, executed across our three territories.
OUR STRATEGY
STR ATEGIC OBJEC TIVES
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.
KPIs
Cash generation
EcV earnings
Customer outcomes
KPIs
Cash generation
EcV growth
Customer outcomes
Risk appetite
KPIs
EcV growth
Customer outcomes
Read more on p27
Read more on p27
Read more on p27
HOW WE ORGANISE OURSELVES
UK
COUNTRYWIDE
ASSURED
NETHERLANDS
SWEDEN
CASLP
WAARD GROUP SCILDON
MOVESTIC
01
02
01
02
01
02
01
03
01
03
Read more on p38
Read more on p42
Read more on p40
DIVISION
OPER ATING
COMPANY
S TR ATEGIC
OB JEC TIVES
Underwriting linked pension
business; life insurance, covering
both index-linked and unit-linked;
endowments; whole of life; annuities
and some with-profit business.
Underwriting
mainly term
life policies,
with some
unit-linked and
non-life policies.
Underwriting of
protection,
individual savings
and group pensions
contracts.
Predominantly the underwriting of
unit-linked pensions and savings.
Also provides some life and health
product offerings.
KE Y
PRODUC TS
c27 2,0 0 0
c185 ,0 0 0 *
c2 30,0 0 0
c 316 ,0 0 0
N/A
N/A
Sold through
a broker network.
Largely through a network of
brokers, although some is sold
directly to customers.
NUMBER
OF POLICIES
DIS TRIBUTION
ME THOD
CHESNAR A CULTURE & VALUES – RESPONSIBLE RISK-BASED MANAGEMENT
*post Conservatrix acquisition, completed 1 January 2023
24
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
S
R
E
D
L
O
H
E
K
A
T
S
S
E
V
I
T
C
E
J
B
O
s
I
P
K
Our strategy is delivered through a proven business model underpinned by a robust risk
management and governance framework and our established culture & values.
OUR BUSINESS MODEL
SHAREHOLDERS
CUSTOMERS
REGUL ATORS
STAFF
SUPPLIERS &
PARTNERS
THE PL ANET
& NATURAL
ENVIRONMENT
Competitive
returns through
attractive
dividends and
share price
growth
Cash
generation†
EcV† growth
Solvency
RESPONSIBLE
RISK-BA SED
MANAGEMENT
FOR THE BENEFIT
OF ALL OUR
S TAKEHOLDERS
– SHAREHOLDERS
– S TAFF
– SUPPLIERS AND
PARTNERS
– NATUR AL
ENVIRONMENT
– CUS TOMERS
Good outcomes
Financial stability
and regulatory
compliance
Attract, promote
and retain
quality staff
Job satisfaction
and motivation
Long-term
reliable
relationships
Progress to
being a nature
positive and
net zero group
Good outcomes
Good outcomes
Investment
return
Solvency
Staff survey
results
Quality of
service
Staff retention rates
Tracking expenditure
Emissions
Energy and
water usage
Openness of
relationship
Investment in
positive solutions
Investment
footprint
OUR CULTURE AND VALUES
FAIR
TRE ATMENT
OF CUS TOMERS
MAINTAIN
ADEQUATE
FINANCIAL
RESOURCES
PROVIDE A
COMPE TITIVE
RE TURN TO OUR
INVES TORS
ROBUS T
REGUL ATORY
COMPLIANCE
A JUS T
TR ANSITION TO
A SUS TAINABLE
GROUP
STAKEHOLDERS
– CUS TOMERS
– CUS TOMERS
– REGUL ATORS
– S TAFF
– SHAREHOLDERS
– DEBTHOLDERS
– SHAREHOLDERS
– DEBTHOLDERS
– CUS TOMERS
– REGUL ATORS
– NATUR AL
ENVIRONMENT
– ALL
S TAKEHOLDERS
INCLUDING
THE PL ANE T
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
25
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
OUR STRATEGY
Our core strategy focuses on the efficient management of our existing business and the creation of value
through acquisitions and writing profitable new business.
WHY THIS MAT TERS
HOW WE DELIVER:
OUR BUSINESS MODEL
The existing books of policies are the
principal source of cash generation†
and Economic Value† and are at the
heart of the investment case for our
shareholders and debtholders.
STR ATEGIC
OBJECTIVE
MA XIMISE
VALUE FROM
EXISTING
BUSINESS
01
A centralised governance oversight and corporate management
team ensures robust and consistent governance across the
group. Operational execution is devolved to the divisions to
ensure we benefit from our strong divisional management teams
and the need to ensure processes are fit for purpose locally. The
UK business adopts an outsourced business model: the legacy
UK business already operates in this way and there are plans in
place to deliver the same for the newly acquired CASLP. Core
operations are not outsourced in Sweden or the Netherlands.
We create value and generate cash through:
– running our in-force books of business efficiently and effectively;
– executing management actions that create value and/or
generate cash;
– optimising the risk/reward balance in how we invest our assets
and hence generate future returns;
– accessing broader group synergies; and
– ensuring our customer processes deliver good outcomes
(recognising Consumer Duty requirements for UK customers)
and remain robust and in line with customer expectations, which
in turn supports stronger persistency.
– Identify potential deals through an effective network of
our own relationships, supplemented by advisors and
industry associates.
– We assess deals by applying well established criteria which
consider the impact on cash generation and Economic Value
and solvency under best estimate and stressed scenarios.
– 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.
– Our acquisition strategy includes both UK and non-UK markets.
– We work cooperatively with regulators.
– 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.
– When writing new business we retain a keen focus on
ensuring the business is profitable.
ACQUIRE LIFE
AND PENSION
BUSINESSES
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.
02
ENHANCE
VALUE THROUGH
PROFITABLE
NEW BUSINESS
The Chesnara financial model
supports modest incremental value
generation through writing profitable
new business. New business profits
are a welcome source of regular
value growth which supplements the
growth delivered from our existing
policy base and periodic acquisitions.
03
26
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
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.
EcV growth
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 support the funding of the
Chesnara dividend.
EcV enhancement
Acquisitions are required to have a positive impact on the
Economic Value per share in the medium term.
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.
EcV enhancement
We measure the amount of Economic Value added
through selling new contracts.
UPDATE
UK
Pages 38-39
Sweden
Pages 40-41
Netherlands
Pages 42-43
Page 44
PRINCIPAL RISKS: FOR FURTHER INFORMATION SEE PAGES 59-65
RISKS:
WHAT CAN STOP US
MEETING THIS OBJECTIVE
RISKS:
WHAT CAN WE DO
ABOUT THIS
– PR1 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.
– PR4 Increased lapses on cash
generative/value enhancing products.
– PR4 PR6 Loss of key brokers, or
aggressive competitor pricing, can
result in increases in the level of
customers moving to competitors.
– PR2 Regulatory change can
potentially impact the cash flows
arising from the existing business.
– PR5 Expenditure levels could
exceed those assumed.
– PR1 Foreign currency fluctuations
can impact the sterling value
emerging from overseas operations.
– PR3 A lack of value adding
acquisition opportunities come to
market, the investment case for
Chesnara diminishes over time.
– PR3 PR9 There is the risk that we
make an inappropriate acquisition
that adversely impacts the
financial strength of the group.
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.
– 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.
– PR8 The attractiveness of products
can be influenced by economic
conditions, politics and the media.
– PR6 PR8 PR9 New business
volumes are sensitive to the
quality of service to intermediaries
and the end customer.
– PR8 In Sweden, new business
remains relatively concentrated
towards several large IFAs.
– PR8 A competitive market puts
pressure on new sales margins.
– In Sweden, continue to extend the
breadth of IFA support and develop
more direct-to-customer
capabilities.
– Ensure high quality of service to
existing network of intermediaries.
– Focus on other margin drivers
beyond product pricing, such as the
fund management operation.
– In the Netherlands, enhance
business processes and product
offering to be attractive to brokers
and consumers.
Sweden
Pages 40-41
Netherlands
Pages 42-43
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
27
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
OUR CULTURE & VALUES
Our long established and proven culture & values underpin the delivery of our core strategic objectives.
Risk management is at the heart of our robust governance framework. Our values are strongly influenced by the
recognition of our responsibility to a range of key stakeholders including customers, regulators and our investors.
CULTURE & VALUES
WHY IMPORTANT ?
FAIR TREATMENT
OF CUSTOMERS
RESPONSIBLE
RISK-BASED
MANAGEMENT
FOR THE BENEFIT
OF ALL OF OUR
STAKEHOLDERS
PROVIDE A
COMPETITIVE
RETURN TO OUR
SHAREHOLDERS
ROBUST
REGUL ATORY
COMPLIANCE
28
MAINTAINING
ADEQUATE
FINANCIAL
RESOURCES
is at the heart of
good business
conduct.
Effective capital
management is
a key requirement
that underpins our
cultural objectives.
Further information
regarding the
group's solvency
position is included
on pages 45 to 47.
A JUST
TRANSITION TO
A SUSTAINABLE
GROUP
is a key basis of our
strategy. We are
committed to
ensuring that our
operations and
investments are
sustainable and
that sustainability
is at the heart of
our decision
making across the
group. Further
information is
included on
pages 66 to 85 and
in our Annual
Sustainability Report.
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 (including
Consumer Duty in the UK), we place a
high priority on taking account of the fair
treatment of our customers.
In managing the business, it is essential
that our decision making assesses the
risk impact of the decision. We achieve
this by understanding the key risk
drivers of the business plan and
strategy and by making sure we monitor
these risks across our whole range of
stakeholders.
As a public company, it is imperative
that we offer an attractive investment
proposition for investors. Given the
majority of our shareholders hold our
shares through ‘income funds’, it is
important that we deliver an attractive
and sustainable dividend. Debt holders
also want confidence we can pay any
interest coupon. We also recognise the
benefit of an investment that offers
clarity and consistency of performance.
Working constructively with our regulators
and complying with regulatory
requirements and guidance 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 board.
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 WHAT WE HAVE DONE
THE OUTCOMES
– Across the group we have continued to focus on delivering good outcomes to our customers,
– Generally low level of complaints across the group
has continued.
– Transparent customer communications, supporting
better customer outcomes.
– Strong ongoing service levels over the course of
the year, with a high level of customer satisfaction
and low levels of complaints.
recognising Consumer Duty requirements for UK customers. Divisional highlights include:
– Sweden – Continued with its digitalisation journey, having introduced a new pension policy
transfer process during the year. The division has also focused on other ways it can support
its customers. This has included introducing an advice service for those customers approaching
retirement as well as introducing a new service which gives customers access to online legal
advisory services.
– UK – Completed the acquisition of Sanlam Life & Pensions UK Limited (subsequently
renamed to CASLP) and focused on continuing to deliver a high level of service to our
customers. The division has continued work on ensuring it continues to meet the high
standards expected by its regulators. This has included focusing on delivering its ongoing
operational resilience programme as well as performing an initial assessment of the actions
that are required to meet the new Consumer Duty rules which were finalised during the year.
This included board sign-off of proposed plans to comply with the new rules. The division
has also continued with its activity of seeking to stay in contact with customers and to
reunite customers with unclaimed assets. The UK’s administrative outsource service
partners are held to stringent service level requirements.
– Netherlands – Focused on continuing to provide flexible solutions to its customers, mindful
of the impact of the cost of living crisis. For Waard’s new acquisitions, a key focus has been
on ensuring that customers continue to receive a continued high standard of service throughout
the change in ownership process and new staff are successfully onboarded.
– Where complaints do arise, we continue to manage them in accordance with the appropriate
regulatory practice.
– We closely monitor any regulatory developments to ensure we continue to treat our
customers fairly in accordance with any changing regulatory requirements.
– The ORSA process has been fully utilised in the context of providing risk oversight over
the course of the year.
– Delivered our continuous improvement regime regarding how we manage risk
across the group, supported by our annual systems of governance review.
– Robust solvency over the course of the year.
– Ongoing constructive dialogue with regulators
across the different territories in which the group
operates.
– Continued our track record of increasing our dividend for the last 18 years, even during
– Dividend growth track record continues, with 3%
turbulent investment market conditions.
– Maintained a robust solvency position in all divisions and at group level which supports
the continued dividend growth and provides substantial headroom for future acquisitions.
dividend growth in 2022.
– Over the past five years, £165m of dividends have
been paid.
– Completed two value adding acquisitions during the year, Robein Leven in the
– Further growth potential in both the UK and Europe
Netherlands and Sanlam Life & Pensions UK in the UK.
– Announced the acquisition of the insurance portfolio of Nederlandsche Algemeene
Maatschappij van Levensverzekering ‘Conservatrix’ N.V., which completed on
1 January 2023.
as a result of the acquisitions that were both
completed and announced during the year as well as
future M&A opportunities.
– Maintenance of robust levels of solvency throughout the group and all divisions
– Ongoing constructive relationships with UK,
throughout the year.
Swedish and Dutch regulators.
– Continued to place a high priority on compliance and maintaining an open dialogue
– Continued adherence to internal governance
with our regulators.
– Progressed our environmental, social and governance (ESG) strategy during the year,
including establishing the Group Sustainability Committee which is responsible for
overseeing climate-related risks and opportunities of the group.
policies and principles.
– Established oversight for the group’s sustainability
agenda and targets.
– IFRS 17 project expects to comply with the
– Progressed the group’s IFRS 17 project, broadly in line with plan, with an expectation
reporting requirements in 2023.
that we will comply with reporting requirements in 2023.
29
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION 172 • THE BOARD’S APPROACH
Our Section 172 reporting seeks to communicate the board’s approach to decision making, who our key
stakeholders are and how they are considered by the board when making decisions.
Section 172 statement
The directors of Chesnara believe that they have acted in a way that they consider, in good faith, would be most likely to promote the success of the company
for the benefit of its members as a whole, and in doing so have had regard (amongst other matters) to:
a) the likely consequences of any decision in the long term;
b) the interests of the company's employees;
c) the need to foster the company's business relationships with suppliers, customers and others;
d) the impact of the company's operations on the community and the environment;
e) the desirability of the company to maintain a reputation for high standards of business conduct; and
f) the need to act fairly between members of the company.
The following disclosures provide further insight supporting the above statement over the course of 2022. The disclosures have been split into three key sections:
The board’s approach
The overall approach taken by the board in ensuring that the requirements of Section 172 are met.
Key stakeholders
This covers the key stakeholders that the board considers are important to the long-term success of the company; how the
company depends on these stakeholders; how key stakeholders are impacted by the decisions of the company; and how we
engage with those stakeholders.
Significant decisions
This covers the significant decisions made by the board during the year and how the directors have considered key
stakeholders in making these decisions.
THE BOARD’S APPROACH
Role of the Chair
As described on page 92 within the Corporate Governance Report, it is the role of the Chair to lead the board in the determination of the group’s strategy; to
ensure that the board is furnished with sufficient information in order to support its decision making; and to ensure that relevant stakeholders have been taken
into account when making decisions.
Business planning
The principal process supporting the longer-term decision making of the board is the group business planning process. This is a three-stage process that
takes place throughout the course of the year, as follows:
STAGE 1
Strategic planning
STAGE 2
STAGE 3
Review and challenge of divisional and
group operational plans
Detailed business plans supported by
financial projections
The first stage of the business planning
process incorporates reviewing and
challenging the strategy of the group as a
whole. It presents an opportunity to ‘stand
back’ and review the overall strategy of
the group. Approving the strategy provides
a framework for the group and its
business units to prepare more detailed
operational plans.
Following completion of the strategic
planning, including any associated feedback
to the operating business units, operational
plans are developed and critically reviewed
by the group. The key objectives within the
operational plans are explicitly linked to the
strategic objectives of the group in order to
ensure that the key management actions
that have been identified support delivery of
the group strategy.
Following review and feedback from the
operational planning stage, final business
plans are produced at both a divisional and
group level. These include the final
operational deliverables for the short to
medium term and their associated
consequences, alongside the projected
financial outcomes of delivering the plans.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
30
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
This section of the strategic report is therefore designed to provide insight into how the directors of Chesnara
have discharged their responsibilities under Section 172 of the Companies Act, and in particular having had
regard to the matters set out in Section 172 (1) (a) to (f) when performing their duties.
The business planning process for 2022 confirmed that the board wishes to continue to pursue the following strategy:
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.
The strategy of the group is executed whilst ensuring that the group conducts its affairs in line with the following core culture and value principles:
– Fair treatment of customers
– Responsible risk-based management for the benefit of all of our stakeholders
– Providing a competitive return to our investors
– Robust regulatory compliance
– Maintaining adequate financial resources
– A just transition to a sustainable group.
These are described in more detail on pages 25 to 29.
Key financial metrics in the business planning process:
Each key objective within the group business plan is supported by relevant information
in order to support the review and challenge process by the board, having regard to the
factors required by Section 172 (1) (a) to (f).
Further information on how the board considers each key stakeholder group is provided
on pages 32 to 34.
As referred to above, business plans are supported by associated financial budgets and
projections. This helps to ensure that both the shorter-term and longer-term financial
consequences of following the plan are appropriately considered in the context of all
our stakeholders, in particular our shareholders. The key financial items/metrics that are
projected include are shown to the right.
Having a clear view of all of these metrics supports the directors in assessing whether
the business plan is expected to meet the expectations of our stakeholders.
ECONOMIC VALUE†
CASH GENERATION†
SOLVENCY
IFRS PROFITS
DIVISIONAL AND GROUP DIVIDENDS
EXPENSES
NEW BUSINESS PROFIT EXPECTATIONS†
Corporate Governance and Responsibilities Map
Complementing the business planning process for making decisions is the existence of the ‘Chesnara Corporate Governance and Responsibilities Map’, which
operates at group board level and with business unit equivalents in place to reflect territory-specific considerations. The objectives of the maps are to ‘…set
out the mechanisms of governance for Chesnara and the framework of governance requirements to be observed across the group, including principles,
policies, delegations of authority and decision making arrangements’. Each map contains a framework that supports decision making and includes relevant
guidance on what decisions can be made locally and what requires escalation to the Chesnara board. It also provides guidance on what information is required
to support board decision making.
Board papers and matters discussed
The board agenda and associated supporting documents are designed to support the board in directing the business, which includes, amongst other things,
discharging its responsibilities in relation to Section 172 (1) (a) to (f). For each meeting, a suite of relevant board papers is produced, with one of the key
sources of information produced for the board, over and above the group business planning process, being the group’s quarterly management information (MI)
pack. This is designed to be a ‘one stop’ holistic view of the group as a whole and covers, amongst other things, the following items of relevance to the
requirements of Section 172:
– Divisional updates, including financial results, business plan progress, key customer initiatives, regulatory interactions, key outsourcer/supplier matters,
employees etc.;
– Matters pertaining to investor relations;
– Consolidated financial results across various different metrics;
– Investment performance analysis, covering both customer and shareholder returns;
– Progress updates on key objectives within the business plan;
– Risk matters affecting the group;
– Regulatory updates across the group; and
– Internal audit matters.
31
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION 172 • KEY STAKEHOLDERS
The following table identifies the key stakeholders that the board considers are important to the long-term
success of the company. It provides insight into how the company engages with these stakeholders and how
they are considered when making strategic decisions. Matters arising in relation to each stakeholder group are
communicated by management to the board in an MI pack at each board meeting. It is worth noting that not
DEPENDENCIES
OF BUSINESS ON
STAKEHOLDER
Our customers are key to
the long-term success of
the group, both in terms of
retaining existing
customers and attracting
new ones to our open-
books of business.
Without our customers,
Chesnara would cease to
exist.
IMPACT OF BUSINESS
ON STAKEHOLDER
HOW WE ENGAGE
WITH STAKEHOLDER
Our primary concern is ensuring
that our customers have
policies with a financially strong
company that treats them fairly
and meets their expectations
and needs. Our financial
management, culture and
values statements ensure that
this is embedded across the
group. We closely manage all
aspects of the customer
journey, covering customer
experience, communications,
policyholder expectations,
product value for money, and
our solvency.
Our primary engagement with customers comes from a
combination of outward communication from the company,
coupled with the company dealing with customer contact, be it
through policy changes, queries or claims.
From an outwards communication perspective, our aim is to
ensure we provide transparent and understandable information
to our customers, be it in the form of regular written letters/
booklets, information available on our website or through any
other material made available to customers.
From the perspective of responding to customer contact, we
seek to make our processes as helpful to the customer as
possible, mindful of different customer group preferences. This
involves ensuring that our customer contact staff are well
trained for telephony or email correspondence and making other
technology available where feasible (such as the use of apps).
We obtain feedback on the way we engage with our customers
through periodic market research or customer focus groups.
KPIs monitored
relating to
stakeholder
Policy lapses
Complaints
Customer
survey scores
Having a strong and stable
shareholder base is seen
as critical for the long-
term success of the
group. Our shareholder
support facilitates
pursuing our long-term
strategy, including the
potential for raising new
capital for acquisition
purposes.
Any business decision that is
made that affects either the
future dividend payments of
the group, or its long-term
sustainability may be of
significant interest to our
investors. If either of those
elements are put under
pressure, it could reduce
confidence in the group, and
could lead to a reduction in
shareholder returns.
We primarily engage with investors through the following key
channels:
Significant investor
purchases/sales
– Formal public financial reporting, which we produce every six
Investor register
Investor feedback
Share price
TSR
months.
– Meetings with current and potential investors during the year,
including as part of investor roadshows after formal results and
at investor conferences.
– Our Annual General Meeting.
– Periodically, we hold ‘investor days’ with our shareholders and
other market related stakeholders which are designed to provide
further insight into our business and give investors an opportunity
to meet a wider range of Chesnara senior management.
– Periodically, we will contact investors for feedback in advance
of formal publication of particular matters, such as material
changes to our Remuneration Policy.
In the event that we are looking to raise additional debt or
equity our investors are actively engaged at the appropriate point
in the process.
The support of our debt
investors facilitates the
pursuit of our long-term
strategy, including the
potential for raising new
capital for acquisition
purposes.
Any business decision that is
made that affects the group’s
long-term sustainability
may be of significant interest
to our debt investors, and any
decision that could reduce
capacity is likely to reduce
confidence in the group.
We primarily engage with debt investors through the following
key channels:
– Formal public financial reporting, which we produce every
six months.
– Meetings with debt investors, during the year, including as part
of investor roadshows after formal results and at investor
conferences.
– Our Annual General Meeting.
Debt investor
feedback
Price of listed
debt instruments
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STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
all stakeholders have the same interests and whilst there is considerable overlap, they can at times conflict.
The board’s role is to weigh these factors up when setting the strategy and operational plans of the business.
KPIs monitored
relating to
stakeholder
Gearing ratio†
EcV position†
Solvency
Key intermediary
KPIs, including
sales volumes,
profitability and
customer
complaints
Service levels
Adherence to
timescales
Level of overruns
Quality of service
Credit rating
applied to
Chesnara plc and
its subsidiaries
Investment
performance
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DEPENDENCIES
OF BUSINESS ON
STAKEHOLDER
Key suppliers and
partners include our
bankers, outsourcers,
intermediaries and
professional services
providers. We depend on
these for delivering
various aspects of our
business model, covering:
– Bankers: Access to
ongoing short-term
lending to support
our business.
– Outsourcers: Supporting
the day-to-day policy
administration, customer
contact and associated
accounting of our
business, primarily in
the UK.
– Intermediaries:
Distributing our products
in Sweden and the
Netherlands.
– Suppliers: Support and
advice from our key
suppliers, including
professional services.
– Derivative counterparty:
Provision of financial
instruments to enable us
to manage our risk profile
in line with our tolerances.
– Rating agency: Fitch has
assigned an investment
grade credit rating for the
group’s subordinated
debt, which supports the
group in raising capital at
attractive rates of interest.
– Asset managers: support
the delivery of positive
investment outcomes for
customers through
management of certain
assets on behalf of the
group and its divisions.
IMPACT OF BUSINESS
ON STAKEHOLDER
HOW WE ENGAGE WITH
STAKEHOLDER
Our various suppliers and
partners are impacted by
Chesnara as follows:
– Bankers: They earn a return on the
facilities they provide and take a
keen interest in ensuring we
manage our finances and strategy
in a way that minimises their risk
of loss.
– Outsourcers: Our outsourcers
have an opportunity to share in
the growth of the group through
further acquisitions or portfolio
transfers. Our outsourcers rely on
the ongoing financial stability of
the group in order to ensure that
the services they provide continue
to be paid for by Chesnara.
– Intermediaries: Selling our
products will be a source of
immediate and ongoing revenue
for our intermediaries. When
dealing with the end customer,
intermediaries will rely on quality
information being provided by us
in a timely manner.
– Suppliers: For those key suppliers
of Chesnara, we are likely to be an
important source of revenue, and
therefore Chesnara’s ongoing
success in terms of delivering its
growth plans and remaining
financially stable will be of interest
to our suppliers.
– Derivative counterparty: They
manage their own risk exposures
through the derivative instruments
or make a return as market makers
for the trades.
– Rating agency: Any business
decision that affects the group’s
long-term sustainability may be of
significant interest to Fitch, and
could impact the credit rating
assigned.
– Asset managers: our asset
management partners earn fees
on the assets they manage
and have an opportunity to share
in the success of the group
through additional assets brought
into the group through new
business and acquisitions.
Bankers: Our regular engagement with banks takes the form
of quarterly covenant compliance reporting, which is required
for our existing debt Revolving Credit Facility (RCF)
arrangements. On a more ad-hoc basis we will engage with
our bankers in the event of a change in our business or to
seek new funding, say to support an acquisition. In the event
of an acquisition where we would like to secure more
short-term debt funding, we work with our bankers and other
advisors to ensure that we are providing relevant information
in order to support the banks’ loan decision making process.
Outsourcers: We view having strong, open and honest
relationships with our outsourcers as key to the long-term
success of our business. We engage with our outsourcers
through various scheduled meetings, focusing on a combination
of specific function-driven relationship meetings and wider
meetings focusing on the overall relationship. We view it as
important that our outsource partners are suitably informed
regarding business developments in Chesnara, and that
Chesnara is aware of any relevant business changes in our
outsourcers. This ongoing communication enhances the
relationships and works towards maintaining the longer-term
success of the group.
Intermediaries: We strive to work closely with our
intermediaries, engaging in a number of ways. In both
Movestic and Scildon, all intermediaries have access to a
partner website, where they can administer customer
processes and obtain information as required. The Swedish
division also hosts an annual conference to engage with
intermediaries, facilitating two-way discussion around
products, services and market developments. Other areas of
engagement include frequent meetings with intermediaries,
on an individual basis.
Suppliers: A number of Chesnara’s suppliers take the form of
the provision of a service or advice as opposed to the supply
of goods. For these suppliers our engagement focuses on
ensuring that the service or advice is fit for purpose and
meets the intended scope. This typically involves up front
interaction in scoping the work, coupled with close monitoring
of progress throughout the duration of the services. The
group ensures that it adheres to supplier payment terms.
Derivative counterparty: Once a risk exposure has been
identified that we want to manage, we engage with the
derivative counterparty about the structures available to
mitigate that risk. We engage with them through to execution
of the trade and then via regular reporting during the life of
the instrument.
Rating agency: We primarily engage with Fitch through a
formal annual review process. In addition, we will engage
with Fitch in advance of any key events, such as acquisitions
or other key corporate activity.
Asset managers: Regular meetings held with our main asset
management partners to review performance and
sustainability of the investment mandates in place including
their fit with our sustainability objectives.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
33
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION 172 • KEY STAKEHOLDERS (CONTINUED)
IMPACT OF BUSINESS
ON STAKEHOLDER
HOW WE ENGAGE
WITH STAKEHOLDER
The manner in which Chesnara
manages itself, both from a
prudential and conduct
perspective, will dramatically
affect how regulators view and
interact with Chesnara and its
subsidiaries. The higher risk that
the group is deemed to be to the
regulator, the more focus that
Chesnara and its subsidiaries are
deemed to require. In addition,
through being a member of the
ABI, Chesnara also has the
potential opportunity to respond
to and shape future regulatory
change in the UK.
We aim to provide a place of
work that supports and develops
the group’s employees and we
recognise that the group’s
day-to-day culture and its overall
remuneration and benefits
package also has a significant
effect on employees.
Our main impact is from the
assets in which we and our
policyholders invest and their
carbon and wider impact,
together with the emissions
created from our operations.
The impact of our investment
decisions and the investment
choices made by our customers
are wide-ranging and will
continue to be a key focus area
as we transition to a sustainable
group and our net zero targets.
The main emissions from our
operations fall within four
categories: business travel,
home working, employee
commuting and direct
office emissions.
KPIs monitored
relating to
stakeholder
Relationship with
supervisory team
Formal feedback from
regulators
Our engagement with regulators generally takes the
following forms:
– Regulators across the group typically have regular routines
and practices in place to support the delivery of their
oversight objectives. This typically takes the form of periodic
meetings with management, and also involves the group
furnishing regulators with relevant information. Chesnara
fully supports this process.
– The submission of quarterly and annual financial and
risk reporting.
– Chesnara management will also typically engage with
regulators as and when required should there be a business
update that would warrant so, for example at the appropriate
point during an acquisition process.
– Annual regulatory college meeting where a number of the
group’s regulators meet with the Group CEO and CRO.
Chesnara and its subsidiaries have various mechanisms in
Staff surveys
Feedback from
employee forums
Feedback from
appointed NED
Staff turnover
place to ensure appropriate levels of engagement exist with
employees. This involves:
– Completing staff feedback surveys.
– Holding regular update briefings covering matters such as
business performance, policy updates or any other matters
that are relevant to employees.
– Holding regular employee forums to discuss any employee
related matters.
– Having an appointed non-executive director who is responsible
for employee-related matters.
– Ensuring that we have relevant employee policies in place and
that these are available to our employees.
– Having a robust and transparent performance management
framework in place.
Our corporate and social responsibility statement on pages
66 to 69 provides further information.
We impact the planet and natural environment through the
business decisions that we and our policyholders make.
Ensuring that sustainability is at the heart of our decision
making is critical to ensuring that we consider the planet and
natural environment.
For policyholders who choose where they wish to invest, we
provide access to a range of sustainability-focused funds and
we continue to provide relevant material so that they can
make informed decisions. Our corporate and social
responsibility statement is set out on pages 66 to 85.
CO2 emissions
Energy consumption
Water usage
Sustainable investment
analysis from ISS Ethix
and Oekom Research
to benchmark ESG
risk scores to their
portfolios
In line with our support for the United Nations Sustainable
Development Goals (UNSDGs) and our commitment to invest
responsibly, our business units are working closely with
their respective fund managers to fully embed sustainability
within our own investment decision making criteria.
Chesnara’s business units are taking practical steps to
reduce our carbon footprint and minimise the impact that our
operations have on the environment by reducing, re-using
and recycling materials, as described on pages 81 to 84.
Climate change is recognised as a risk and is monitored as
part of our risk identification and assessment processes (see
pages 58, 65 and 70 to 85).
DEPENDENCIES
OF BUSINESS ON
STAKEHOLDER
Compliance with
regulatory requirements is
fundamental to the
success of the group.
Without it, we would not
be able to maintain our
existing status as a life
and pensions provider.
Our people are our
greatest assets and create
and deliver the strategy of
the group. We recognise
that to be able to meet the
expectations that we have
set ourselves, we need to
ensure that we continue
to attract, promote and
retain the best candidates.
Without high performing
and motivated staff
Chesnara would not be
able to deliver against its
strategic aims.
Our business relies on
natural capital and the
environment, both for our
operations and our
investments. Changes in
the natural environment
and the effect of global
warming can potentially
affect the way we operate
our businesses, and also
the returns to our
customers and
shareholders. We are
committed to applying
sustainability-based
decision making across
the group.
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34
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION 172 • SIGNIFICANT DECISIONS
The principal process that the board uses to make shorter and longer-term decisions is the group business
planning process. Key decisions also arise outside of the business planning process depending on how the
business develops during the year and the challenges and opportunities that it faces. The table below lists
the key decisions made by the board during 2022 and how the directors have considered the factors required
by Section 172 in making these decisions.
SIGNIFICANT
DECISION
CREATION OF
THE GROUP
SUSTAINABILIT Y
COMMIT TEE
AND SET TING OF
THE GROUP’S
LONG-TERM NET
ZERO TARGETS
GOVERNANCE
CHANGES
STRENGTHENING
OF THE
EXECUTIVE TEAM
DESCRIPTION OF DECISION AND IMPACT ON DIFFERENT STAKEHOLDER GROUPS
– Overview: During 2022, the group’s sustainability vision was established, setting the path for Chesnara to transition to being a
sustainable group, including setting our long-term net zero targets for financed and operational emissions which are to: become a
net zero emitter (net zero financed emissions by 2050 and net zero operational emissions by 2028); become an investor in positive
solutions; and create an inclusive environment for all employees, customers and stakeholders. These targets were presented to
the board and formally approved in March 2023. Further details are included in our new Annual Sustainability Report. The Group
Sustainability Committee was established at the start of 2023 to oversee the delivery of the strategy and its targets.
– Key considerations and decision: A cross-group review was performed, considering the status of current activities in each of
the divisions and what we ultimately wanted to achieve as a group, together with our regulatory requirements and market
expectations. This also considered where the group was able to have the most impact and what could realistically be achieved
by any targets and goals we set. We also considered how to communicate our vision, strategy and progress, whilst also
ensuring that we would not be greenwashing our activities. This process concluded that Chesnara was committed to becoming
a sustainable group, considering profit, people and the planet, setting net zero targets for financed and operational emissions
and developing a plan for delivering its vision.
– Primary beneficiaries: All stakeholders are impacted by Chesnara being a sustainable business, including:
• Shareholders: Being a sustainable group helps to ensure our long-term success and therefore provide more certainty over
long-term returns.
• Regulators: Confirms our commitment to meet our regulatory obligations and comply with disclosure requirements.
• Employees: Takes due account of the welfare of our colleagues and raises awareness of the relevance of sustainability in our
day-to-day operations, providing opportunities to work in an organisation making positive contributions to society and the planet.
• Customers: Provides customers with the confidence that we continue to do the right thing, alongside developing our
sustainable product offerings for policyholders looking for sustainable investment opportunities and improves the
sustainability of investment returns where we are responsible for investment decisions.
• The planet and natural environment: A just transition to being a net zero organisation and one which directs capital to positive
solutions delivers positive outcomes for the planet and environment.
– Other stakeholder considerations:
• Suppliers and outsourcers: Sustainability criteria form part of our supplier selection process.
• Asset managers: Our asset managers are fundamental to the transition to net zero for financed emissions. We will have to
actively engage and direct them to ensure that our targets are met.
– Overview: During the year there were a number of key governance changes the most notable of which are: new board members
appointed to Chesnara group board (plus other board positions across the group); increased segregation between Chesnara and its
UK business units through a reduction in the size of the CA board from 10 to 7 with three Chesnara directors stepping off it;
appointment of a new NED on the Movestic Livförsäkring AB board; and the appointment of a new workforce engagement NED.
– Key considerations and decision: Governance Code guidance as well as skills, experience, geographical knowledge &
capability, diversity, segregation and adequate oversight were all taken into account by the Nominations & Governance Committee
in its deliberations.
– Primary beneficiaries: Strong governance and a breadth of knowledge, experience and capability in the board and its committees
puts the company in the best possible position to drive positive outcomes for its shareholders and all other stakeholders.
– Overview: During 2022, Sam Perowne joined the group as Group Head of Corporate Development and Investor Relations and
Amanda Wright joined the group as Group General Counsel and Company Secretary, with Al Lonie moving to become Group
Chief of Staff. They are all members of the Group Executive Committee. In light of Scildon entering its next phase of strategic
development, the Scildon CEO, Gert-Jan Fritzsche, will be leaving the business. Our market search for his replacement is well
under way.
– Key considerations and decision: In reaching their decisions, the board considered the business case for the appointments.
They decided that the appointment of Sam would help drive the group’s acquisition strategy and investor engagement, and the
appointment of Amanda would strengthen commercial and legal advice to the board and wider leadership team on key areas of
Chesnara's strategic development, including acquisitions, as well as supporting strong governance across the group as
Company Secretary. Finally, they recognised Al’s appointment would provide additional support to the setting and delivery of
the group’s renewed strategic agenda. With regard to the Scildon CEO, the local supervisory board were the primary drivers of
this decision with the board confirming their support.
– Primary beneficiaries: The appointment of an appropriately skilled and experienced Group Executive Committee and search
for an appropriately skilled and experienced new Scildon CEO are in the interest of all our stakeholders.
– Other stakeholder considerations
• Employees: the impact of changes in the employee structure and creation of new posts was considered in the context of the
group’s existing employees.
35
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SECTION 172 • SIGNIFICANT DECISIONS (CONTINUED)
SIGNIFICANT
DECISION
STAFF AND
REMUNERATION
DECISIONS
ACQUISITIONS
ANNOUNCED IN
THE YEAR
COMPLETION OF A
TIER 2 DEBT RAISE
DESCRIPTION OF DECISION AND IMPACT ON DIFFERENT STAKEHOLDER GROUPS
– Overview: Over the course of the year, there have been a number of significant staff and remuneration related decisions, the
most notable of which are: inflationary increases for staff to address the cost of living crisis including one-off cost of living
payments for a number of employees (dependent on earnings); the launch of a new save as you earn share save scheme for
staff; a review of the Executive Director Remuneration Policy; and consideration of the LTIP scheme including the proposed
increase to the Group CEO’s participation level.
– Key considerations and decision: Each decision was discussed by board giving consideration as to the relevant merits of
each item and whether the cost was appropriate given the current economic climate. For each of the decisions, the impact,
the benefits and the position in the market/to competitors were considered (where appropriate), and a balanced argument was
put forward to the relevant board or committee for approval, in some cases, this included opinions from a third party advisor.
– Primary beneficiaries:
• Employees: The primary stakeholder affected by this decision is the group workforce as these decisions directly affect their
benefits packages.
– Other stakeholder considerations
• Shareholder: Investment in staff provides a sustainable environment and workforce, which in turn is expected to have a
positive impact on the business. Where required, the proposed changes to the Executive Director Remuneration Policy were
communicated in advance to major shareholders and are being put forward as resolutions at the forthcoming 2023 AGM.
– Overview: The board is required to approve any acquisitions that the group enters into. In addition to this, the board reviews
and approves any material acquisition offers.
– Key considerations and decision: In April 2022, following board approval in 2021, the acquisitions of Sanlam Life & Pensions
UK Limited (subsequently renamed to CASLP) and Robein Leven (NV). In July 2022 the group board approved the acquisition of
Conservatrix, a specialist provider of life insurance products in the Netherlands that was declared bankrupt on 8 December
2020. This transaction completed on 1 January 2023 and furthers the group’s acquisition strategy, particularly in the Netherlands.
– Primary beneficiary:
• Shareholder: The Conservatrix transaction is expected to: deliver an estimated day 1 EcV† gain on completion of £21m
(originally assessed as £18m); significantly increase the FUM and policy count of Waard; and enhance the group’s future cash
generation† potential.
– Other stakeholder considerations:
• Regulators: The transaction required approval by the Dutch regulator, De Nederlandsche Bank (DNB), who need to ensure
that the transactions do not cause any prudential or conduct issues. All approvals were obtained during 2022, with completion
taking place on 1 January 2023.
• Customers: The announcement of bankruptcy is expected to have given rise to significant uncertainty to the organisation’s
customers, and therefore we expect this acquisition to provide that certainty and a clear way forward for them.
• Staff: The decision is of interest to the staff of our existing group given the integration plans underpinning the
announcements, as well as the staff of the acquired business, particularly due to the uncertainty created when the company
was declared bankrupt in 2020.
– Overview: In February 2022, the board executed the completion of a £200m Tier 2 debt raise.
– Key considerations and decision: The board considered the merits of raising subordinated debt for funding general corporate
activity, including acquisitions. This took account of the ongoing finance servicing cost, the impact of the solvency of the group
and the leverage within the business, as well as the positioning of the business when considering future acquisition activity.
Based on this assessment the board decided to approve the debt raise.
– Primary beneficiaries:
• Debt holders: The raise has introduced a new stakeholder group to Chesnara during February 2022, being the new debt
holders of the instrument. This group will benefit from the return on the debt (being the interest coupon) and will also be
interested in ensuring that their initial investment remains secure over the duration of the debt. Chesnara will take into
account the considerations of the debt holders on an ongoing basis.
• Shareholders: The debt raise provides a relatively low cost and solvency beneficial funding approach to finance announced
and potential future acquisitions, and positions Chesnara positively when discussing future acquisition activity. This improves
Chesnara’s ability to continue to acquire commercially beneficial businesses.
• Regulators: The debt raise materially improves Chesnara’s solvency position removing the strain associated with acquiring
businesses over recent years.
– Other stakeholder considerations:
• Rating agencies: As part of the process Chesnara became a rated insurer. This process means that we have a new category of
stakeholder, namely of rating agencies, in this case Fitch. Chesnara will take into account the considerations of Fitch on an
ongoing basis.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
36
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
SIGNIFICANT
DECISION
MITIGATED
CURRENCY RISK
THROUGH THE USE
OF DERIVATIVES
GROUP IT
INVESTMENT
APPLICATION OF
CAPITAL
MANAGEMENT
AND DIVIDEND
POLICIES
DESCRIPTION OF DECISION AND IMPACT ON DIFFERENT STAKEHOLDER GROUPS
– Overview: We continually assess the impacts and benefits of hedging our exposure to different risks, including foreign
exchange movements. During the year, it was determined to be an appropriate point to mitigate the retranslation risk at group
level through the use of derivatives.
– Key considerations and decision: A thorough review of potential options, together with their expected impacts and benefits,
was performed, including discussions with various counterparties about potential structures. This review also considered the
potential costs, liquidity and capital impacts to determine the cost/benefit of mitigating the risk.
– Primary beneficiary: The primary beneficiary of decisions in relation to hedging strategy are our shareholders in that it
reduces potential risk and volatility, thus providing more certainty over the results and capital position of the group.
– Overview: The group continues to invest in its IT infrastructure. This includes replacing the previous pension product
policyholder administration system in Scildon with work continuing on this during the year. In addition to this, during the year,
Scildon launched an IT system improvement project for individual products that is expected to run until 2024 and generate cost
efficiencies. Within Chesnara plc a consolidation tool was implemented to enhance controls around group reporting, whilst also
streamlining the process.
– Key considerations and decision: The board continued to consider the pros and cons of the development at key milestones
and project stage gates, including the associated risks, the financial impact and viable alternatives with regards to the existing
pension IT project. Based on this assessment, the board decided to continue to support Scildon’s implementation of the
pension platform and gave support towards a business case to undergo a number of improvements to the existing platform for
its remaining products, which in turn would generate longer-term efficiencies. In Chesnara, the board approved a business
case to invest in a new consolidation tool which considered the cost and implementation impacts vs the associated merits of
more efficient consolidation routines and enhanced control environment.
– Primary beneficiaries:
• Shareholders: The ongoing investment in IT is designed to provide value enhancements to the business and hence to our
shareholders. The target IT infrastructure is designed to be more robust and more efficient to run.
• Customers and brokers: Of equal importance is the benefit to customers and the interactions with brokers. The new systems
in Scildon will support a more digitalised service, increasing speed, optionality and efficiency to the brokers and end customers.
– Other stakeholder considerations:
• Employees: The staff impact was appropriately considered by the board in making these decisions, both in terms of the
delivery of these programmes and the target operating models.
• Suppliers: Having reliable suppliers to support the implementation and, where relevant, the ongoing maintenance of the new
systems is an important consideration when making this decision.
– Overview: Every year the board is required to consider what level of dividends are appropriate for shareholders, whilst also
ensuring that it continues to adhere to its own Capital Management Policy. Dividend proposals are subject to board approval,
with proposed final dividends being included in a resolution voted for at the Annual General Meeting.
– Key considerations and decision: The Directors' Report on page 126 provides information on the key considerations made
by the board when approving dividends. The aim is to satisfy investor expectations by delivering an attractive dividend, with
steady growth where possible. That said, this dividend cannot and will not be delivered at the expense of financial security, be
it through solvency or liquidity. During 2022, the board approved an updated Capital Management Policy which does not permit
a dividend to be paid such that, after the payment of that dividend, the group solvency ratio falls below 110%, with triggers in
place to reassess dividend capacity if the solvency ratio drops below 130%. In approving a dividend, the board is presented
with a paper by management which considers the various aspects of the dividend decision, including cash generation,
solvency, the group’s acquisition strategy and investor expectations. The dividend decisions made by the board in the year
gave full consideration to market turmoil seen over 2022, including the potential for further investment market disruption and
inflationary pressures. During 2022 the board approved the year end 2021 final dividend, amounting to 14.72p per share, and
the interim 2022 dividend of 8.12p per share.
– Primary beneficiary: Dividend decisions are made primarily for the benefit of our shareholders.
– Other stakeholder considerations:
• Banks: Our bankers are considered in terms of the impact of distributions on our liquidity and solvency position.
• Regulators and customers: These stakeholders are considered in the context of ensuring that the solvency position of the
group post dividend remains robust.
Engagement with the board on the aforementioned S172 considerations is of critical importance. The board receive management information tailored
to incorporate the KPIs referred to above where appropriate. They also receive specific papers or reports back from other Executive Committees
(e.g. Remuneration Committee) to support their involvement in S172 related decisions.
37
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 BUSINESS REVIEW UK
The UK division is made up of Countrywide Assured plc and Sanlam Life & Pensions UK Limited (now renamed
CASLP). CASLP was acquired by Chesnara on 28 April 2022 following the announcement to purchase the
company in September 2021. The combined businesses manage c272,000 policies covering linked pension
BACKGROUND INFORMATION
INITIATIVES & PROGRESS IN 2022
01
CAPITAL & 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.
CUSTOMER OUTCOMES
Delivering good customer outcomes 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.
– The acquisition of Sanlam Life & Pensions UK Limited (now renamed CASLP) was
completed on 28 April 2022. This increased the number of policies by over 68,000 and
added EcV1 of £54.5m to the division.
– Combined UK division delivered cash generation† of £40.8m in the year, and combined
foreseeable dividends of £56.0m.
– As a result of the acquisition, central overheads can now be shared across a wider
policy base, which has resulted in a benefit to CA Own Funds of £8.1m.
– Work is progressing well on integrating CASLP into the division which includes
preparing the business for moving to the division’s target operating model for CASLP.
The planned activity of transferring the policies of CASLP into CA is progressing in line
with plans.
– CA completed a transfer of £13.4m of capital out of its with-profit funds which
increased solvency surplus by £7.8m.
– Investment markets have influenced the results of the division over the year. Falls in
equity prices and rises in yields have generally been positive to solvency, but less
favourable to the division’s EcV.
– CA solvency has increased during the period, largely driven by the aforementioned
group cost sharing exercise, the with-profit capital extraction and the positive benefits
from increasing yields and the fall in the equity symmetric adjustment.
– Following the acquisition of CASLP, its customer-facing website was developed and
we have ensured customers continue to receive the same high quality standard of
service. The division’s process of aligning, where appropriate, CASLP’s and CA’s
customer governance framework is progressing in line with plans.
– The UK’s operational resilience programme has remained a key focus. All regulatory
deadlines have been met and work is now in progress on the next phase of the work,
which includes identifying and remediating any weaknesses identified through the
journey mapping phase of work.
– Throughout the year the activity of seeking to stay in contact with customers and to
reunite customers with unclaimed assets has continued, as has the activity on product
reviews with remediation undertaken where required.
– The FCA published their final paper on Consumer Duty in July 2022. An assessment of
actions needed to meet the requirements of the paper has been undertaken for the
division, with no major concerns identified and a plan is being implemented.
GOVERNANCE
– The integration of CASLP into the existing UK governance framework has been a focus
and is largely complete.
Maintaining effective governance and a constructive
relationship with regulators underpins the delivery of the
division’s strategic plans.
– The division’s IFRS 17 project has remained a priority over 2022. The project has
progressed well for both the existing CA business as well as integrating CASLP’s
programme. The division is well placed to apply IFRS 17 which went live on 1 January 2023.
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.
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business, life insurance, endowments, annuities and some with-profit business. Countrywide Assured
follows an outsourcer-based operating model, whereas CASLP’s is currently largely delivered through
internal resources.
KPIs
Economic Value† – UK
Reported value
Cumulative dividends
Cash generation† – UK
– Move to the planned longer-term target operating
FUTURE PRIORITIES
£m
2022
209.3
2021
181.9
2020
187.4
£m
149.0 358.3
2022
40.8
121.5
303.4
2021
27.4
88.0
275.4
2020
29.5
2019
204.6
59.0
263.6
2019
33.6
2018
214.7
214.7
2018
29.5
55.8
model for CASLP.
– Continue with the work that is required to deliver
the planned transfer of the insurance business of
CASLP into the UK’s principal operating company,
Countrywide Assured plc.
– Continue to focus on maintaining an efficient and
cost-effective operating model.
– Identify potential management actions with a
focus on those that have the potential to
accelerate cash generation.
– Support Chesnara in identifying and delivering UK
acquisitions.
Note: The 2022 closing value includes the additional EcV from the acquisition of CASLP, which includes the value
of the acquired business plus a capital injection from Chesnara plc. There is a corresponding value outflows of
£62.9m at the parent company.
Policyholder fund performance – UK
CA pension managed
CWA balanced managed pension
S&P managed pension
Benchmark – ABI mixed inv 40%-85% shares
– Continued focus on the operational resilience
programme to ensure the regulatory deadline of
March 2025 is achieved.
– Execute the board agreed plans and progress
any actions needed to meet the requirements of
the Consumer Duty for CA and CASLP.
(7.9)%
(7.9)%
(8.4)%
(9.8)%
10.8%
10.8%
10.4%
10.8%
12 months ended 31 December 2022
12 months ended 31 December 2021
Throughout the year our main managed funds performed ahead of industry benchmarks.
SOLVENCY RATIO CA: 205%
SOLVENCY RATIO CASLP: 167%
£m
130%
30.9
205%
37.5
(46.0)
67.9
130%
21.9
31 Dec 21
surplus
Surplus
generation
31 Dec 22
surplus
(pre-div)
2022
dividend
31 Dec 22
surplus
167%
112%
4.6
Acqn
balance
sheet
19.2
23.8
(10.0)
130%
13.8
Surplus
generation
31 Dec 22
surplus
(pre-div)
2022
dividend
31 Dec 22
surplus
Solvency is strong in both businesses with surplus generated in the year increasing
the pre-dividend solvency ratio from 130% to 205% and from 112% to 167% in CA
and CASLP respectively. Note, the increase in CASLP solvency includes the £25m
capital injection from group on acquisition.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
– Finalise the transition of CASLP to align with the
UK division’s governance framework.
– Deliver IFRS 17 reporting for the division, which
became effective from 1 January 2023.
– Deliver the UK aspect of the group-wide
sustainability programme.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 BUSINESS REVIEW SWEDEN
Our Swedish division consists of Movestic, a life and pensions business based in Sweden which is open to new
business. It offers personalised unit-linked pension and savings solutions through brokers and is well-rated
within the broker community.
BACKGROUND INFORMATION
INITIATIVES & PROGRESS IN 2022
01
CAPITAL & VALUE MANAGEMENT
Movestic creates value predominantly by generating growth
in unit-linked Funds Under Management† (FuM), whilst
assuring a high-quality customer proposition and maintaining
an efficient operating model. FuM 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.
CUSTOMER OUTCOMES
Movestic provides personalised long-term 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 and
licenced brokers.
– 2022 has seen uncertainty in the Swedish and global financial markets, resulting in
rising Swedish interest rates and inflation and falling equity markets.
– These events were reflected in the lower returns on the policyholders’ investment
assets as well as Movestic’s own investments.
– Movestic’s solvency ratio has strengthened over the year and it has an expected year
end 2022 dividend of £12.0m.
– The division has continued to strengthen its offering and distribution within its relatively
new custodian business.
– Over 2022, incoming volumes have been in line with the prior year despite the financial
markets’ dampening effect.
– Pension transfers continue to be a feature of the market through new regulations,
particularly those introduced in July 2022, along with digitalisation, transparency, lower
fees, and new working processes. The net transfer outflow has improved significantly
due to the removal of competitors’ aggressive pricing activities, coupled with the
impact of Movestic’s retention initiatives.
– Favourable claims development in the risk insurance segment has also been seen.
– A third party survey completed during 2022 demonstrated the importance of an
occupational pension as the most important benefit when choosing a new employer,
hence an important tool for employers to stay attractive.
– A new concept ‘Movestic Frihet’, which includes personal advice on savings and
insurance for customers approaching retirement, was launched during the year with
positive response from the market.
– A new partnership with Lexly was also entered into which gives Movestic customers
access to online legal advisory services.
– A new concept for onboarding of individuals within the direct market segment was
launched during the first half of the year.
– The processing of policy transfers was further digitalised during the year, both from the
perspective of brokers and individual customers.
– Launch of an opportunity for both existing and new individual customers to engage in
new savings by subscribing to an endowment policy on the Movestic website.
GOVERNANCE
– The IFRS 17 programme has continued during the year and Movestic remains on track
with its implementation.
Movestic operates to exacting regulatory standards and
– Sustainability has remained a focus area. Efforts have been made to integrate
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.
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 attractive dividend. Movestic has a
clear sales focus and targets a market share of 6%-10% of
the advised occupational pension market. This focus
ensures we are able to adopt a profitable pricing strategy.
sustainability risk in various internal processes in order to be compliant with changes in
the Solvency II delegated regulation which entered into force in August 2022. Movestic
has also been playing a strong role in the group’s wider sustainability programme.
– Further implementation on the EU sustainability regulation (the SFDR and the EU
Taxonomy) was carried out during the year, including integrating sustainability as a
parameter in the advisory process.
– During the year, a new Swedish NED, Marita Odélius Engström, for Movestic joined
the Movestic board and A&RC, with Karin Bergstein (who is a non executive director on
the group board) also joining the Movestic board.
– Sales volumes developed positively in 2022 and were 14% above 2021 for the unit-
linked segment. The custodian sales volumes were on par with the previous year despite
the unfavourable financial market conditions. Sales volumes in early 2023 also appear
positive.
– The division delivered new business profit of £3.4m (2021: £4.2m). The prior year
included higher pension increments profit, largely due to salary and bonus processes
being postponed in 2020 to 2021, which is not the case in 2022.
– Movestic will continue to develop its offering to increase competitiveness and build
customer loyalty. A special focus was also put on new volumes that became available on
the Swedish transfer market from the second half of 2022.
– The intense competition in the unit-linked market continues, resulting in Movestic’s
market share of new business currently being below the long-term target. Movestic saw
some positive sales development in the broker channel during the year. In the custodian
market, Movestic is well within the target range for custodian market share, achieving
9.5% on a rolling 12 month basis.
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Sӧderberg & Partners have, in their recent annual report, named Movestic as insurance company of the year
for unit-linked insurance, ahead of competition from 12 other insurance providers in the Swedish market.
KPIs (ALL COMPARATIVES HAVE BEEN RESTATED USING 2022 EXCHANGE RATES)
FUTURE PRIORITIES
Economic Value†
Reported value
Cumulative dividends
£m
2022
199.3
2021
239.3
2020
220.0
2019
247.7
2018
208.0
17.0
216.3
14.0
253.3
8.7
228.7
2.7
250.4
208.0
Broker assessment rating
2022
3.8
2021
3.6
2020
3.3
2019
3.5
2018
3.8
POLICYHOLDER AVERAGE
INVESTMENT RETURN
-14.6%
The total average fund performance needs to be assessed in light of the reduction in value of wider equity
markets, especially the main Swedish OMX index that fell by 25%. Against this backdrop the performance
is seen as a positive outcome. This is supported by the fact Söderberg and Partners, a major Swedish
distributer, cited improved fund payout rates as a key factor in selecting Movestic as ‘Insurance Company
of the Year’.
SOLVENCY RATIO: 162%
£m
148%
74.1
4.4
173%
(12.0)
162%
66.5
SOLVENCY
REMAINS STRONG
POST A FORESEEABLE
DIVIDEND OF £12M
31 Dec 21
surplus
Surplus
generation
2022
dividend
31 Dec 22
surplus
78.5
31 Dec 22
surplus
(pre-div)
Occupational pension market share %
New business profit
£m
2022
4.1
2021
3.6
2020
4.7
2019
7.0
2018
6.6
2022
3.4
2021
4.1
2020
1.5
2019
6.6
2018
10.6
– Continue to build solid and long-term sustainable
value creation for customers and owners through
a diversified business model with continued
profitable growth of volumes and market shares
in selected segments.
– Focus on building digital leadership in the industry
through the development of digitalised and
tailored customer propositions and experience.
Movestic will also continue the journey to digital
and automated processes to further improve
efficiency and control.
– Remain focused on customer loyalty and providing
attractive offerings to both retain customers and
reach more volumes on the transfer market.
– Provide a predictable and sustainable dividend
to Chesnara.
– Continued development of new digital
self-service solutions and tools to support the
brokers’ value enhancing customer proposition,
and to facilitate smooth administrative
processes making Movestic a partner that is
easy to do business with.
– Further strengthen the relationship with
brokers through increased presence, both
physical and digital.
– Seek to capitalise on the new rules that came
into effect in July 2022 that enhances our ability
to transfer policies onto our platform, where it
is in the interest of customers to do so.
– Deliver the remaining aspects of the division’s
IFRS 17 programme.
– Continue implementation of sustainability
regulations.
– Launch new risk product offerings in the broker
channel, including a new technical solution for
administration.
– Strengthen distribution capacity within the direct
business area, as a complement to the broker
channel and partner distributed custodian business.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
41
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 BUSINESS REVIEW NETHERLANDS
Our Dutch businesses aim to deliver growth and earnings through our closed-book business, Waard,
which seeks to acquire and integrate portfolios; and our open-book business, Scildon, which seeks to write
profitable term, investments and savings business.
BACKGROUND INFORMATION
INITIATIVES & PROGRESS IN 2022
01
CAPITAL & VALUE MANAGEMENT
Both Waard and Scildon have a 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.
CUSTOMER OUTCOMES
Great importance is placed on providing customers with
high quality service and positive outcomes.
Whilst the ultimate priority is the end customer, in Scildon
we also see the brokers who distribute our products as
being customers and hence developing processes to best
support their needs is a key focus.
GOVERNANCE
Waard and Scildon operate in a regulated environment and
comply with rules and regulations both from a prudential
and from a financial conduct point of view.
– Waard completed the acquisition of Robein Leven in April 2022 with the integration
largely complete by the end of the year. Waard also entered into an agreement to acquire
the insurance portfolio of Conservatrix, a specialist provider of life insurance products in
the Netherlands that was declared bankrupt on 8 December 2020. The transaction
completed on 1 January 2023, adding 70,000 policies and £0.4bn of assets under
management. These acquisitions further strengthen Waard’s position as an acquirer of
business and portfolios in the Netherlands.
– Despite market pressures during 2022, both businesses continue to have strong
solvency positions, inclusive of the use of the volatility adjustment: Scildon at 188% at
31 December 2022; and Waard at 591%.
– Scildon launched an IT system improvement project for individual products that is
expected to run until 2024 and generate cost efficiencies.
– Scildon’s focus has been on providing flexible solutions and offerings to its clients,
including sustainable options, and continuing to meet the needs of its customers during
the impacts of the war in Ukraine and the cost of living crisis.
– Work has continued on the Scildon pension portal and work also started to improve
the existing system that services all other products providing improved functionality
for customers.
– Waard has provided certainty to the policyholders and staff of both Robein Leven and
Conservatrix through its acquisition activity.
– The IFRS 17 and IFRS 9 work has continued to progress, with significant strides being
made during the year. Work has continued with our auditors on the technical decisions
and the operational processes underpinning the implementation. Both businesses
remain on track to deliver IFRS 17 reporting for half year 2023.
– Waard has implemented a new actuarial tool during the year to strengthen its systems
and controls.
– Further implementation on the EU sustainability regulation (the SFDR and the EU
Taxonomy) was carried out during the year.
– The 2022 results have been audited by the newly appointed local auditor, EY, following a
tender process for both Waard and Scildon during 2021.
Scildon brings a ‘new business’ dimension to the Dutch
division. Scildon sell protection, individual savings and
group pensions contracts via a broker-led distribution
model. The aim is to deliver meaningful value growth from
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.
– Despite significant market turmoil over the course of 2022, Scildon continues to
generate commercial new business profits, with £6.1m earned in the year. The overall
volume of business increased by c3% versus 2021 against a term market that materially
shrank during the year.
– Underpinning this, Scildon APE1 and policy count continue to increase, now with more
than 230,000 policies. The market share for the Scildon term lifestyle product is 18.2%
(YTD to December 2022).
– Scildon was awarded a 5 star rating for its lifestyle product by independent trade body,
Moneyview.
1Annual Premium Equivalent – see glossary on page 242 for further information.
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KPIs (ALL COMPARATIVES HAVE BEEN RESTATED USING 2022 EXCHANGE RATES)
FUTURE PRIORITIES
Economic Value† – The Netherlands
Reported value
Cumulative dividends
£m
2022
223.4
2021
224.6
2020
216.0
2019
229.7
2018
221.1
18.7
242.1
13.4
238.0
13.4
229.4
8.2
237.9
221.1
Note: The 2022 closing value includes the additional EcV in Waard relating to the capital injection of £21.5m from Chesnara
plc in respect of the Conservatrix acquisition. There is a corresponding value outflow of £21.5m at the parent company.
Client satisfaction rating
2022
8.3
2021
8.1
2020
7.8
2019
7.7
2018
7.6
(Source MWM2 market research agency, Netherlands)
– Integrate the Conservatrix business and
continue to support Chesnara in identifying and
delivering Dutch acquisitions.
– Effective management of the closed-book
run-off in Waard to enable ongoing divided
payments to Chesnara.
– Continue to progress the ongoing IT projects to
generate capital efficiencies.
– Regular engagement with customers to improve
service quality and to enhance and develop
existing processes, infrastructure and customer
experiences.
– Continue to progress the IT development
programme in Scildon to enhance functionality for
customers.
– Maintain stability to customers of Conservatrix
during the integration process.
SOLVENCY RATIO SCILDON: 188%
SOLVENCY RATIO WAARD: 591%
– Finalising the preparation for IFRS 17 and
£m
192%
(11.9)
74.0
188%
62.1
31 Dec 21
surplus
Surplus
generation
31 Dec 22
surplus
£m
399%
35.2
36.3
630%
(5.3)
71.5
591%
66.2
31 Dec 21
surplus
Surplus
generation
31 Dec 22
surplus
(pre-div)
2022
dividend
31 Dec 22
surplus
Solvency is robust in both businesses, with post-dividend solvency ratios (inclusive of
the volatility adjustment) of 188% and 591% for Scildon and Waard respectively. Note, the
increase in Waard solvency includes the benefit of the £21.5m capital injection from
group in respect of the Conservatrix acquisition, which completed 1 January 2023.
Term assurance market share %
Scildon new business profit
£m
2022
18.2
2021
16.1
2020
14.2
2019
11.6
2018
7.6
2022
6.1
2021
5.2
2020
8.4
2019
7.5
2018
4.6
IFRS 9 financial reporting, which are live as of
1 January 2023.
– Continue implementation of sustainability
regulations.
– Continue to deliver product innovation and cost
management actions.
– Consider alternative routes to market that do not
compromise our existing broker relationships,
such as further product white labelling.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
43
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
BUSINESS REVIEW • ACQUIRE LIFE & PENSIONS BUSINESSES
During 2022 we completed the acquisitions of CASLP and Robein Leven and announced the purchase of the
insurance portfolio of Conservatrix. Well considered acquisitions create a source of value enhancement and
sustain the cash generation† potential of the group.
How we deliver our acquisition strategy
– Identify potential deals through an effective network of own contacts
– We work cooperatively with regulators.
and advisors and industry associates, utilising both group and divisional
management expertise as appropriate.
– We primarily focus on acquisitions in our existing territories, although we
will consider other territories should the opportunity arise and this is
supportive of our strategic objectives.
– We assess deals by applying well established criteria which consider the
impact on cash generation and Economic Value under best estimate and
stressed scenarios.
– 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 reduced 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 own resources, debt or equity
depending on the size and cash flows of each opportunity and commercial
considerations.
HOW WE ASSESS DEALS
Cash generation†
Value enhancement
Collectively our future acquisitions must be suitably cash generative to continue to support Chesnara delivering attractive
dividends.
Acquisitions are required to have a positive impact on the Economic Value† per share in the medium term 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.
INITIATIVES AND PROGRESS IN 2022
In July 2022, Chesnara announced the acquisition of the insurance
portfolio of Conservatrix, a specialist provider of life insurance products
in the Netherlands that was declared bankrupt on 8 December 2020.
The transaction completed on 1 January 2023.
The insurance portfolio has increased Waard’s number of policies
under administration by over 60%, transforming Waard into a second
material closed-book consolidation business alongside Chesnara’s
existing UK platform.
This is the seventh transaction undertaken in the Dutch market.
Conservatrix’s savings, annuity and funeral plan products are well
aligned with Chesnara’s existing life and pension liability mix in the
Netherlands, and adds approximately 70,000 additional policies
and £0.4bn of assets to the group.
A capital contribution of £35m was provided by the group (£21.5m
from the parent and the remaining £13.5m funded by Waard) to
support the solvency position of the Conservatrix business and
Conservatrix customers will benefit from becoming part of a well
capitalised group, after a significant period of uncertainty.
Future cash generation from the acquisition under steady state
conditions is expected to be c£4 million per annum, supporting
Chesnara’s progressive dividend strategy. Waard will become a
material contributor to the group’s dividends, with expected total
annual cash generation of £8 million.
The Conservatrix transaction is expected to increase the group’s EcV
by c£21m on a pro-forma basis and provides further EcV accretion
potential from future real world investment returns and the run-off of
the risk margin.
In addition, we also completed two transactions during April 2022 that
were originally announced in 2021: Robein Leven in the Netherlands
(announced in November 2021) and CASLP in the UK (announced in
September 2021). These acquisitions added £21.4m day 1 EcV and are
expected to add c£6m of steady state cash generation.
Total group capital deployed in the three acquisitions of CASLP, Robein
Leven and Conservatrix totalled over £110m, of which £85m was
funded from holding company cash reserves. Including Conservatrix,
this is expected to add c£42m of EcV to the group and c£10m of
steady state cash generation.
44
ACQUISITION OUTLOOK
– We continue to see a healthy flow of acquisition activity across European
insurance including UK and the Netherlands.
– We recognise that the consolidation markets in these countries are mature
but the key drivers for owners to divest portfolios continue to remain
relevant and create a strong pipeline. These include better uses of capital
(e.g. return to investors or supporting other business lines), operational
challenges (e.g. end of life systems), management distraction, regulatory
challenges, business change (e.g. IFRS 17) and wider business and
strategic needs.
– Our expectation is that sales of portfolios will continue and our strong
expertise and knowledge in the markets, good regulatory relationships and
the flexibility of our operating model means that Chesnara is very well
placed to manage the additional complexity associated with these portfolio
transfers and provide beneficial outcomes for all stakeholders. These
transactions may not be suitable for all potential consolidators, in particular
those who do not have existing licences in these territories.
– Chesnara will continue its robust acquisition assessment model which
takes into account; (a) the strategic fit; (b) the cash generation capability; (c)
the medium term impact on EcV per share; and (d) the risks within the
target. We will also continue to assess the long-term commercial value of
acquisitions as part of our objective to maximise the value from in-force
business.
– The £200m Tier 2 subordinated debt issue in February 2022 together with
the existing £100m Revolving Credit Facility arrangement (with an
additional £50m accordion option) provides funding capability on
commercially attractive terms. Whilst we deployed c£85m of capital in
support of M&A (£110m including capital from Waard), we continue to have
immediately available acquisition firepower of over £100m. We will
continue to explore how we can increase our funding capability further,
including consideration of partnerships.
– Our strong network of contacts including the corporate finance advisor
community, who understand the Chesnara acquisition model, supported by
our engagement activity with potential targets, ensures that we are aware
of viable opportunities in the UK and Western Europe. With this in mind,
we are confident that we are well positioned to continue our successful
acquisition track record in the future.
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CAPITAL MANAGEMENT • SOLVENCY II
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.
GROUP SOLVENCY
SOLVENCY POSITION
197%
152%
605
298
307
558
191
367
SOLVENCY SURPLUS MOVEMENT*
*pre intragroup dividends
153.3
(37.4)
4.7
(34.3)
298.4
37.4
(5.1)
7.5
3.6
(11.4)
(10.5)
190.7
Divisional movement - £32.0m
31 Dec 2022
31 Dec 2021
Group surplus
31 Dec 2021
CA
CASLP Movestic Waard
Scildon
Chesnara
consol adj
Tier 2
Acquisition
Exchange
rates
Dividends Group surplus
31 Dec 2022
Surplus
Dividend
The group has £298m of surplus over and above the capital requirements under Solvency II, compared with £191m at the end of 2021.
The group solvency ratio has increased from 152% to 197%.
The closing solvency position is stated after deducting the £22.8m proposed dividend (31 December 2021: £22.1m) and reflects the
payment of an interim dividend of £12.2m.
Own Funds
SCR
Own Funds have risen by £82m (pre-dividends). The most material driver is the introduction of £200m Tier 2 debt of which £153m
is recognised as eligible Own Funds. This is offset by a reduction in divisional Own Funds, largely due to the fall in equity markets.
The SCR has fallen by £60m, owing mainly to a material fall in equity risk (caused by the fall in equity markets) and in currency risk
(following the introduction of the group currency hedge).
Solvency II background
– Solvency surplus is a measure of how much the value of the company (Own Funds) exceeds the level of capital it is required to hold.
– The value of the company is referred to as its ‘Own Funds’ (OF) and this is measured in accordance with the rules of the Solvency II regime.
– The capital requirement is also defined by Solvency II rules and the primary requirement is referred to as the Solvency Capital Requirement (SCR).
– Solvency is expressed as either a ratio: OF/SCR %; or as an absolute surplus: OF LESS SCR.
WHAT ARE OWN FUNDS?
A valuation which reflects the net assets of the company and includes a
value for future profits expected to arise from in-force policies.
WHAT IS CAPITAL REQUIREMENT?
The Solvency Capital Requirement can be calculated using a ‘standard
formula’ or ‘internal model’. Chesnara adopts the ‘standard formula’.
The Own Funds valuation, before considering the benefit of Tier 2
capital, 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.
There are three levels of capital requirement:
Minimum dividend paying requirement/risk appetite 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 three
months may result in authorisation being withdrawn.
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, however we do
apply the volatility adjustment within our Dutch and UK divisions.
How do Own Funds change?
Own Funds (and Economic Value) are sensitive to economic conditions. In
general, positive equity markets and increasing yields lead to OF growth and
vice versa. Other factors that improve OF include writing profitable new
business, reducing the expense base and improvements to lapse rates.
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
How does the SCR change?
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.
A review of the UK’s application of Solvency II is currently underway, led
by HM Treasury. In April 2022 the PRA published a statement indicating
its agreement with the view that the risk margin and matching
adjustment can be reformed so as to reduce overall capital levels for life
insurers by around 10% to 15% in current economic conditions. In
November 2022 the UK government announced plans to legislate the
reforms to Solvency II. We continue to monitor this closely and future
financial statements will report on the UK specific application of
Solvency II as it diverges from the EU’s regime. We see no specific
reason to expect the PRA to use their enhanced freedoms to take a
route that systemically makes it harder to do business in the UK.
45
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CAPITAL MANAGEMENT • SOLVENCY II
CAPITAL MANAGEMENT • SOLVENCY II
We are well capitalised at both a group and subsidiary level. We have applied the volatility adjustment in
Scildon, Waard Leven, CA and CASLP, but have not used any other elements of the long-term guarantee
package within the group. The Volatility Adjustment is an optional measure that can be used in solvency
calculations to reduce volatility arising from large movements in bond spreads.
UK – CA £m
UK – CASLP £m
130%
10
20
134%
9
13
87
65
131
100
31 Dec 2022
31 Dec 2021
Surplus: £9m above board’s
Capital Management Policy.
Dividends: Solvency position
stated after £46m foreseeable
dividend (2021: £28m).
Own Funds: Risen by £2m
(pre-dividend) due to an extraction
of restricted with-profit capital,
reduced expense assumptions,
offset by the fall in equity markets.
SCR: Decreased by £35m due to
sharp fall in equity risk and moderate
fall in spread and expense risks.
Surplus: £4m above board’s Capital
Management Policy.
Dividends: Solvency position stated
after £10m foreseeable dividend.
Own Funds: Since acquisition, Own
Funds fell by £10m, largely due to
an increase in expense assumptions
and fall in equity markets. Note, the
acquisition balance sheet includes
the benefit of a £25m capital injection
from group on acquisition.
SCR: Fallen by £7m in the post-
acquisition period, due to reductions in
equity, spread, counterparty, longevity
and lapse risks.
137%
7
9
139%
7
7
49
36
59
43
31 Dec 2022
Acqn Balance
sheet
NETHERLANDS – WAARD £m
NETHERLANDS – SCILDON £m
Surplus: £61m above board’s
Capital Management Policy.
Dividends: Solvency position
stated after £5m foreseeable
dividend (2021: £6m).
Own Funds: Increased by £33m,
due to receipt of £22m from
Chesnara and £5m from Scildon to
support acquisition activity. There is
also a gain on revaluation of Robein
Leven.
SCR: Risen by £1m, mainly due to
acquisition of Robein Leven, which
has mostly impacted equity,
expense and concentration risk.
192%
188%
9
53
132
155
70
13
61
81
Surplus: £9m above board’s Capital
Management Policy.
Dividends: No foreseeable dividend
is expected (2021: £5m).
Own Funds: Decreased by £23m
due to the rise in interest rates and
adverse mortality and lapse
experience.
SCR: Decreased by £11m, largely
due to falls in equity and lapse risk,
due to the fall in equities and rising
yields, respectively. Other insurance
risks have fallen moderately.
591%
80
61
5
13
399%
47
31
4
12
31 Dec 2022
31 Dec 2021
31 Dec 2022
31 Dec 2021
Surplus: £45m above board’s
Capital Management Policy.
Dividends: Solvency position stated
after £12m foreseeable dividend
(2021: £3m).
Own Funds: Decreased by £44m
(pre-dividend) largely due to fall in
equity markets, although slightly
offset by the rise in yields.
SCR: Decreased by £48m due to
sharp fall in equity risk and moderate
falls in currency, lapse and expense
risks, due to the market movements.
SWEDEN £m
148%
43
31
162%
45
21
173
107
229
155
31 Dec 2022
31 Dec 2021
46
The graphs on this page present the
divisional view of the solvency position
which may differ to the position of
the individual insurance company(ies)
within the consolidated numbers.
Note that year end 2021 figures have
been restated using 31 December 2022
exchange rates in order to aid
comparison at a divisional level.
KEY
Own Funds (Post Div)
SCR
Buffer
Surplus above Capital
Management Policy
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CAPITAL MANAGEMENT • SENSITIVITIES
The group’s solvency position remains strong and we proactively evaluate the main factors that can affect
our solvency. The group’s EcV†, and cash generation†, both of which are derived from the group’s solvency
calculations, are also sensitive to these factors.
The diagram below provides some insight into the immediate impact of
certain sensitivities that the group is exposed to, covering solvency surplus
and Economic Value†. As can be seen, EcV tends to take the ‘full force’ of
adverse conditions whereas solvency is often protected in the short term
and, to a certain extent, the longer term due to compensating impacts on
required capital.
The Tier 2 debt raise in February 2022 has had a material impact on the
reported sensitivities because, as capital requirements move, the amount
of the Tier 2 debt able to be recognised in the Own Funds also moves. For
example, where FX movements reduce the SCR, we now also experience
a corresponding reduction in base Own Funds and also Own Funds relating
to Tier 2 capital. The total surplus is now more exposed to downside risks
but, importantly, the Tier 2 itself has created more than sufficient additional
headroom to accommodate this. The group also implemented a currency
hedge in December 2022 which materially reduces the impact of currency
movements on surplus.
Whilst cash generation† has not been shown in the diagrams below, the
impact of these sensitivities on the group’s solvency surplus has a direct
read across to the immediate impact on cash generation. Each individual bar
in the diagram illustrates the estimated impact range (£m) of the respective
sensitivities and whether that impact is positive (green) or negative (red).
For illustrative purposes, several sensitivities are reported solely
showing the downside exposure. For all of these, there is a corresponding
upside sensitivity.
Impact range £m
(100) (80) (60) (40) (20) - 20 40 60 80 100
(100) (80) (60) (40) (20) - 20 40 60 80 100
SII %
SOLVENCY SURPLUS
EcV
20% sterling appreciation
11.8%
20% sterling depreciation
(7.8)%
25% equity fall
0.9%
25% equity rise
(10.2)%
10% equity fall
0.4%
10% equity rise
(3.9)%
1% interest rate rise
3.2%
1% interest rate fall
(4.2)%
50bps credit spread rise
(4.2)%
25bps swap rate fall
(4.7)%
10% mass lapse
(2.0)%
1% inflation
(7.4)%
10% mortality increase
(5.2)%
INSIGHT*
Currency sensitivities: A sterling appreciation reduces the value of surplus
in our overseas divisions and any overseas investments in our UK entities,
however this is mitigated by the group currency hedge, so the overall impact
on solvency surplus is small. The impact of a sterling depreciation is not
symmetrical because the currency hedge only removes a limited amount of
upside potential.
Equity sensitivities: The equity rise sensitivities cause both Own Funds
and SCR to rise, as the value of the funds exposed to risk is higher. The
increase in SCR can be larger than Own Funds, resulting in an immediate
reduction in surplus, depending on the starting point of the symmetric
adjustment. The converse applies to an equity fall sensitivity, although the
impacts are not fully symmetrical due to management actions and tax. The
Tier 2 debt value also changes materially in these sensitivities. The change
in symmetric adjustment can have a significant impact (25% equity fall:
-£12m to the SCR, 25% equity rise: +£39m to SCR). The EcV impacts are
more intuitive as they are more directly linked to Own Funds impact. CA
and Movestic contribute the most due to their large amounts of unit-linked
business, much of which is invested in equities.
Interest rate sensitivities: An interest rate rise currently has a more
adverse effect on group Economic Value than an interest rate fall. This is a
change in exposure following the rise in interest rates over 2022. However,
group solvency is still less exposed to rising interest rates as a rise in rates
causes capital requirements to fall, increasing solvency.
*BASIS OF PREPARATION ON REPORTING
50 basis points credit spread rise: A credit spread rise has an adverse
impact on surplus and future cash generation, particularly in Scildon due to
corporate and non-local government bond holdings that form part of the
asset portfolios backing non-linked insurance liabilities. The impact on the
other divisions is less severe.
25 basis points 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: In this sensitivity Own Funds fall as there are fewer
policies on the books, thus less potential for future profits. This is largely
offset by a fall in SCR, although the amount of eligible Tier 2 capital also
falls. The division most affected is Movestic as it has the largest
concentration of unit-linked business.
1% inflation rise: This sensitivity measures a permanent increase in inflation
in every future year over and above our modelled assumptions. Such a rise in
inflation increases the amount of expected future expenses. This is
capitalised into the balance sheet and hits the solvency position immediately.
10% mortality increase: This sensitivity has an adverse impact on surplus
and cash generation, particularly for Scildon due to their term products.
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 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.
47
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
FINANCIAL REVIEW
Our key performance indicators provide a good indication of how the business has performed in delivering
its three strategic objectives. These two pages provide some insight into what is driving the results for 2022.
Further analysis can be found on pages 50 to 54.
£82.7M 2021: £20. 3m
CASH GENERATION†
excluding the impact of acquisitions
What is it?
Cash generation is calculated as being the movement in Solvency II
Own Funds over the internally required capital, excluding the impact
of Tier 2 debt. 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.
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 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 59 to 65. Whilst cash generation
is a function of the regulatory surplus, as opposed to the IFRS
surplus, it is 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.
£61.9M 2021: £31.1m
DIVISIONAL CASH GENERATION†
Further detail p50
Highlights £m
40.8
16.1
8.4
(3.4)
61.9
20.8
82.7
UK
Sweden
Netherlands
– Waard
Netherlands
– Scildon
Divisional
cash
generation
Other group
activities
Total group
cash
generation
– Strong total cash generation of £82.7m is the combined impact of good divisional
performance and a positive contribution at the central plc level.
– The divisional result of £61.9m is dominated by the positive impact of investment
market driven reductions in capital requirements including c£28m from the
symmetric adjustment. The good surplus emergence at a divisional level has
enabled total expected divisional dividends of £74m.
– The central contribution of £20.8m benefits from the impact of a FX currency
hedge taken out toward the end of the year which reduced our currency capital
requirement (including buffer) by £36m. The balancing central loss of c£15m
relates to consolidation adjustments, central development expenditure and central
recurring overheads.
£146.9M 2021: £28.8m profit
IFRS PRE-TAX LOSS
£91.9M 2021: £3.8m profit
TOTAL COMPREHENSIVE LOSS
Further detail on p54
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.
Why is it important?
The IFRS results form the core of reporting and hence retain
prominence as a key financial performance metric. There is
however a general acceptance that the IFRS results in isolation do
not recognise the wider financial performance of a typical life and
pensions business, hence the use of supplementary Alternative
Performance Measures (pages 238 to 239) to enhance understanding
of financial performance.
Risks
The IFRS profit/(loss) can be affected by a number of our principal
risks and uncertainties as set out on pages 59 to 65. Volatility in
equity markets and bond yields can result in volatility in the IFRS
pre-tax profit/(loss), and foreign currency fluctuations can affect
total comprehensive income. The IFRS results of Scildon can be
relatively volatile from interest rate and spread changes, in part,
due to the different approach used by the division for valuing
assets and liabilities, as permitted under IFRS 4. The dynamics of
our IFRS results will change once IFRS 17 comes in force, which
will be effective from 1 January 2023.
48
Highlights £m
(10.5)
(146.9)
48.6
5.8
0.7
(91.9)
(151.8)
Operating
profit
Economic
profit
15.4
Profit
before tax
Profit arising
on business
combinations
and portfolio
acquisitions
Tax
FX
Other
Total
comprehensive
loss
– The loss in the year is dominated by the Scildon result, which reported a pre-tax
loss of £103.7m. This has arisen as a result of an accounting mismatch between
assets and liabilities, with yield increases in the year being the key factor causing
this (see further information on page 54).
– The loss on economic activities was £151.8m for the year, with all adversely
impacted by factors such as rising yields, coupled with falling equity markets.
– The result includes profit on acquisitions of £15.4m, comprising gains arising on
the CASLP and Robein Leven deals in the UK and Netherlands.
– Total comprehensive income includes a positive movement in tax liability (owing
to the operating losses) and a small foreign exchange gain on translation of the
Dutch and Swedish divisional results.
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
£511.7M 2021: £624.2m
ECONOMIC VALUE (EcV)†
Further detail on p53
Highlights £m
624.2 (106.1)
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. EcV reflects a market-consistent
assessment of the value of the existing insurance business, plus the adjusted net asset value of
the non-insurance businesses within the group.
Why is it important?
EcV aims to reflect the market-related value of in-force business and net assets of the non-insurance
business and hence is an important reference point by which to assess Chesnara’s 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, yields on fixed interest securities and bond spreads. 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 within a range
of £59m–£69m, based on the composition of the group’s EcV at 31 December 2022.
21.4
546.0 (34.3)
6.5
511.7
EcV
31 Dec
2021
EcV
earnings
Forex Day 1 gain
on
acquisitions
Pre-
dividend
EcV
Dividends
EcV
31 Dec
2022
– The 12.5% fall in Economic Value pre-dividend is
broadly in line with expectations given the backdrop
of widening credit spreads and sharp equity value
reductions, particularly in Sweden where the primary
OMX index fell by 25%. Equity impacts and spread
impacts of c£65m and c£20m respectively account
for the vast majority of the fall.
– Despite the overall reduction, new business profits
and acquisitions did manage to cover 88% of the total
dividend payment. This gives confidence that under
more beneficial economic conditions the prospect of
post dividend Economic Value growth is a realistic
expectation.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
£(106.1)M 2021 £57.8m
EcV EARNINGS†
Further detail on p52
Highlights £m
Total operating
earnings
(26.8)
What is it?
In recognition of the longer-term nature of the group’s insurance and investment contracts,
supplementary information is presented that provides information on the Economic Value of
our business.
The principal underlying components of the Economic Value earnings are:
– the expected return from existing business (being the effect of the unwind of the rates used to
discount the value in-force);
– value added by the writing of new business;
– variations in actual experience from that assumed in the opening valuation;
– the impact of restating assumptions underlying the determination of expected cash flows; and
– the impact of acquisitions.
Why is it important?
A different perspective is provided in the performance of the group and on the valuation of the
business. Economic Value earnings are an important KPI as they provide a longer-term measure of
the value generated during a period. The Economic Value earnings of the group can be a strong
indicator of how we have delivered against all three of our core strategic objectives. This includes
new business profits generated from writing profitable new business, Economic Value profit
emergence from our existing businesses, and the Economic Value impact of acquisitions.
Risks
The EcV earnings of the group can be affected by a number of factors, including those
highlighted within our principal risks and uncertainties and sensitivities analysis as set out on
pages 59 to 65. 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.
Economic
earnings
(109.1)
Other
Total EcV
earnings
(106.1)
29.9
– The majority of the earnings loss is due to economic
conditions. Equity market falls have materially impacted
unit-linked policyholder funds and future fee related
positive cash flows are rebased from the closing fund value.
There have also been notable losses resulting from credit
spreads widening and more modest yield related losses.
– Whilst operating losses are a real source of value
deterioration they do include items more positive in
nature. For example, overheads and one-off costs
associated with the M&A strategy are within this total as
are certain non-recurring costs associated with the Tier 2
raise and IFRS 17. The loss includes a much reduced
impact from Movestic outward transfers which is a
significant positive development with closing transfer
levels being back in line with our long-term assumption.
We have strengthened mortality and expense
assumption in Scildon.
– The ‘Other’ category includes reduction in risk
margin, positive tax impacts and the cost of the Tier 2
coupon payments.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022 49
SECTION B FINANCIAL REVIEW • CASH GENERATION
With positive contributions in each territory the divisional cash generation exceeds £60m and, looking
through the impact of acquisitions, total cash generation for 2022 was £82.7m. Cash is generated from
increases in the group’s solvency surplus, which is represented by the excess of Own Funds held over
management’s internal capital needs. These are based on regulatory capital requirements, with the inclusion
of additional ‘management buffers’.
£82.7M 2021: £20. 3m
GROUP CASH GENERATION
excluding the impact of acquisitions
£61.9M 2021: £31.1m
DIVISIONAL CASH GENERATION
Definition: Defining cash generation in a life and pensions business is complex and there is no reporting framework defined by
the regulators. This can lead to inconsistency across the sector. We define cash generation as being the movement in Solvency
II Own Funds over and above the group’s internally required capital, which is based on Solvency II rules.
Implications of our cash definition:
Positives
Challenges and limitations
– Creates a strong and transparent alignment to a regulated framework.
– Positive cash results can be approximated to increased dividend potential.
– Cash is a factor of both value and capital and hence management are
focused on capital efficiency in addition to value growth and indeed the
interplay between the two.
– In certain circumstances the cash reported may not be immediately
distributable by a division to group or from group to shareholders.
– Brings the technical complexities of the SII framework into the cash results
e.g. symmetric adjustment, with-profit fund restrictions, model changes etc,
and hence the headline results do not always reflect the underlying
commercial or operational performance.
2022 £m
Movement in
Own Funds
Movement in
management’s
capital requirement
Forex
impact
Cash
generated/
(utilised)
2021 £m
Cash generated/
(utilised)
UK
Sweden
Netherlands – Waard Group
Netherlands – Scildon
Divisional cash generation/(utilisation)
Other group activities
Group cash generation/(utilisation)
(10.0)
(40.8)
(2.0)
(21.4)
(74.2)
(15.0)
(89.2)
50.8
57.9
7.6
17.4
–
(1.0)
2.9
0.5
133.7
33.2
2.4
2.6
166.9
5.0
40.8
16.1
8.4
(3.4)
61.9
20.8
82.7
27.4
(14.4)
2.9
15.2
31.1
(10.8)
20.3
GROUP
– Other group activities include consolidation adjustments as well as central costs and central SCR movements.
– Central costs of approximately £15m include a large proportion of exceptional non-recurring expenditure and Tier 2 interest costs.
– Central SCR movements have minimal real cash flow implications, but they do have meaningful solvency impacts. The movement in the year largely relates
to a £36.5m reduction as a result of a currency hedge taken out in the final quarter of 2022.
UK
SWEDEN
– The UK again delivered strong cash generation, driven by capital requirement
– Movestic has reported a solid cash result for 2022, with a substantial
reductions (and symmetric adjustment impact) following a significant decline in
equity values and increase in yields, which offset the negative impact of
investment conditions on Own Funds. Economic conditions and their
associated impact, primarily markets risks, drove the positive movement in
capital requirements. Conversely, Own Funds suffered the effect of a
corresponding reduction in asset values. Own Funds also include a £7.8m gain
as a result of a capital transfer from the with-profit funds.
reduction in capital requirements offsetting a large fall in the value of Own
Funds. The division is particularly sensitive to investment market
movements and economic conditions during the period underpin the cash
result. Own Funds bear the impact of economic conditions and negative
investment returns (particularly equity driven).
NETHERLANDS – WAARD
NETHERLANDS – SCILDON
– Waard delivered improved cash generation, following a reduction in capital
requirements that exceeded a fall in Own Funds. Economic losses, largely due
to the negative effect of rising interest rates on yields and bond values and
mortgage portfolio, were the main component of the value reduction. This
also had a positive impact on capital requirements, driving a material decrease
in market risks.
– The Scildon result was dominated by economic factors that were key to the
decline in both Own Funds and required capital. Rising interest rates, falling
bond values and widening spreads had a negative impact on Own Funds,
resulting in significant economic losses. Operational losses also contributed
to the value reduction. The reduction in SCR was driven by economic
factors, particularly market risks, as well as lapse risk with lower exposure to
the cost of guarantees. Overall, Scildon posted a loss for 2022.
50
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
FINANCIAL REVIEW • CASH GENERATION – ENHANCED ANALYSIS
The format of the analysis draws out components of the cash generation results relating to technical
complexities, modelling issues or exceptional corporate activity (e.g. acquisitions). The results excluding such
items are deemed to better reflect the inherent commercial outcome (commercial cash generation).
£46.6M 2021: £53.0m
COMMERCIAL CASH GENERATION
UK
SWEDEN
NETHERLANDS
WAARD
NETHERLANDS
SCILDON
DIVISIONAL
TOTAL
GROUP ADJ
TOTAL
Base cash generation
Symmetric adjustment
With-profits restriction look through
Commercial cash generation
40.8
(10.9)
(7.8)
22.0
16.1
(17.2)
–
(1.1)
8.4
–
–
8.4
(3.4)
–
–
(3.4)
61.9
(28.2)
(7.8)
25.9
20.8
–
–
20.8
82.7
(28.2)
(7.8)
46.6
The group’s closed-book businesses (UK and Waard) continue to be the dominant source of commercial cash generation with a total commercial result of
£30.4m which in itself represents 87% coverage of the full year dividend. The open to new business divisions (Movestic and Scildon) have reported modest
commercial cash losses, resulting in a total divisional result of £25.9m. This result has been further enhanced by the implementation of an FX hedge to
reduce the group balance sheets exposure to FX movements. This delivered £36.5m of commercial cash which in turn contributes to a total commercial
cash generation of £46.6m, representing 133% coverage of the full year dividend. We have consistently reported the existence of potential management
actions to enhance cash emergence. We deemed the time was right and the financial case was suitably compelling to implement one of these in the shape
of an FX hedge.
UK
The UK result, which includes the post-acquisition results for CASLP, relates to a combination of operating and economic gains. The economic results includes
the benefits from the increased yield environment in part offset by losses from equity falls and widening credit spreads.
The commercial cash outcome illustrates that the UK remains at the heart of the cash generation model. The acquisition of CASLP will positively contribute
to the longevity of this core source of cash.
SWEDEN
The Swedish result, which excludes the large benefits from the symmetric adjustment, is largely a direct consequence of the sharp decline in equity values
and a widening of credit spreads during the period, which are partially offset by benefits from yield increases. The underlying operating result is broadly in
line with expectation.
WAARD
The Waard commercial cash gain includes both operating and economic profits. The operating gains are largely due to post acquisition synergies from the
Robein Leven acquisition which completed in Q2. Economic gains have arisen as a result of FX movements and rising yields.
SCILDON
The Scildon result includes modest benefits from the increasing interest rates during the period. Operating losses, largely due to strengthening operating
assumptions, together with new business strains have more than offset any economic profits.
GROUP ADJ
The central group cash generation includes a £36.5m gain from a FX hedge taken out in the year. This is partially offset by central expenses and consolidation
adjustments. The central expenses include coupon payments of the Tier 2 debt raised in the year, central overheads and centrally incurred business
development investments e.g. M&A activity, IFRS 17, Tier 2 debt raise process.
51
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 FINANCIAL REVIEW • EcV EARNINGS
The EcV earnings of the group reflect the economic conditions over the course of the year, with negative equity
returns, rising interest rates and falling bond values, delivering economic losses across the operating divisions.
£(106.1)M 2021: £57.8m
EcV EARNINGS
Analysis of the EcV result by earnings source:
£m
31 Dec 2022
31 Dec 2021
Expected movement in period
New business
Operating experience variances
Other operating assumption changes
Other operating variances
Total EcV operating earnings†
Total EcV economic earnings†
Other non-operating variances
Risk margin movement
Tax
EcV earnings
(1.3)
8.0
(20.7)
(14.5)
1.7
(26.8)
(109.1)
(2.6)
20.4
12.0
(106.1)
(1.7)
2.4
(19.2)
(13.9)
(26.4)
(58.8)
109.6
4.5
10.8
(8.2)
57.8
Analysis of the EcV result by business segment:
31 Dec 2022
31 Dec 2021
The EcV results over the past two years illustrate how sensitive the results
are to economic factors. The fact that the loss in 2022 is the same as an
equally large gain in 2021 demonstrates that, to an extent, there is a lack of
permanence to such market driven value movements. Short-term volatility
has limited commercial impact on the business and of more importance is
the fact that steady state, over the longer term, we expect EcV growth in the
form of real world investment returns.
Total operating earnings: Although we report an operating loss, it is
encouraging to see the marked reduction compared to 2021. The result
includes many different components including items that represent positive
investment in the future and items that are non-recurring in nature. The most
significant items in 2022 are:
– Recurring central development overheads including those associated with the
M&A strategy. Whilst the cost of this development investment is recognised,
EcV does not recognise the potential returns we expect from it.
– Non-recurring development expenditure such as IFRS 17.
– Operating losses in Movestic mainly relating to transfers. Over previous years
aggressive pricing from a competitor resulted in a period of high transfer-out
losses. The position has stabilised in 2022 and transfer rates have returned to
our long term assumed level by the end of the year. The resultant transfer
related operating loss is greatly reduced and not expected to be a feature in
2023 based on current transfer levels.
£m
UK
Sweden
Netherlands
Group and group adjustments
EcV earnings
(24.6)
(37.1)
(29.4)
(15.0)
(106.1)
28.0
26.1
8.3
(4.6)
57.8
– We have strengthened mortality and expense assumptions in Scildon. An
element of the expense related loss covers process enhancement work for
which the expected cost reduction benefits are not yet recognised in the
closing valuation.
Risk Margin: The risk margin has reduced as in-force books have run-off.
Increasing interest rates have also been a key driver of risk margin reduction.
Total economic earnings: The large economic loss of £109.1m dominates
the EcV result in the year. The result is in line with our reported sensitivities
and is driven by the following market movements.
Reduction in equity indices:
– CPI (UK consumer price index) increased by 5.1% to 10.5% (year ended 31
December 2021: increased by 4.7% to 5.4%);
– FTSE All Share index decreased by 3% (year ended 31 December 2021:
increased by 15%);
– Swedish OMX all share index decreased by 25% (year ended 31 December
2021: increased by 35%); and
– The Netherlands AEX all share index decreased by 15% (year ended 31
December 2021: increased by 23%).
Widening credit spreads:
– UK AA corporate bond yields increased to 1.04% (31 December 2021: 0.69%).
– European AA credit spreads increased to 0.29% (31 December 2021: 0.16%).
Increased yields:
– 10-year UK gilt yields have increased from 0.98% to 3.78%.
The following chart illustrates the approximate relative impacts of these
market factors on the EcV economic loss:
Equities
Spreads
Yields
Other
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
52
Looking at the results by division:
UK: The UK division reported a small operating loss, primarily as a result of
some expenses pressure. This was overshadowed by economic factors,
with the division reporting a combined economic loss of £28.7m. The
widening of bond spreads, alongside equity market falls, resulted in material
economic losses being reported, although this was off-set somewhat by the
net positive impact of the large yield rises that were witnessed during 2022.
Sweden: Movestic recorded a large loss, with the division being heavily
impacted by external economic factors. Investment market conditions,
particularly falling equity values (the Swedish OMX decreased 25% in 2022),
resulted in negative economic returns (£43.0m). Operating earnings were
suppressed by a reduction in fund rebate income and some adverse
experience in transfers, although it is pleasing to report that the latter was to
a much lesser extent than in the prior year. Modest new business profits
(on an EcV basis) of £1.8m were reported (2021: £2.9m), reflecting difficult
market conditions and margin pressures, with lower rebate income and
equity falls having a negative impact.
Netherlands: The Dutch division has reported a combined loss of £29.4m
in 2022, with economic losses of £34.3m dominating the result. In Scildon,
economic losses of £29.7m were primarily the consequence of rising
interest rates and widening bond spreads adversely impacting bond and
property values. As outlined earlier, Scildon also reported an operational
loss, which includes the impact of guarantee related costs and higher
mortality driven outgoings than anticipated, alongside an element of one-off
expense assumption strengthening. Waard has reported an EcV loss of
£3.1m, with economic experience being the main component. The impact of
rising yields has resulted in falls in the value of our bond and mortgage
portfolio, outweighing the positive impact of discounting the division’s
liabilities at a higher rate.
Group: This component includes various group-related costs and includes:
non-maintenance related costs (such as acquisition costs); the costs of the
group’s IFRS 17 programme; and some material economic-related items
such as financing costs, primarily in relation to the Tier 2 debt interest costs,
and negative investment returns.
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
FINANCIAL REVIEW • EcV
The Economic Value of Chesnara represents the present value of future profits of the existing insurance
business, plus the adjusted net asset value of the non-insurance businesses within the group. EcV is an
important reference point by which to assess Chesnara’s intrinsic value.
£511.7M 2021: £624.2m
ECONOMIC VALUE (EcV)
Value movement: 1 Jan 2022 to 31 Dec 2022 £m
EcV to Solvency II Own Funds £m
624.2
(106.1)
200.0
(46.7)
(22.8)
605.1
21.4
546.0
(34.3)
6.5
511.7
511.7
(33.4)
(3.8)
EcV
31 Dec 2021
EcV
earnings
Forex
Day 1 gain on
acquisitions
Pre-dividend
EcV
Dividends
EcV
31 Dec 2022
EcV
31 Dec 2022
Risk
margin
Contract
boundries
Tier 2
Tier 2
restrictions
Dividends
SII Own
Funds
31 Dec 2022
EcV earnings: A loss of £106.1m has been reported in 2022. Significant
economic losses arising from the adverse economic investment market
conditions witnessed in the first half of the year drove the result. Further
detail can be found on page 52.
Dividends: Under EcV, dividends are recognised in the period in which they
are paid. Dividends of £34.3m were paid during the year, being the final
dividend from 2021 and the 2022 interim dividend.
Foreign exchange: The closing EcV of the group reflects a foreign
exchange gain in the period, a consequence of the sterling appreciation
against Swedish krona being offset by depreciation versus the euro.
EcV by segment at 31 Dec 2022 £m
UK
Sweden
Netherlands
209.3
199.3
223.4
Other group activities
(120.3)
The above chart shows that the EcV of the group remains diversified across its
different markets.
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 surpluses that exist within 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 £22.8m is recognised for SII
regulatory reporting purposes. It is not recognised within EcV until it is
actually paid.
Tier 2: The Tier 2 debt is treated as ‘quasi equity’ for Solvency II purposes.
For EcV, consistent with IFRS, we continue to report this as debt.
53
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 FINANCIAL REVIEW • IFRS
The group IFRS results reflect the natural dynamics of the segments of the group, which can be characterised
in three major components: stable core, variable element and growth operation.
£146.9M 2021: £28.8m profit
IFRS PRE-TAX LOSS
Analysis of IFRS result by segment:
£91.9M 2021: £3.8m profit
TOTAL COMPREHENSIVE LOSS
Movestic: The division has reported a small IFRS profit, although this is
significantly down on the prior year. This is largely driven by economic
factors, which has resulted in lower fund rebates arising from lower Funds
Under Management† and adverse investment returns on shareholder assets.
Waard Group: The division’s results reflect the impact of investment
market movements in the year, particularly the adverse value impact on
bond holdings as a result of interest rate rises in the year. The division’s
results include the post-acquisition performance of Robein Leven, which
was acquired during the year. The division also completed the acquisition of
another small policy portfolio in the year.
Scildon: Scildon’s result is dominated by the impact of increases in yields
over the year. In addition the division has reported some strain arising from
higher than expected mortality over the year.
Chesnara: The result largely represents holding company expenses and
debt financing costs. The current year loss is higher than last year, largely
due to additional interest costs on the new Tier 2 debt which was issued in
February 2022. The result also includes some investment losses as a
consequence of adverse market movements on directly held investments.
Consolidation adjustments: These relate to items such as the
amortisation and impairment of intangible assets. The increase in the year is
predominantly due to the extra charge arising from the AVIF asset
recognised in relation to the acquisition of CASLP.
Profit/(loss) arising on business combinations and portfolio acquisitions:
The group completed the acquisitions of Sanlam Life & Pensions UK and
Robein Leven during the year. Gains of £9.6m and £5.8m respectively were
recognised, representing the difference between the purchase consideration
and the net assets acquired.
Exchange gains: Movements in sterling against both the euro and Swedish
krona in the period created a favourable exchange profit, compared with a
large exchange rate loss incurred in the prior year.
Operating profits: The group reported an operating loss in the year. This
includes the adverse impact of increased debt financing costs within
Chesnara, arising from the Tier 2 debt issuance in the year and reduced
operating profits within the UK division, where experience variances and
policyholder tax impacts were lower than the prior year. The prior year result
included the positive impact of releasing an additional reserve created in
2020 due to the liability adequacy test biting in Scildon, amounting to £10.0m.
Economic losses: This represents the components of the earnings that are
directly driven by movements in economic variables. The economic losses
reported in the year are dominated by Scildon’s results.
UK
Movestic
Waard Group
Scildon
Chesnara
Consolidation adjustments
(Loss)/profit before tax and acquisitions
Profit/(loss) arising on business combinations
and portfolio acquisitions
(Loss)/profit before tax
Tax
(Loss)/profit after tax
Foreign exchange
Other comprehensive income
Total comprehensive income
2022
£m
(11.7)
2.3
(10.0)
(103.7)
(27.3)
(11.9)
(162.3)
15.4
(146.9)
48.6
(98.3)
5.8
0.6
(91.9)
Analysis of IFRS result between operating and economic factors:
Operating (loss)/profit
Economic loss
(Loss)/profit before tax and acquisitions
Profit/(loss) arising on business combinations
and portfolio acquisitions
(Loss)/profit before tax
Tax
(Loss)/profit after tax
Foreign exchange
Other comprehensive income
Total comprehensive income
(10.5)
(151.8)
(162.3)
15.4
(146.9)
48.6
(98.3)
5.8
0.6
(91.9)
2021
£m
35.6
12.1
0.1
(0.5)
(12.6)
(5.8)
28.9
(0.1)
28.8
(1.5)
27.3
(23.9)
0.4
3.8
40.7
(11.8)
28.9
(0.1)
28.8
(1.5)
27.3
(23.9)
0.4
3.8
The group has reported a large pre-tax IFRS loss for the year, which is
dominated by the result reported by Scildon. Scildon’s IFRS results are
particularly sensitive to yield changes, which increased significantly over 2022,
largely as a result of the accounting mismatch between its insurance contract
liabilities and the assets that back them. Scildon’s insurance contract liabilities
are largely valued using the observed yield curve at the point of sale of the
underlying contract. As yields move over time, the liability value does not
change, but the fair values of the assets that back the liabilities do.
Consequently, with significant rises in yields having been observed over the
course of 2022, Scildon has seen large fair value falls in its fixed interest assets,
which have not been offset by a decrease in the associated liabilities. This
dynamic will be different under IFRS 17, where insurance contract liabilities will
be valued more consistently across the group. Whilst other segments of the
group also display a level of results exposure to yields, they are not of the same
magnitude as for Scildon.
A divisional summary has been provided below, along with drawing out some
other key features of the IFRS results.
UK: Reported a loss for the year driven by adverse economic returns;
namely falling equity markets, rising interest rates and the impact of rising
inflation, in contrast with the prior year which saw economic profits.
A positive operating result was reported in the year, driven by favourable
operating assumption change impacts and experience gains. The UK
segment result includes the post-acquisition results of CASLP.
54
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
FINANCIAL MANAGEMENT
The group’s financial management framework is designed to provide security for all stakeholders, while
meeting the expectations of policyholders, shareholders and regulators.
The following diagram illustrates the aims, approach and outcomes from the financial management framework:
The group’s financial management framework is designed to provide security for all stakeholders, while meeting
the expectations of policyholders, shareholders and regulators. Accordingly we aim to:
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
HOW WE DELIVER TO OUR OBJECTIVES
In order to meet our obligations we employ and undertake a number of methods. These are centred on:
1. Monitor and control
risk and solvency
2. Longer-term
projections
3. Responsible
investment
management
4. Management
actions
OUTCOMES
Key outcomes from our financial management process, in terms of meeting our objectives, are set out below:
1. Solvency
2. Shareholder
3. Capital structure
Group solvency
ratio: 197%
(2021: 152%)
returns
2020-2022 TSR 9.6%
(2019-2021: 0.08%)
2022 dividend
yield 8.1%
(2021: 8.1%)
Based on average 2022
share price and full year
2022 dividend of 23.28p.
Gearing† ratio
of 37.6%
(2021: 6.4%)
This does not include the
financial reinsurance within
the Swedish business.
4. Liquidity and
policyholder
returns
5. Maintain the
group as a going
concern
Group remains a
going concern.
(see page 56)
Policyholders’
reasonable
expectations
maintained.
Asset liability
matching framework
operated effectively
in the year.
Sufficient liquidity
in the Chesnara
holding company.
Further detail on capital structure
The group is funded by a combination of share capital, retained earnings and
debt finance. The debt gearing (excluding financial reinsurance in Sweden)
was 37.6% at 31 December 2022 (6.4% at 31 December 2021). 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 the funding requirements for future acquisitions and the repayment
of existing debt. During the year, the company announced the successful
pricing of its inaugural debt capital markets issuance of £200m Tier 2
Subordinated Notes.
The net proceeds of the notes has been partially used for corporate
purposes, including the funding of the CASLP acquisition in the year. The
balance is held as investments.
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, the size of the acquisition; current cash resources of the group;
the current gearing ratio and the board’s risk tolerance limits for additional
debt; the 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 used a financial
reinsurance arrangement to fund its new business operation.
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
55
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
FINANCIAL MANAGEMENT (CONTINUED)
OUTCOMES FROM IMPLEMENTING OUR FINANCIAL MANAGEMENT OBJECTIVES
1. Maintain the group as a going concern
After making appropriate enquiries, including consideration of the prevailing
high-inflation environment and the ongoing potential impacts of the war in
Ukraine on the group’s operations, financial position and prospects, 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.
In performing this work, the board has considered the current solvency and cash
position of the group and company, coupled with the group’s and company’s
projected solvency and cash position as highlighted in its most recent business
plan and Own Risk and Solvency Assessment (ORSA) process. These processes
consider the financial projections of the group and its subsidiaries on both a base
case and a range of stressed scenarios, covering projected solvency, liquidity,
EcV† and IFRS positions. In particular these projections assess 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. Further insight into the immediate and longer-term impact of
certain scenarios, covering solvency, cash generation and Economic Value, can
be found on page 47 under the section headed ‘Capital Management
Sensitivities’. The directors believe these scenarios will encompass any potential
future impact of the prevailing high inflation environment and the war in Ukraine
on the group, as Chesnara’s most material ongoing exposure to both potential
threats are any associated future investment market impacts. Underpinning the
projections process outlined above are a number of assumptions. The key ones
include:
– We do not assume that a future acquisition needs to take place to make this
assessment.
– We make long-term investment return assumptions on equities and fixed income
securities.
– The base case scenario assumes exchange rates remain stable, and the impact
of adverse rate changes are assessed through scenario analysis.
– Levels of new business volumes and margins are assumed.
– The projections apply the most recent actuarial assumptions, such as mortality
and morbidity, lapses and expenses.
The group’s strong capital position and business model provides a degree of comfort
that although the ongoing war in Ukraine and the prevailing high inflation environment
both have the potential to cause further significant global economic disruption, the
group and the company remain well capitalised and have sufficient liquidity. As such
we can continue to remain confident that the group will continue to be in existence in
the foreseeable future. The information set out on pages 45 to 46 indicates a strong
Solvency II position as at 31 December 2022 as measured at both the individual
regulated life company levels and at the group level. As well as being well-capitalised
the group also has a healthy level of cash reserves to be able to meet its debt
obligations as they fall due and does not rely on the renewal or extension of bank
facilities to continue trading. This position was further enhanced in early 2022, when
the company announced the successful pricing of its inaugural debt capital markets
issuance of £200m Tier 2 Subordinated Notes, the net proceeds of which have been
used for corporate purposes, including investments and acquisitions. The group’s
subsidiaries 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.
Whilst there was some short-term operational disruption and subsequent
changes to working practices in light of COVID-19, our experience has shown
that both our internal functions and those operated by our key outsourcers and
suppliers have adapted well and do not cause any issues as to our going concern.
the time horizons required for going concern, and the slightly longer term
timelines for assessing viability. The assessment for viability also considers the
same key financial metrics as for assessing going concern, being solvency, cash,
EcV and IFRS, both on base case and stressed scenarios.
3. Viability statement
Based on the results of the analysis above, the directors have a reasonable
expectation that the company will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their assessment.
Although we produce business plans and other financial projections over longer
time horizons, the selection of three-year viability assessment recognises that
the level of operating, regulatory and market certainty reduces towards the later
years of the projection time frames. The three-year period also aligns with
executive director LTIP performance time frames.
4. Assessment of prospects
Our longer-term prospects are primarily considered through the conclusions
drawn from our annual business planning process, updated for key events that
may occur in-between business plans.
The business plans include underlying operational deliverables, an assessment of
the business model and the financial consequences of following those plans. As
part of this process we also consider the principal risks and uncertainties that the
group faces (see pages 59 to 65) and how these might affect our prospects.
An assessment of our prospects has been shown below, updated for our
consideration of the impact of the war in Ukraine crisis and the prevailing high
inflation environment. This has been structured around our three strategic
objectives:
Value from in-force book: The group has c933k policies in force at
31 December 2022 (over one million on a pro-forma basis including Conservatrix).
These are generally long-term policies, and the associated cash flows can, at an
overall portfolio level, be reasonably well predicted on base case and stressed
scenarios. The group is well capitalised at both a group and divisional level and
we have high quality assets backing our insurance liabilities. Just as equity
markets had recovered from the impact of COVID-19, the worsening situation in
Ukraine caused equity prices to fall. Whilst this may turn out to be a temporary
situation, sustained depressed market values do adversely impact fee income
streams and therefore if markets fall further then profitability prospects reduce.
Similarly, adverse movements in yields would adversely impact our prospects.
Temporary market volatility is however a natural feature of investment markets
and our financial model is well positioned to withstand difficult conditions without
creating any permanent harm to the longer-term profitability prospects.
Acquisition strategy: The outlook and prospects of continuing to deliver against
this strategic objective is covered on page 44. We see no reason to expect that
the war in Ukraine or the high inflation environment will have a long-term impact
on the availability of acquisition opportunities. Indeed, during the year we
completed two acquisitions, one in the UK and one in the Netherlands. We also
completed another Dutch acquisition on 1 January 2023. Waard continues to
build a useful market position as a company which is able and willing to acquire
books that are sub-scale for the vendors business model. Whilst we maintain our
ambition to complete larger deals, the prospects from a steady flow of well-
priced smaller acquisitions should not be underestimated. The financial position
of the group continues to support financing deals through the use of our own
resources or by raising debt, however in the short-term equity funding would
likely be less attractive.
Value from new business: Chesnara is in a fortunate position in that its prospects
do not fundamentally rely on the ability to sustain new business volumes. New
business levels have contributed a small amount of extra value during the year,
despite the ongoing challenges as a result of the war in Ukraine and the
subsequent cost of living crisis, and we believe there remains realistic upside
potential as we move into 2023.
2. Assessment of viability
The board assesses that being financially viable includes continuing to pay an
attractive and sustainable level of dividends to investors and meeting all other
financial obligations, including debt repayments over the three-year business
planning time horizon. The board’s assessment of the viability of the group is
performed in conjunction with its going concern assessment and considers both
Our business fundamentals such as assets under management, policy volumes,
new business market shares and expenses have all proven resilient to the impact
of the war in Ukraine and cost of living crisis. This, together with the positive
assessment of our core strategic objectives and a line of sight to positive
management actions over the planning period, leaves us well positioned to deliver
ongoing positive outcomes for all stakeholders.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
56
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
RISK MANAGEMENT
Managing risk is a key part of our business model. We achieve this by understanding the current and
emerging risks to the business, mitigating them where appropriate and ensuring they are appropriately
monitored and managed.
HOW WE MANAGE RISK
The Risk Management System supports the identification, assessment, and reporting of risks to monitor and control the probability and/or impact of adverse
outcomes within the board’s risk appetite or to maximise realisation of opportunities.
RISK
MANAGEMENT
SYSTEM
RISK MANAGEMENT SYSTEM REVIEW AND DEVELOPMENT
CLEAR ACCOUNTABILITIES AND RESPONSIBILITIES
STRATEGY
The risk management strategy
contains the objectives and
principles of risk management, the
risk appetite, risk preferences and risk
tolerance limits.
POLICIES
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.
PROCESSES
The risk management processes ensure that risks are identified, measured/assessed, monitored
and reported to support decision making.
REPORTING
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.
Chesnara adopts the ‘three lines of defence’ model 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’ (pages 59 to 65). 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.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 RISK MANAGEMENT ∙ ROLE OF THE BOARD
The Chesnara board is responsible for the adequacy of the design and implementation of the group’s risk
management and internal control system and its consistent application across divisions. All significant
decisions for the development of the group’s Risk Management System are the group board’s responsibility.
Strategy and risk appetite
Chesnara group and its divisions have a defined risk strategy and supporting
risk appetite framework to embed an effective Risk Management Framework,
culture and processes at its heart and to create a holistic, transparent
and focused approach to risk identification, assessment, management,
monitoring and reporting.
The Chesnara board approves a set of risk preferences which articulate, in
simple terms, the desire to increase, maintain, or reduce the level of risk
taking for each main category of risk. The risk position of the business is
monitored against these preferences using risk tolerance limits, where
appropriate, and they are taken into account by the management teams
across the group when taking strategic or operational decisions that affect
the risk profile.
Risk and Control Policies
Chesnara has a set of Risk and Control Policies that set out the key policies,
processes and controls to be applied. The Chesnara board approves the
review, updates and attestation of these policies at least annually.
Risk identification
The group maintains a register of risks which are specific to its activity and
scans the horizon to identify potential risk events (e.g. political; economic;
technological; environmental, legislative & social).
On an annual basis the board approves the materiality criteria to be applied
in the risk scoring and in the determination of what is considered to be a
principal risk. At least quarterly the principal and emerging risks are reported
to the board, assessing their proximity, probability and potential impact.
Own Risk and Solvency Assessment (ORSA)
On an annual basis, or more frequently if required, the group produces a
Group ORSA Report which aggregates the divisional ORSA findings and
supplements these with an assessment specific to group activities. The
group and divisional ORSA policies outline the key processes and contents
of these reports.
The Chesnara board is responsible for approving the ORSA, including steering
in advance how the assessment is performed and challenging the results.
Risk Management System effectiveness
The group and its divisions undertake a formal annual review of and attestation
to the effectiveness of the Risk Management System. The assessment
considers the extent to which the Risk Management System is embedded.
The Chesnara board is responsible for monitoring the Risk Management
System and its effectiveness across the group. The outcome of the annual
review is reported to the group board which makes decisions regarding its
further development.
COVID-19
During 2022, the risks from the global pandemic have
materially reduced, with nearly all restrictions being
lifted globally, however there remains a risk of further
outbreaks/variants. The Chesnara group has continued
to remain operationally and financially stable
throughout the COVID-19 pandemic, providing a high
level of assurance regarding operational resilience
processes and the suitability of the approach taken.
COVID-19 is not documented here as a principal risk in
its own right, as the impacts are already covered by
other principal risks, for example, market risks morality
risk and other risks associated with operational failure
and business continuity.
CLIMATE CHANGE RISK WITHIN CHESNARA’S
RISK FRAMEWORK
Climate change is not considered as a standalone
principal risk. Instead, the risks arising from climate
change are integrated through existing considerations
and events within the framework. The information in
the following pages has been updated to reflect
Chesnara’s latest views on the potential implications
of climate change risk and wider developments and
activity in relation to environmental, social and
governance (ESG).
Chesnara has embedded climate change risk within
the group’s risk framework and included a detailed
assessment alongside the group’s ORSA, concluding
that the group is not materially exposed to climate
change risk.
UKRAINE CONFLICT
The ongoing invasion of Ukraine by Russia is
considered to be an emerging risk for Chesnara group
in the sense that it is an evolving situation and has
potential implications for Chesnara’s principal risks.
The risk information on the following pages includes
specific commentary where appropriate.
MACRO-ECONOMIC VOLATILITY
Significant economic volatility globally and particularly
in the UK is being driven by supply chain pressures and
soaring energy prices. The UK narrowly staved off a
recession at the end of 2022, though it is still possible
that the UK will enter recession in 2023 albeit the BoE
expects any recession to be shorter and less severe
than previously thought. The information in the
following pages has been updated to reflect Chesnara’s
latest views on the potential implications.
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STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 RISK MANAGEMENT ∙ PRINCIPAL RISKS AND UNCERTAINTIES
The following tables outline the principal risks and
uncertainties of the group and the controls in place to
mitigate or manage their impact. It has been drawn
together following regular assessment, performed by
the Audit & Risk Committee, of the principal risks facing
the group, including those that would threaten its
business model, future performance, solvency or liquidity.
The impacts are not quantified in the tables. However,
by virtue of the risks being defined as principal, the
impacts are potentially significant. Those risks with
potential for a material financial impact are covered
within the sensitivities (page 47).
INVESTMENT AND LIQUIDITY RISK
REGULATORY CHANGE RISK
ACQUISITION RISK
DEMOGRAPHIC EXPERIENCE RISK
EXPENSE RISK
OPERATIONAL RISK
IT/DATA SECURITY & CYBER RISK
NEW BUSINESS RISK
REPUTATIONAL RISK
INVESTMENT AND LIQUIDITY RISK
PR1
PR2
PR3
PR4
PR5
PR6
PR7
PR8
PR9
PR1
DESCRIPTION
Exposure to financial losses or value reduction arising from adverse movements in currency, investment markets, counterparty
defaults, or through inadequate asset liability matching.
RISK APPETITE
The group accepts this risk but has controls in place to prevent any increase or decrease in the risk exposure beyond set levels.
These controls will result in early intervention if the amount of risk approaches those limits.
POTENTIAL
IMPACT
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 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.
Worldwide developments in environmental, social, and governance (ESG) responsibilities and reporting have the potential to
influence market risk in particular, for example the risks arising from transition to a carbon neutral industry, with corresponding
changes in consumer preferences and behaviour.
KEY CONTROLS
RECENT CHANGE/OUTLOOK
– Regular monitoring of exposures and performance;
– Asset liability matching;
– 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;
– Regular liquidity forecasts;
– Considering the cost/benefit of hedging when appropriate;
– Actively optimising the risk/return trade-off between yield
on fixed interest assets compared with the associated
balance sheet volatility and potential for defaults or
downgrades; and
– Giving due regular consideration (and discussing
appropriate strategies with fund managers) to longer term
global changes that may affect investment markets, such
as climate changes.
With greater global emphasis being placed on environmental and social factors when
selecting investment strategies, the group has an emerging exposure to ‘transition risk’
arising from changing preference and influence of, in particular, institutional investors.
This has the potential to result in adverse investment returns on any assets that perform
poorly as a result of ‘ESG transition’. Chesnara has established a Sustainability
Programme to embed Chesnara’s sustainability strategy.
The conflict in Ukraine/Russia brings additional economic uncertainty and volatility
to financial markets, including the potential for higher inflationary pressures in the short
term. The group has no direct exposure in terms of investments in Russian funds or
companies via customer unit-linked funds, and we are working with customers that are
exposed to help them.
The cost of living and energy crisis is driving significant economic volatility globally and
particularly in the UK and there is a risk of poor mid-term performance on shareholder
and policyholder assets.
An interim risk report was produced in October 2022 for the Audit & Risk Committee
summarising some of the emerging risks from the current geo-political and domestic
volatility, documenting known risks and mitigants providing assurance that the risks are
being adequately managed.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 RISK MANAGEMENT ∙ PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
REGULATORY CHANGE RISK
PR2
DESCRIPTION
RISK APPETITE
POTENTIAL
IMPACT
The risk of adverse changes in industry practice/regulation, or inconsistent application of regulation across territories.
The group aims to minimise any exposure to this risk, to the extent possible, but acknowledges that it may need to accept some
risk as a result of carrying out business.
Chesnara currently operates in three main regulatory domains and is therefore exposed to potential for 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 are 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.
Regulatory developments continue to drive a high level of change activity across the group, with items such as operational
resilience, climate change and IFRS 17 being particularly high profile. Such regulatory initiatives carry the risk of expense
overruns should it not be possible to adhere to them in a manner that is proportionate to the nature and scale of Chesnara’s
businesses. 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.
KEY CONTROLS
RECENT CHANGES/OUTLOOK
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, and proactively
discussing their initiatives to encourage a proportional approach;
– Being a member of the ABI and equivalent overseas organisations and utilising
other means of joint industry representation;
– Performing internal reviews of compliance with regulations; and
– Utilising external specialist advice and assurance, when appropriate.
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.
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 departure from the EU.
The UK Treasury and EIOPA are both undertaking a review of SII
rules implementation. There is potential for divergence of regulatory
approaches amongst European regulators with potential implications
for Chesnara’s capital, regulatory supervision and structure.
The group has considered any restructuring which could be
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. In addition, there are a
number of potential secondary impacts such as economic
implications, and the effect of any regulatory divergence as the
PRA progresses SII-equivalent regulation for the UK businesses.
Chesnara will monitor the consultation and discussions arising
under EIOPA’s Solvency II Review, and in the context of Brexit and
the UK’s ultimate position regarding SII equivalence.
The group is subject to evolving regimes governing the recovery,
resolution or restructuring of insurance companies. As part of the
global regulatory response to the risk that systemically important
financial institutions could fail, banks, and more recently insurance
companies, have been the focus of new recovery and resolution
planning requirements developed by regulators and policy makers
nationally and internationally. It remains unclear to what extent any
future recovery and resolution regime could apply to the group in
the future and, consequently, what the implications of such a
development would be for the group and its creditors.
In July 2022, the FCA published final rules for a new Consumer
Duty and response to feedback to CP21/36 - A New Consumer
Duty. The Consumer Duty, with an implementation date of 31 July
2023, will set higher and clearer standards of consumer protection
across financial services and require firms to act to deliver good
outcomes for customers. Operations in the UK are reviewing
existing product governance frameworks in relation to delivering
the new Consumer Duty requirements.
60
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 ACQUISITION RISK
PR3
DESCRIPTION
The risk of failure to source acquisitions that meet Chesnara’s criteria or the execution of acquisitions with subsequent
unexpected financial losses or value reduction.
RISK APPETITE
Chesnara has a patient approach to acquisition and generally expects acquisitions to enhance EcV† and expected cash generation†
in the medium term (net of external financing), though each opportunity will be assessed on its own merits.
POTENTIAL
IMPACT
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.
KEY CONTROLS
RECENT CHANGES/OUTLOOK
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. Consideration
of additional territories within Western Europe remains on the agenda, if the
circumstances of entry meet Chesnara’s stated criteria.
Chesnara seeks to limit any potential unexpected adverse impacts of
acquisitions by:
– Applying a structured board approved risk-based Acquisition Policy 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.
Chesnara completed acquisitions in the Netherlands and the UK
during 2022 and has recently completed a further acquisition in the
Netherlands in early 2023, whilst maintaining the established
disciplines within the Acquisition Policy.
The successful Tier 2 debt raise, in addition to diversifying the
group’s capital structure, has provided additional flexibility in terms
of funding Chesnara’s future growth strategy.
DEMOGRAPHIC EXPERIENCE RISK
PR4
DESCRIPTION
Risk of adverse demographic experience compared with assumptions (such as rates of mortality, morbidity, persistency etc.).
RISK APPETITE
The group accepts this risk but restricts its exposure, to the extent possible, through the use of reinsurance and other controls.
Early warning trigger monitoring is in place to track any increase or decrease in the risk exposure beyond a set level, with action
taken to address any impact as necessary.
POTENTIAL
IMPACT
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.
The effect of recognising any changes in future demographic assumptions at a point in time would be to crystallise any
expected future gain or loss on the balance sheet.
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).
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
61
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
RISK MANAGEMENT ∙ PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
DEMOGRAPHIC EXPERIENCE RISK (CONTINUED)
PR4
KEY CONTROLS
RECENT CHANGES/OUTLOOK
Chesnara performs 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 yearly external surveys that considers brokers' attitudes towards
different insurers.
Legislation introduced at the start of 2020, and enhanced at the
start of 2021, made it easier for customers to transfer insurance
policies in Sweden. Even before the legislation passed, this
resulted in higher transfer activity in the market, particularly driven
by brokers. Following higher rates of transfers through 2021,
transfers have trended downwards during 2022. However the
market remains sensitive to any changes and so this risk continues
to be actively monitored.
COVID-19 increased the number of deaths arising in 2020, 2021
and to a lesser extent in 2022. The effect of this is expected to be
more pronounced in older lives rather than in the typical ages of the
assured lives in the Chesnara books. Chesnara does not expect the
pandemic to have a material impact on mortality experience and
costs in the long term.
Cost of living pressures could give rise to higher surrenders and
lapses should customers face personal finance pressures and not
be able to afford premiums or need to access savings. Any
downturn in the property market could reduce protection business
sales, particularly in the Netherlands. Currently there has been no
evidence of changes in behaviours. Chesnara continues to monitor
closely and respond appropriately.
EXPENSE RISK
PR5
DESCRIPTION
Risk of expense overruns and unsustainable unit cost growth.
RISK APPETITE
The group aims to minimise its exposure to this risk, to the extent possible, but acknowledges that it may need to accept some
risk as a result of carrying out business.
POTENTIAL
IMPACT
The group 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.
A key underlying source of potential increases in regular expense is the additional regulatory expectations on the sector.
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. Similarly, for acquisitions, there is a risk that the assumed costs of running the acquired business
allowed for in pricing are not achieved in practice, or any assumed cost synergies with existing businesses are not achieved.
KEY CONTROLS
RECENT CHANGES/OUTLOOK
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
– With an increased current level of operational and strategic change within the
business, a policy of strict Project Budget Accounting discipline is being upheld
by the group for all material projects.
Chesnara has an ongoing expense management programme and
various strategic projects aimed at controlling expenses. Acquisitions
also present opportunities for expense systems and unit cost reduction.
Through its exposures to investments in real asset classes, both
direct and indirect, Chesnara has an indirect hedge against the effects
of inflation and will consider more direct inflation hedging options
should circumstances determine that to be appropriate.
The cost of living and energy crisis is driving increases in supplier
costs, particularly in the UK with its outsourcing model. Wage
inflation is generally lower than headline inflation but is currently
much higher than the long-term valuation assumptions, with
consideration needed regarding the balancing of employee
remuneration versus turnover/retention/motivation risks/tight
labour markets.
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STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
OPERATIONAL RISK
PR6
DESCRIPTION
Significant operational failure/business continuity event.
RISK APPETITE
The group aims to minimise its exposure to this risk, to the extent possible, but acknowledges that it may need to accept some
risk as a result of carrying out business.
POTENTIAL
IMPACT
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.
KEY CONTROLS
RECENT CHANGES/OUTLOOK
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;
– Regular staff training and development;
– Employee performance management frameworks;
– Promoting the sharing of knowledge and expertise; and
– Complementing internal expertise with established relationships with external
specialist partners.
Operational resilience remains a key focus for the business
and high on the regulatory agenda following the regulatory
changes published by the BoE, PRA and FCA. Chesnara
continues to progress activity under the UK operational
resilience project. In line with the regulatory deadlines, the
first self-assessment was presented to the A&RC/board in
March 2022. The next key regulatory deadline is 31 March
2025; the deadline by which all firms should have sound,
effective, and comprehensive strategies, processes, and
systems that enable them to address risks to their ability
to remain within their impact tolerance for each important
business service (IBS) in the event of a severe but
plausible disruption. To support this the project is currently
in the process of running a schedule of real life severe but
plausible scenario testing. Each business unit continues to
carry out assurance activities through local business
continuity programmes to ensure robust plans are in place
to limit business disruption in a range of severe but
plausible events.
In response to the ongoing energy crisis, analysis has
been carried out on operational continuity with the threat
of planned blackouts. Based on the expected nature and/
or probability of the risk crystallising there were no
material concerns arising.
IT/DATA SECURITY & CYBER RISK
PR7
DESCRIPTION
Risk of IT/data security failures or impacts of malicious cyber-crime (including ransomware) on continued operational stability.
RISK APPETITE
The group aims to minimise its exposure to this risk, to the extent possible, but acknowledges that it may need to accept some
risk as a result of carrying out business.
POTENTIAL
IMPACT
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 and ransomware 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.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 RISK MANAGEMENT ∙ PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
IT/DATA SECURITY & CYBER RISK (CONTINUED)
PR7
KEY CONTROLS
RECENT CHANGES/OUTLOOK
Chesnara seeks to limit the exposure and potential impacts from IT/data
security failures or cyber-crime by:
Chesnara continues to invest in the incremental strengthening of its
cyber risk resilience and response options.
– Embedding the Information Security Policy in all key operations and
No reports of material data breaches.
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;
– Regular employee phishing tests and awareness sessions;
– Ensuring the board encompasses directors with information technology and
security knowledge;
– Conducting penetration and vulnerability testing, including third party service
providers;
The ongoing invasion of Ukraine by Russia heightens the risk of
cyber crime campaigns originating from Russia, with some
suppliers reporting an increase in information security threats which
some are saying is state sponsored. Although Chesnara is not
considered to be a direct target of any such campaigns, all business
units have confirmed that they have increased monitoring and
detection/ protection controls in relation to the increased threat.
During 2022 the group has continued to test and seek assurance of
the resilience to cyber risks, this has included:
– Executive Committee and board level responsibility for the risk, included
dedicated IT security committees with executive membership;
– End-to-end simulated cyber attack;
– Regular phishing campaigns;
– Having established Chesnara and supplier business continuity plans which are
– Board training and awareness;
regularly monitored and tested;
– Ensuring Chesnara’s outsourced IT service provider maintains relevant
information security standard accreditation (ISO27001); and
– Monitoring network and system security including firewall protection, antivirus
and software updates.
– Group-wide cyber risk reviews; and
– Ongoing penetration testing and vulnerability management.
Chesnara is also implementing a new group-wide cyber
response framework which includes updated group policy
regarding ransomware.
In addition, a designated Steering Group provides oversight of the IT estate and
Information Security environment including:
– Changes and developments to the IT estate;
– Performance and security monitoring;
– Oversight of Information Security incident management;
– Information Security awareness and training;
– Development of Business Continuity plans and testing; and
– Overseeing compliance with the Information Security Policy.
NEW BUSINESS RISK
PR8
DESCRIPTION
Adverse new business performance compared with projected value.
RISK APPETITE
Chesnara does not wish to write new business that does not generate positive new business value (on a commercial basis) over
the business planning horizon.
POTENTIAL
IMPACT
If new business performance is significantly lower than the projected value, this will typically lead to reduced value growth in
the medium to long term. A sustained low level performance may lead to insufficient new business profits to justify remaining
open to new business.
KEY CONTROLS
RECENT CHANGES/OUTLOOK
Chesnara seeks to limit any potential unexpected adverse impacts of
acquisitions by:
– Monitoring quarterly new business profit performance;
– Investing in brand and marketing;
– Maintaining good relationships with brokers;
– Offering attractive products that suit customer needs;
– Monitoring market position and competitor pricing, adjusting as appropriate;
– Maintaining appropriate customer service levels and experience; and
– Monitoring market and pricing movements.
The Swedish transfer market remains active following regulatory
changes over the past two years. Further regulatory changes affecting
transfers are expected in April 2023 that could also impact transfer
experience. As a result of recent changes in competitor offerings,
making them less attractive, ‘transfers out’ have begun to trend back
down towards more normal levels.
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STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
REPUTATIONAL RISK
PR9
DESCRIPTION
Poor or inconsistent reputation with customers, regulators, investors, staff or other key stakeholders/counterparties.
RISK APPETITE
The group aims to minimise its exposure to this risk, to the extent possible, but acknowledges that it may need to accept some
risk as a result of carrying out business.
POTENTIAL
IMPACT
The group is exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory
investigations, press speculation and negative publicity, disclosure of confidential client information (including the loss or theft
of customer data), IT failures or disruption, cyber security breaches and/or inadequate services, amongst others, whether true
or not, could impact its brand or reputation. The group’s brand and reputation could also be affected if products or services
recommended by it (or any of its intermediaries) do not perform as expected (whether or not the expectations are realistic) or in
line with the customers’ expectations for the product range.
Any damage to the group’s brand or reputation could cause existing customers or partners to withdraw their business from the
group, and potential customers or partners to elect not to do business with the group and could make it more difficult for the
group to attract and retain qualified employees.
KEY CONTROLS
RECENT CHANGES/OUTLOOK
Chesnara seeks to limit any potential reputational damage by:
– Regulatory publication reviews and analysis
– Timely response to regulatory requests
– Open and honest communications
– HR policies and procedures
– Fit & Proper procedures
– Operational and IT Data Security Frameworks
– Product governance and remediation frameworks
– Appropriate due diligence and oversight of outsourcers and third parties.
Given the global focus on climate change as well as the significant
momentum in the finance industry, the group is exposed to strategic
and reputational risks arising from its action or inaction in response to
climate change as well the regulatory and reputational risks arising
from its public disclosures on the matter. Chesnara supports the UN
Sustainable Development Goals (SDGs), including Climate Action.
We have set our long-term net zero targets and, during 2023, we will
produce our transition plan and the all-important shorter-term 2025
and 2030 targets.
In relation to the Ukraine/Russia conflict, no material exposure has
been identified in terms of the group's key counterparty connections.
There are limited indirect connections through third parties who have
a presence in Russia and Chesnara has confirmed that there are no
obvious links with Russia through its shareholders or stockbrokers.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
STRATEGIC REPORT
CORPORATE & SOCIAL RESPONSIBILITY
Our goal is to be a sustainable group and manage our business for the long-term benefit of
all stakeholders, including our customers, shareholders, employees, regulators, suppliers and
partners, local communities, and the planet.
The Chesnara board has defined its sustainability vision and long-term net zero targets. This vision builds on the
foundations laid in previous years and through our ingrained sense of stakeholder purpose. This vision will be
further progressed during 2023 with the development of our net zero transition plans and interim
decarbonisation targets.
TRANSITIONING TO A SUSTAINABLE GROUP
We have a clear corporate and social purpose. As a business we help protect people and their families from the
economic impact of an early death, through life assurance protection, and help support them during retirement
through pension and investment savings. We believe that stakeholder value creation is best delivered through
the embedded consideration of environmental, social and governance issues. In this regard, among our key
considerations are the following strategic aims:
– Maintaining a long-term sustainable working environment for our staff, suppliers and partners, and local communities;
– Genuine care about our customers, helping them create financial security now and for the future;
– Investments focusing on long-term sustainability and strong financial solvency for the company; and
– Assessing and managing our impact on the planet and natural environment, including climate-related risks to our business.
DO NO HARM. DO GOOD. ACT NOW FOR LATER.
Our Annual Sustainability Report provides detail on our sustainability vision and long-term targets. We are basing our plans on the
principles of Do no harm. Do good. Act now for later. We want sustainability at the heart of decision making across the business and
have committed to:
1. Supporting a sustainable future, including our net zero transition plans
2. Making a positive impact, including our plans to invest in positive solutions
3. Creating a fairer world, ensuring our group is an inclusive environment for all employees, customers and stakeholders
These commitments have been developed with the UN Sustainable Development Goals in mind. These 17 goals are an urgent call
to action to promote peace and prosperity for people and the planet, now and into the future. We’ll focus our activities on those
goals where we feel we can have the greatest impact; however, we will support all of the goals wherever possible.
Find out more at globalgoals.org
As described on pages 58 and 93, a key part of this work includes
the annual review of the effectiveness of our Risk Management
System and the system of governance so as to ensure that we can
achieve our business objectives and safeguard the interests of our
stakeholders. The overall conclusion from the review conducted in
2022 was that Chesnara has a stable and well understood risk
profile, controlled by an effective and embedded system of governance.
The sustainable management of our Funds Under Management is a
critical component of our sustainability journey. In all three of our
territories, we work with fund managers that are committed to the
UN SDGs and the UN’s Principles of Responsible Investment
(UNPRI), with Movestic Livförsäkring also a signatory to the UNPRI.
Movestic is a signatory of the UN Global Compact and it submits an
annual Communication on Progress report setting out specific
actions taken with regard to the four designated categories covering
human rights, labour, environment and anti-corruption.
We believe that sustainability is not solely for our board and
leadership teams, and we have taken and will continue to take steps
to educate, involve and support our workforce and other
stakeholders, including our suppliers, in the delivery of our
sustainability strategy. Each of our businesses have also
incorporated sustainability into their Investment Policy, Investment
Committee Terms of Reference and investment decision making.
We are expanding this to capture all policies across the business to
ensure that sustainability is a key consideration.
Our TCFD report on page 70 describes our assessment of climate
change risks and opportunities under four pillars – Governance;
Strategy; Risk Management; and Metric and Targets. Further
regulatory and disclosure requirements around sustainability are
forthcoming and we will take measures to ensure that we give full and
appropriate disclosure of our progress as these standards are issued.
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CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
UNDERSTANDING THE NEEDS OF OUR CUSTOMERS
Our products and services
We offer and manage life and health insurance and pension products for our
customers to help them meet their financial goals. We achieve this by paying
attention and understanding the customer’s point of view, by regularly asking
for feedback and by investigating any complaints thoroughly and promptly.
Lessons learned from our interaction with customers are used to train and
develop our staff, make our processes more efficient and to take further
steps to ensure our policyholders are treated fairly. Our aim is to consistently
exceed industry service standards.
Reuniting customers with their policies
We appreciate that customers can lose touch with their policies due to
business acquisitions, house moves, name changes and passage of time, so
we actively try to trace and recontact customers wherever possible.
Digitalisation
Advancements in technology and data usage are having a significant impact
on how business is conducted, and the way regular communication is taking
place. We have continued to invest in digital technology and applications so
that we can meet the expectations of our business partners and customers,
whilst maintaining the traditional contact methods for customers that are
more comfortable using that option.
Regulatory compliance
We maintain an open and constructive relationship with the regulators in the
jurisdictions we operate in. Understanding and implementing regulatory
requirements is a key part of management responsibility, including the timely
and accurate submission of information requested by the regulator. None of
the business entities were subject to any regulatory intervention during 2022
and no penalties were imposed.
OUR COLLEAGUES
Health, safety and welfare at work
As would be the case of any responsible business, at Chesnara we place
primary importance on the health, safety and welfare of our employees. The
Chesnara board and our management teams took swift action during 2020 as
lockdowns were imposed to ensure that our employees were safe and able
to continue to work from home, taking into consideration individual
circumstances where necessary so that appropriate support could be
provided. Once restrictions were lifted, management sought the views of
their teams on working from the office, and consequently implemented a
hybrid model under which staff can continue to work from home for part of
the time and this has been in place throughout 2022.
In the UK division, a Wellbeing Hub was launched last year to provide staff
with access to health care information and to share resource material on
mental health, coping with change, and support that is available.
Subsequently, the hub has been updated with information about health care
benefits, including discounted gym membership, PMI and cash plans, and an
assistance line. Training has been provided to staff who have come forward
to become Wellness Champions so that they can discuss their experiences
openly and confidently in a safe space. Also in the UK, we partnered with the
Business Health Group to provide sessions for employees to discuss physical
and mental health challenges that they face. Proactively discussing these
challenges and providing potential tools to address them helps to support
people through difficult times.
The management teams and employees in Sweden and Netherlands have
also taken steps to guide and support colleagues under a new hybrid working
arrangement.
Each of our business units ensures that the health and welfare of our staff is
supported by employment contract provisions, including access to health
insurance for all employees and encouragement and support for flexible
working, amongst other benefits such as life cover, occupational pension and
parental leave. All staff are made aware of these benefits through contracts
of employment, the staff handbook and staff briefings. They are also
reminded of their duty to act responsibly and do everything possible to
prevent injury to themselves and others. Management teams across the
group monitor the level of sick leave and absence and, where necessary,
they take appropriate action to address any issues identified.
Relevant policies and procedures are reviewed on a regular basis so as to
ensure that they meet appropriate standards. 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.
Equal opportunities and diversity
Chesnara always aims to attract, promote and retain the best candidates
suitable for the roles that are transparent within all our operations. Our
approach is to be open, entrepreneurial and inclusive in how we select and
manage our employees.
We are committed to providing equal opportunities in employment and will
continue to treat all applicants and employees fairly regardless of race, age,
gender, marital status, ethnic origin, religious beliefs, sexual orientation or
disability. Chesnara has policies in place to ensure that no employee suffers
discrimination, harassment or intimidation and to effectively address any
issues that come to light.
Year end headcount
2022
2021
Male
Female
Male
Female
Directors of Chesnara plc
Senior management
of the group
Heads of business units
and group functions
Employees of the group
Total1
5
6
24
174
209
3
2
15
190
210
5
6
19
149
179
2
2
9
147
160
Gender split %
49.9%
50.1%
52.8%
47.2%
Note 1. The number of staff reported in the table above is based on the number of
employees employed at the year end. This differs to the employee note, which is
calculated based on average FTEs during the course of the year. Staff numbers have
increased in 2022 due to the acquisitions that took place during the year.
Gender diversity forms an important part of Chesnara’s selection and
appointment process at group level. The Hampton-Alexander report
recommends a board diversity target of 33% for FTSE 350 companies.
Our board diversity ratio for 2022 was 62% male and 38% female (71%
male, 29% female in 2021). Our Group Audit & Risk Committee has a
female Chair 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 business, and for
the most part, covers the local CEO and CFOs of our divisions. We have
provided additional disclosures, including an analysis of diversity, which
show ‘Heads of business units and group functions’ separately from the
remainder of employees.
Employees with a disability
Chesnara endeavours to provide employment for persons with a disability
wherever the requirements of the business allow and if applications for
employment are received from suitable applicants. Where an existing member
of staff becomes disabled, every reasonable effort is made to achieve
continuity of employment by making reasonable adjustments to give the staff
member as much access to any training, promotion opportunities and employee
benefits that would otherwise be available to any non-disabled employee.
Staff training and development
Our employees are a key asset of the Chesnara business and we invest in our
staff through individual and group training and development plans. All staff
are encouraged and supported to acquire relevant knowledge and build their
skills and competence. Financial support is provided to staff who wish to
achieve recognised qualifications that are appropriate for specific roles and
the needs of the business.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY (CONTINUED)
Fair pay
We believe that all our employees deserve fair and just remuneration
appropriate for the roles they hold and the work they perform. In our UK
division, our employees and service contractors meet the Real Living
Wage pay level set by the Living Wage Foundation and based on a
calculation of the cost of living and what employees and their families
need to live.
All UK employees, subject to a minimum service requirement, also have
access to our SAYE scheme, improving employee engagement with
company performance and directly linking a proportion of employee
benefits to our performance.
At the start of 2022, the Remuneration Committee consulted with
employees on the alignment of directors’ pay with UK employees. Details
of our staff pay and benefits, and in relation to executive pay, are set out
in Section C as part of our Remuneration Report.
Employee engagement
Across our businesses, we provide high quality jobs with competitive
remuneration along with requisite training and good working conditions.
Regular contact with employees and keeping them updated on business
strategy, priorities and achievements is a key part of management
responsibility at Chesnara. Frequent employee engagement has become
even more important over the last few years given the shift to more
remote working. Each of our businesses has a multi-channel approach for
effective employee communication such as regular updates from the
CEO, monthly team and departmental meetings, company briefings,
discussions via Employee Forums, and the use of employee surveys to
highlight issues and drive any necessary change.
As the Workforce Engagement NED appointed by the Chesnara board,
Carol Hagh’s liaison with the CEOs, HR teams and Employee Forum
representatives has been invaluable in terms of independent engagement
with staff and also for the on-going assessment of our culture and
embedding of our values across our UK, Swedish and Dutch divisions.
Within the UK division, the Employee Forum has continued to meet on a
monthly basis. This forum comprises staff members who represent each
functional area, rotated from time to time, for the purposes of discussing
any matters of concern or areas of interest for the staff and management.
Our operations in Sweden and the Netherlands make similar use of
Employee Forums, staff surveys, formal and informal employee
engagement both at the individual, team and whole company level. In the
Netherlands (Scildon), this is formalised through the operation of a Works
Council and in Sweden, staff representation is via a Working Environment
Committee and a trade union.
Chesnara’s aim is to continue to grow via acquisition of life assurance
businesses and our due diligence plan incorporates an assessment of all
relevant workforce matters which are reported to the board to assist its
deliberations on any potential acquisition opportunities.
Whistleblowing
Each of the Chesnara businesses has a Whistleblowing Policy which
complies with local regulatory requirements and is reviewed on an annual
basis. In the UK the Audit & Risk Committee Chair is appointed as a
Whistleblowing Champion, whose responsibilities are aligned to the
prescribed requirements set out in the PRA’s Senior Managers
Certification Regime. The policy is shared with all new joiners and
whenever it is updated it is provided to all existing employees. All staff are
requested to read and confirm that they understand the contents, and the
attestation response has been 100% during 2022. Similar arrangements
are in place within our overseas divisions.
Within the UK there were no relevant regulatory changes, and the policy
was reviewed in March 2022 and confirmed as fit for purpose. Confirmation
was also received that each outsource service provider (OSP) has a
Whistleblowing Policy in place which is provided to all employees.
In Sweden and the Netherlands, new regulations came into force in
December 2021 under which organisations have to implement stringent
internal procedures for reporting misconduct and include explicit
requirements against retaliation and safeguarding of reporter identities.
These obligations are now incorporated within their policies by the
business units.
No whistleblowing incidents have come to light across any of our divisions
during 2022 and our overall conclusion is that the policies and related
control systems have been operating effectively.
SUPPLIERS AND BUSINESS PARTNERS
At Chesnara, we believe in developing mutually respectful and sustainable
relationships with our suppliers and business partners. Our preference is
to establish long-term relationships where they remain commercially
competitive and operationally viable. This is achieved through a structured
due diligence process before selection, followed by clear agreement of
the business objectives, consistent implementation of regulatory
requirements and relevant policies, and effective attention to resolving
issues fully. We require our suppliers and business partners to apply high
standards of ethical conduct in all their dealings with us and their other
stakeholders.
We are conscious that through our outsourcing arrangements we
indirectly utilise the services of a much larger workforce and we seek to
ensure that our suppliers are similarly adopting appropriate arrangements
for proper engagement with their own workforce.
HUMAN RIGHTS
Human Rights and the Modern Slavery Act 2015
Human rights belong to all human beings regardless of nationality, gender,
race, age, religion, language, physical or mental ability or any other
political, economic or social status. Such rights are protected by the rule
of law through legal mechanisms designed to prevent abuse by those in
positions of power. Modern slavery is just one such form of human rights
abuse. In addition to the freedom of expression, human rights includes:
– the right to life;
– prohibition on torture;
– the right to a fair trial; and
– the right to fair and just working conditions.
Chesnara has zero-tolerance to the abuse of human rights and modern
slavery and is committed to acting ethically and with integrity in all of its
business dealings and relationships. We seek to avoid causing or
contributing to adverse human rights impacts by operating and enforcing
effective systems and controls to ensure human rights abuse and modern
slavery are not taking place anywhere in the group or its supply chains.
The Modern Slavery Act (2015) requires a commercial organisation over a
certain size to publish a slavery and human trafficking statement for each
financial year.
The Modern Slavery Act does not apply to our European divisions, but
instead they adhere to the European Convention on Human Rights (ECHR)
treaty which is similarly designed to protect people’s human rights and
basic freedoms.
In the UK, our Human Rights & Modern Anti-Slavery Policy is made available
to our entire workforce and is also available via the Chesnara website.
There have not been any breaches of human rights or the Modern Slavery
Act during the reporting period.
68
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 ‘During 2022, across the
group, we donated £65k
to charitable causes,
the majority of which
went towards supporting
the people of Ukraine.’
ANTI-BRIBERY AND CORRUPTION
In addition to other financial control policies, Chesnara has group-wide
Anti-Money Laundering and Anti-Bribery & Corruption Policies in place
which are reviewed at least annually. Their scope includes all directors,
employees and third-parties operating on behalf of the group.
We have zero tolerance to financial crime, including money laundering and
bribery and corruption. Our internal control framework includes the
maintenance and review of a Gifts & Hospitality Register, the
disallowance of any political contributions or inducements and careful
consideration of any charitable donations. These controls act as a
monitoring and prevention system. Policies are made available to all staff
and they are required to attest that they have read and understood their
importance and application. There were no instances of money laundering
or bribery or corruption in the period.
TAXATION
We adopt a responsible and open approach to taxation and, consequently,
pay the appropriate taxes due throughout the group, details of which are
set out in the respective annual reports and accounts for each of our
operating entities.
OUR COMMUNITIES
Chesnara’s management and staff support local community initiatives to
the extent deemed appropriate given our financial responsibilities as a
public limited company. During 2022, across the group, we donated £65k
to various charitable causes (2021: £4k), the majority of which went
towards supporting the people of Ukraine. In the Netherlands, Scildon has
continued to support Sherpa, a local charity that helps people with physical
and intellectual disabilities to function as independently as possible, as
well as a number of other charitable donations.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
CONTEXT
Disclosure requirements on the impact of climate change were
introduced by the Financial Conduct Authority (FCA) for premium listed
companies with effect from 1 January 2021. This is our second
progress report in support of the Financial Stability Board’s Task Force
on Climate-related Financial Disclosures (TCFD).
The TCFD maturity map sets out recommendations under four pillars
– Governance; Strategy; Risk Management; and Metrics and Targets –
through a pathway from the beginner stage to intermediate and full
COMPLIANCE STATEMENT
disclosure. It is widely understood that the information and analysis
have to be accurate and reliable, and that it will take some time for the
recommendations to be fully implemented by firms. We have taken
appropriate steps to determine the impact of material climate change
risks upon our businesses and reflect the outcome of our analysis with
the aim of providing intermediate or moderate level disclosures with
respect to the TCFD recommendations shown within the TCFD
maturity map.
All disclosures required within ‘TCFD Recommendations and Recommended Disclosures’ are on pages 72 to 84 with additional information such as
illustrations and case studies included in the Annual Sustainability Report which is cross-referenced where applicable throughout this section.
Chesnara plc has complied with the requirements of LR 9.8.6R by including climate-related financial disclosures consistent with the TCFD
recommendations and recommended disclosures except for the following matters:
REQUIREMENT
EXPLANATION
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-
related scenarios.
Disclose the metrics used by the
organisation to assess climate-
related risks and opportunities in
line with its strategy and risk
management process.
In the 2021 TCFD report, our UK business applied climate-related
scenarios, including a 2°C or lower scenario, but as at the 2021 year end
this work was outstanding for our European entities. During the course of
2022, this work has progressed to cover the outstanding business units, as
committed. However, this is not yet embedded for all of the acquisitions
completed during 2022, as the entities are going through the process of
being integrated into the Chesnara group processes including the ORSA.
We expect this to be completed during 2023.
In the 2021 disclosures, we used climate-related metrics to monitor and
report carbon emissions, energy consumption and water usage within our
operations. We currently report scope 1, 2 and non-financed 3 (together,
‘operational emissions’) and we identified that we would be working
towards reporting financed emissions over the course of 2022. Progress
has been made and further work to baseline our financed emissions is
needed through 2023. Once complete, we will disclose this information.
Describe the targets used by the
organisation to manage climate-
related risks and opportunities and
performance against targets.
In March 2023, our group-wide net zero targets for all emissions were
approved by the board.
During 2023, we will continue to baseline the data for financed emissions,
as discussed above, to enable us to set interim targets. We will also
conclude on how we will measure progress in terms of absolute or
intensity-based metrics.
AREA
Strategy (c)
Metrics (a)
Metrics (c)
70
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
GROUP SUSTAINABILITY REPORT
Alongside the financial statements, the group has published its inaugural Annual Sustainability Report
(see our corporate website, www.chesnara.co.uk) and provides further detail on a number of items noted in
this report which are referenced as appropriate.
WHAT HAS HAPPENED DURING 2022?
The key activity during the year at Chesnara level has been to determine our
vision for a sustainable group and the associated long-term net zero targets,
incorporating climate-related risks and opportunities. Guiding and
overseeing the implementation of this vision during 2023 and beyond will
be led by our newly formed Group Sustainability Committee. This
committee, chaired by our Senior Independent Director, Jane Dale, and
consisting of executive management from across the group will direct our
sustainability strategy and ensure that it is embedded within our group
overall strategy and operations, as well as ensuring that sustainability is at
the heart of our activities and the decisions that we make.
Our vision, A Sustainable Chesnara, is built on the work already done in
our divisions and aligning to their strengths. Our businesses have different
strengths and have identified different opportunities but the need for a
business to focus on sustainability is universal and therefore, bringing
together our strategy under the group vision, whilst acknowledging our
individualism, is critical to our success in tackling climate-related risks.
Some of the activities that occurred during 2022 are as follows:
1 | March 2022
We delivered a group climate change risk assessment
to the GA&RC that considered quantitative and
qualitative risk assessments and also documented
how we have embedded CCR (climate change risk) for
the GA&RC to review and challenge.
3 | September 2022
Sustainability vision, including
the group’s net zero targets, was
presented to the board. These
targets were formally approved
in March 2023.
2 | May 2022
A group board session which was primarily to
facilitate discussion, considering: what our
stakeholders expect and where we are compared
to our peers; detail of where our programme is
up to and asking ourselves what we want to
achieve as an organisation; and consideration of our
short-term objectives.
4 | Throughout 2022
Our 2022 ORSA included a group-wide
climate change-related scenario analysis
that encompassed both physical and
transitional risks on 3 different scenarios
for future climate outcomes (with the
exception of CASLP).
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
GOVERNANCE
The Chesnara board sets the values and culture of how the business divisions operate and the group invests time and resources to ensure that
the governance structures in place remain appropriate for the evolving business and regulatory landscape. Further information on the group’s
governance is provided in Section C (corporate governance) of the accounts.
a) Board oversight of climate-related risks and opportunities
The chart below sets out the group reporting structure and, in particular for the group, sets out how the board has oversight of climate-related matters.
CHESNAR A GROUP BOARD
Meet s at least quar terly
The board defines the group's strategic aims, ensures that the necessary resources
are in place and sets the targets to review management performance. Chesnara has sustainability,
covering environmental, social and governance, as a regular agenda item across the group.
GROUP AUDIT & RISK COMMITTEE
NOMINATION & GOVERNANCE
GROUP REMUNERATION
(GA&RC)
Meet s at least quar terly
COMMITTEE
Meet s quar terly
COMMITTEE
Meet s quar terly
The GA&RC focuses on corporate
governance requirements and
developments related to
environmental and social obligations,
including the monitoring of
climate-related risk exposures across
the group and how such risks are
treated. The GA&RC advises the board
as appropriate.
The Nomination & Governance
Committee plays a key role in ensuring
that the board’s composition and
balance are appropriate and that
members have the necessary skills,
knowledge and experience to
discharge their duties effectively with
regards to climate change.
The role of the Remuneration
Committee is to ensure that the
Remuneration Policy promotes,
encourages and drives long-term
growth of shareholder value of which
climate change plays a key role.
In 2022, they allocated a 10%
weighting of the Group CEO and CFO
annual bonuses linked to a number
of sustainability actions.
GROUP SUSTAINABILIT Y COMMIT TEE (GSC) 1
Meet s at least quar terly
Established at the end of 2022: The GSC interacts with the board and the committees below in the following ways:
with the board on the sustainability strategy and embedding it into the overall group strategy; with the GA&RC on ESG risks
and external disclosures, including TCFD; with the Nomination & Governance Committee on matters regarding composition
and sustainability-related skills, knowledge and experience; with the Remuneration Committee on trends in which
management are and should be incentivised on ESG factors; with the GIC on investment-related matters, including the
transition plan to net zero; and with the GEC and divisional Executive Committees to facilitate all of the above.
GROUP EXECUTIVE COMMITTEE (GEC)
GROUP INVESTMENT COMMITTEE (GIC)
Meet s monthly
Meet s twice a quar ter
Is in place to challenge and support the Group CEO and
the leadership team. The GEC is accountable for the
review and sign-off of the quarterly risk report, including
any material variations in the impact of climate change
upon the group, as well as monitoring risk appetite
compliance. It is also responsible for oversight of the
sustainability programme.
Board
Board Committee
Group Executive Committee
Is in place to challenge and support the Group CEO
and the leadership team. The GIC's Terms of Reference
specifically include consideration of ESG factors,
including overseeing the asset managers’ approach
to ESG and climate change related matters.
1The GSC is not a board committee but operates across the group, interfacing with the board, and works with its board committees and
Group Executive Committees.
72
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 The business units feed into the group governance structure via quarterly divisional MI packs and risk
reporting and annual local business plans. The business units have the following local governance structures:
UK DIVISION
SWEDISH DIVISION
NETHERL ANDS DIVISION
Business unit
board (CA board)
Business unit
board (CASLP
board)
Business unit board
(Movestic board)
Business unit board
(Chesnara Holdings BV board)
Waard
Supervisory Board
Scildon
Supervisory Board
Waard
Management Board
Scildon
Management Board
CA
Executive
Committee
*CA Audit
& Risk
Committee
CA
Investment
Committee
*CASLP
Audit &
Risk
Committee
CA
Investment
Committee
CA With
Profits
Committee
CASLP
Investment Committee
Movestic
Executive
Committee
*Movestic
Audit & Risk
Committee
Movestic
Investment
Committee
Waard
Executive
Committee
*Waard
Audit & Risk
Committee
Scildon
Executive
Committee
*Scildon
Audit & Risk
Committee
Waard
Investment Committee
Scildon
Investment Committee
*Business unit Audit & Risk Committees also have a dotted reporting line to the Group Audit & Risk Committee.
b) Management’s role in assessing and managing climate-related
• Group Executive Committee – The Group Executive Committee
risks and opportunities
Who is assigned responsibility – Management responsibility for matters
related to climate change are assigned to the Group Chief Executive at
group level and the respective CEOs at business unit level. All divisions and
business units are responsible to the relevant Divisional Chief Executive
who has dual reporting lines to the divisional board and the Group Chief
Executive. Sustainability forms part of the executive management
short-term incentive bonus scheme, and the ratio allocated to sustainability
will continue to be assessed on an ongoing basis.
How are management informed of and monitor climate-related issues
Chesnara’s approach to climate-related risks is manifested in the
following ways:
• Group board – The board has sustainability, including climate change, as
a regular agenda topic for discussion. During 2022, this has specifically
considered the group climate change risk assessment (through the GA&RC),
the overall vision and approach of the group in regards to sustainability
and group-wide climate change-related scenario analysis in the ORSA.
• Group Sustainability Committee – This has been established since the
end of 2022 and will be chaired by Jane Dale, the group’s Senior
Independent Non-Executive Director. Its membership consists of the
executive management across the group and its divisions. As noted in
the diagram above, this committee is the key focal point for discussions
on climate-related risks and opportunities and links in with the other
group governance committees. The GSC annual agenda planner
determines which topics are covered at each meeting and those meetings,
together with the GIC and GEC, will determine the items to be escalated to
the board. The interactions of the GSC with the different committees and
the board are detailed on the previous page.
regularly discuss climate-related issues and how they factor into business
planning, strategy and risk management.
• Group Investment Committee – Working with the GSC, the Group
Investment Committee (GIC) will focus on the just transition of the
group’s asset portfolio in line with its net zero targets. The GIC and GSC
will also work together to identify potential areas of impact investing.
• Sustainability working group – Established alongside the GSC, this
group consists of the key sustainability leaders across all divisions in the
business, for both investments and operations and reports directly into
the GSC to update on progress on the sustainability strategy and agenda
across the group.
• Acquisitions – As part of the due diligence process for potential
acquisitions, we assess the target company’s approach to climate-related
risks and consider the emissions of their operations and underlying assets.
Board and management competence and training – Over the previous
18 months, specific sessions of note include the board being provided with
both training on ESG matters from Schroders and TCFD specific teaching
as part of Corporate Governance training. As part of the development of our
sustainability vision during 2022, we have engaged with external experts to
support our understanding, particularly of the transition to net zero and
establishing financed emissions baseline data and targets. Training is a key
responsibility of the GSC and needs across the business will be assessed
throughout the year.
To enhance the skillset and understanding, as well as utilising external
experts and expanding our in-house team, members of the GSC have
completed the Cambridge Institute for Sustainability Leadership’s Business
Sustainability Management course as well as working towards the
Chartered Insurance Institute’s Certificate in Climate Risk.
Specific training will be provided across the group to increase the carbon
literacy of all employees during 2023.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
STRATEGY
Sustainability, including the group’s approach to climate risk and decarbonisation, is a fundamental part of our future strategy. Changes in
the environment and the effect of global warming can potentially affect how we achieve our strategic objectives either through the way we
operate our businesses or through the returns to our customers and shareholders. We are committed to applying sustainability-informed
investment and operational decision making across the group.
Chesnara supports the UN Sustainable Development Goals (UNSDGs), including Climate Action. We have set our long-term net zero targets
and during 2023, we will produce our transition plan and the all-important shorter-term 2025 and 2030 targets.
As transition plans are being developed and baseline data is further understood, the targets may be refined at a later date to better reflect the position
of the group.
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term
What do we consider to be the relevant time horizons to monitor climate-related risks
SHORT TERM
12 months
In line with our budget
setting process
MEDIUM TERM
2 - 5 years
In line with our business
planning and ORSA
projection period
LONGER TERM
6+ years
Post business
plan horizon
In the 2021 financial statements, the risks were considered over the short term only. Over the course of 2022, work has progressed to expand the
scenario testing to cover the short, medium and long term. During the setting of the time horizon profile, we considered the useful life of the group’s
assets and believe our definitions of short, medium and long-term appropriately take this into account. The average duration of the wider group’s
assets is between 5-10 years, but the group is acquisitive and writing new business so the risk assessment needs to consider a longer time horizon
also. The short-term period of 12 months aligns with the risk basis that underpins SII, and the medium term is aligned to our business planning period.
What do we consider to be our materiality level in assessing climate change related risks
The materiality levels of the group are approved by the board annually as part of the Principal Risk Definition (the board approved materiality criteria to be
applied in the risk scoring and in the determination of what is considered to be a principal risk) report and considers a number of factors that are broader
than purely financial indicators. The range of materiality is defined below.
EcV†: <£2.5m
Cash generation†: <£250k
Reputational: no publicity
Regulatory: admin only
Other: low safety issue
LOW
HIGH
EcV: >£40m
Cash generation: >£10m
Reputational: stakeholders
withdrawing services
Regulatory: business limited
or suspended
Other: high safety issue
Materiality covers a number of qualitative and quantitative factors, which
are all considered in the assessment of risks when determining the
potential impact on the group. This materiality range applies to all risks
including those related to climate change.
Within the risk definition report, there are five categories of materiality
(very low, low, medium, high and very high). Whilst each risk impact is
considered individually, generally, if the impact falls into the low or very low
category, it would not be drawn out as a disclosure within the TCFD report,
noting that this would indicate an EcV impact of £10m or less and a cash
generation/cash flow impact of £1m or less (the materiality level also
considers reputational, regulatory and customer impacts alongside
financial). This is deemed to be an appropriate limit and is predicated on the
group risk assessment thresholds that are discussed and approved by the
board annually. As per these thresholds, impacts that are classified as low
(or below) would be those that represent a threat to the efficiency or
effectiveness of some aspects of the group’s business, but at a level that
can be dealt with internally. We believe this is a reasonable disclosure level
and would enable a user to appropriately assess our exposure to climate-
related issues.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
74
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term
What are the different types of climate-related risk?
PHYSICAL RISKS
TRANSITION RISKS
Arise due to the direct impact of events such as heatwaves, flood, wildfire,
storms, increased weather variability, and rising mean temperatures and
sea levels.
Emerge from the process of change towards a low carbon economy such
as: climate-related developments in policy and regulation; technological
change (e.g., electric vehicles); a shift in consumer sentiment and social
attitudes; and climate-related litigation against firms that fail to mitigate,
adapt or disclose climate-related financial risks.
As some risks are more material than others, the ‘bubble chart’ overleaf demonstrates the relative materiality of each risk, what kind of risk it is (physical or
transition), what part of the business if affects (by geography) and over what time horizon we believe the risk to manifest. We have then provided more
context on the material risks and how these feed into the financial planning process and strategy decisions of the group.
Climate-related issues for each time horizon
What do we consider to be the relevant time horizons to monitor climate-related risks
The key climate-related risks of the group are documented below, and the impacts are shown pictorially in the following bubble chart.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Financial losses from short-term shocks to assets exposed to carbon intensive industries. A reduction in the value of shareholder direct asset
holdings would have a direct impact on the value of the business and could also reduce the solvency position depending on whether the reduction
was offset by a corresponding reduction in liabilities. A reduction in the value of unit-linked assets would reduce the present value of expected
future charges applied to those funds as well as reducing the current investment returns achieved by policyholders.
Financial losses from longer term asset under-performance arising from transition risk/stranded asset risk. This could arise if the companies that
Chesnara invests in do not evolve or deliver on ESG related matters and assets decline in value and become un-saleable resulting in stranded
assets. A reduction in the value of shareholder direct asset holdings would have a direct impact on the value of the business and could also reduce
the solvency position depending on whether the reduction was offset by a corresponding reduction in liabilities. A reduction in the value of
unit-linked assets would reduce the present value of expected future charges applied to those funds as well as reducing the current investment
returns achieved by policyholders.
Customer return impacts from short-term shocks to assets exposed to carbon intensive industries arising from reduction in customer asset values
caused by underperformance of assets more exposed to transition risk. This would mainly arise through unit-linked business.
Customer return impacts from longer term asset under performance arising from transition risk/stranded asset risk arising from reduction in
customer asset values caused by underperformance of assets more exposed to transition/stranded asset risk. This would mainly arise through
unit-linked business.
Energy price driven inflationary impacts from global climate policy failure. This could impact on future profits through an increase in the expense
base but could also adversely affect the economic operating conditions of the business resulting in poor investment performance, causing a
reduction in the value of the business and anticipated future profits.
Failure to meet regulations/disclosure requirements with reputational impacts or sanctions. Increased disclosure and reporting requirements will
make it much easier to hold companies and their boards accountable. Reputational impacts could lead to a decline in persistency or new business
volumes or could result in third parties preferring not to contract with Chesnara, adversely affecting the business model.
Data limitations hinder ability to properly understand asset exposures to transition risks. This might arise primarily for unit-linked business where
look-through data is more challenging and subject to change. There is a risk that Chesnara is unable to fully understand its exposure through lack of
access to a comprehensive view of data leading to stranded assets, potential greenwashing, and deviation from its adopted ESG strategy.
Costs of keeping up with climate change goals materially exceed budget, resulting in higher one-off and ongoing expenses resulting in a reduction
in value and a reduction in annual profits/cash generation.
Operational disruption from longer term physical impacts, such as the need to relocate offices etc. The Netherlands would be expected to be the
most exposed to this risk.
Reputation – New business dips from climate-related reputational impacts. This could arise if potential new customers or IFAs considered
Chesnara or its businesses to be doing too little to positively impact the effects of climate change, or offering too few choices for customers such
as the availability of green funds for unit-linked business.
Reputation – Persistency of existing business declines from climate-related reputational impacts. This could arise if customers considered
Chesnara or its businesses to be doing too little to positively impact the effects of climate change, or offering too few choices for customers such
as the availability of green funds for unit-linked business.
Reputation – Supplier/outsourcer refusal to continue to partner with the group or its businesses. This might arise if either Chesnara’s chosen stance
or execution of its climate-related policies do not align with those of its existing or potential future third party partners. Such a risk materialising
could cause operational or strategic disruption or result in costs arising from lower availability of providers or from the need to switch to new
providers.
Reputation – Inability to raise finance to support acquisition strategy. This could arise if the climate-related requirements of debt and equity
investors are not adequately met by Chesnara. The impact could be that the cost of finance causes a reduction in future profitability of acquisition
opportunities, or results in the group becoming unable to finance larger acquisitions, thus more materially affecting the business model.
Impacts on morbidity or mortality experience resulting from physical effects of climate change on living conditions. This could arise if the longer
term physical effects of climate change impacted on quality of life for Chesnara’s insured populations.
Third party supplier defaults arising from either physical or transitional effects of climate change. Supplier and third parties costs impacted by
increased costs of raw materials/supply chain changes or disruption/changing customer behaviour/cost of monitoring of ESG compliance. Such a
risk materialising could cause operational or strategic disruption or result in costs arising from lower availability of providers or from the need to
switch to new providers.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
The chart below considers the climate-related risks the group faces, and assesses them covering a number of factors such as materiality (as
defined earlier in the report), likelihood etc.
*Risk 10 covers both Sweden and the Netherlands
KEY
Materiality assessment
Low
Medium
High
13
12
10*
Type of risk
1
3
2
4
9
Physical risks
8
7
6
11
15
14
5
SHORT TERM
(0 – 12 MONTHS)
MEDIUM TERM
(2 – 5 YEARS)
LONG TERM
(6+ YEARS)
Transition risks
Both types
Territory affected
Groupwide
Dutch only
More than one
location
H
G
H
I
:
D
O
O
H
I
L
E
K
I
L
:
I
M
U
D
E
M
D
O
O
H
I
L
E
K
I
L
W
O
L
:
D
O
O
H
I
L
E
K
I
L
76
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
How do the risks impact business strategy and financial planning – in respect of those risks that have a ‘high’ materiality assessment, as
referred to in the previous chart.
Risk
Potential impact (linking
to financial statements)
5) Energy price driven
inflationary impacts from
global climate policy failure
This is a principal
risk captured under
expense risk
Time horizon: longer term
6+ years
13) Reputation risk through
inability to raise finance to
support acquisition
strategy*
This is a principal risk
captured under reputational
risk
Time horizon: medium
term 2-5 years
Primarily financial impacts
of inflation of the expense
base but also potentially
operational risks arising
from high inflationary
environment or from
energy shortages in
transition.
A 1% increase (based on
HY 22 results) in inflation is
estimated to reduce SII
absolute surplus by £29m/
EcV† by £27m. On an IFRS
basis, we would expect
this scenario to increase
administrative expenses
and insurance reserves.
Potentially a fundamental
hit to the business model
plus reputational impacts.
It is difficult to quantify a
financial impact as this is
completely subject to the
deal opportunities.
Generally, acquisitions will
impact the IFRS financial
statements by increasing
net assets.
How is the risk being
managed, mitigated and
addressed?
Active consideration of
inflation sensitivities and
hedging options.
How does the risk
impact strategy?
How does the risk input
into financial planning?
Affects all pillars of the
strategy – i.e. impact on
existing business value
but also on pricing
capability on new business
and acquisition.
Best estimate of short and
long-term inflation
assumptions included in
the financial projections,
with suitable sensitivities
considered. Strategically,
inflationary impacts are
considered as part of deal
assessments and project
business cases.
Proactive consideration of
ESG branding, governance
agency scoring and
disclosures plus being very
open and transparent with
key investors.
Direct consequences for
execution of the
acquisition strategy.
Risk is monitored,
managed and will be
addressed as it arises. For
any acquisitions, financing
solutions are considered
and the risks of those are
factored into the relevant
decisions.
* Chesnara is an acquisitive group, with M&A being one of its three strategic pillars, and therefore continually considers opportunities as they become available. Deal financing would be
completely dependent on the size and nature of the transaction but may include the necessity to raise additional external financing either through debt or equity. A failure to appropriately
address climate change risks may impact on our ability to raise this finance and in turn adversely affect the growth of the group.
Opportunities
As a provider of long-term financial solutions, there are opportunities for the group to address the growing desire of customers to have
sustainable financial products. Addressing this need involves making sustainable fund choices available for customers to access so that they
can invest their money in sustainable ways. Movestic, our business unit in Sweden, and the fund managers that assist with our investment
activities across our business are all signatories to the UN Principles for Responsible Investment (PRI) to help shape this approach. Some of
the examples of the way in which we have sought to address these needs are:
Opportunity
Time horizon
Part of the
business affected
Potential impact on strategy and financial
planning
Alternative fund choices offered to customers
including a solar fund and a biodiversity fund. We will
continue to expand our fund offering in line with
customer demands.
Ongoing
Sweden (Movestic)
Factored into financial planning and strategy by
assessment of the potential market for the funds
and the associated costs.
Customers are able to select our Easy B product,
an investment-based life insurance policy, which
provides a sustainable return.
Ongoing
Netherlands
(Scildon)
Factored into financial planning and strategy
by assessment of the potential market for the
product and the associated costs.
Further information on these is detailed in the Annual Sustainability Report. Furthermore, whilst it has not yet been finalised, there are potential
opportunities arising from the recently announced government plans to reform the UK’s financial regulations, including giving insurance firms more freedom
to invest in long-term assets such as housing and wind farms, together with the forthcoming updated Green Finance Strategy. We will monitor these
developments to identify potential opportunities and act accordingly.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
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SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios
Resilience of the organisation
As part of our 2022 ORSA process, we have considered and modelled
three scenarios in respect of climate change risk, covering a 2° and 4°
stress. This considered: a) sudden transition, b) long-term orderly transition
and c) policy failure. The first two achieve a temperature rise below 2
degrees and the latter a rise in excess of 4 degrees by 2100. To model the
impact, we have taken each of the asset classes and applied suitable
stresses to the equity values dependent on how the change in temperature
is expected to affect the portfolio. Please refer to the earlier table
with regards to how material climate-related risks affect strategy and
business planning.
Chesnara’s 2022 ORSA scenarios are based on the PRA’s 2019 UK
Insurance stress test scenarios. Whilst these contain a number of
approximations and limitations, they are more prescriptive in nature and
easier to apply than some of the more complex climate change risk models,
and they also benefit from being more transparent and easier to understand.
Full details of the derivation of those scenarios, and their limitations, is set
out in the PRA’s specification guide available publicly on the Bank of
England’s website (Life Insurance Stress Test 2019: Scenario Specification,
Guidelines and Instructions (bankofengland.co.uk)). The shocks are
calibrated by the PRA to represent the 1-in-100 Value-at-Risk under the
three climatic scenarios and are expressed as instantaneous impacts on the
portfolios. Further detail of the scenarios is included in the table below:
Ref
Scenario
Key assumptions
a
b
c
2°, sudden
transition
The impact materialises over the medium-term business planning horizon that results in achieving a maximum temperature
increase of 2oC (relative to pre-industrial levels) by 2100 but only following a disorderly transition. In this scenario, transition
risk is maximised.
2°, long orderly
transition
The scenario is broadly in line with the Paris Agreement. This involves a maximum temperature increase of 2oC by 2100 (relative
to pre-industrial levels) with the economy transitioning to be greenhouse gas-neutral in the next three decades by 2050.
4°, policy failure
A scenario with failed future improvements in climate policy, reaching a temperature increase in excess of 4°C (relative to
pre-industrial levels) by 2100 assuming no transition and a continuation of current policy trends. Physical climate change is
high under this scenario, with climate impacts for these emissions reflecting the riskier (high) end of current estimates.
At a group level the 2022 assessment results support the following
conclusions:
a) Chesnara has a stable and well understood risk profile, controlled by an
effective system of governance that is well embedded across the
business units.
b) Chesnara is a resilient group in terms of its current solvency level and can
comfortably withstand all the stress and scenario tests that were applied
in 2022.
c) The three year group projections evidence long-term viability, a
well-diversified business, stable solvency ratios, and a steady source of
emerging surplus.
Time horizon: While the tests are calibrated to longer horizon climate
scenarios, we have applied all of the tests as though the transition effects
are immediate, with instantaneous stress test impacts and also projected
over 5 years. We expect the longer term (post 5 years) effects to be
immaterial.
Results: the climate change test results show a low impact on all
business units and at group level, with the group solvency ratio impacted
by no more than 5% at any point over the short to medium term. A key
factor leading to this result is a relatively low exposure to carbon intensive
industries. While the results of this assessment of the financial risks arising
from climate change are clearly comforting, Chesnara is not complacent
about the wider risks arising from climate change and the broader
sustainability agenda, including strategic, reputational and operational risks.
It is for this reason Chesnara has established a group-wide sustainability
programme with board level representation on the steering group. The
programme has a detailed risk assessment of the broader risks arising from
climate change and will continue to update and refine this as the
programme progresses.
From a strategy and financial planning perspective, whilst the risk is not
material, it is still considered as part of key decision making processes and
we, as a group, have made commitments to transition to net zero to
influence and affect the factors that we can change and we are taking
responsibility for this. This commitment feeds into the financial plans
largely through the associated costs, and strategic decisions are made
considering this commitment also.
78
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 RISK MANAGEMENT
Risk and solvency management are at the heart of Chesnara’s robust governance framework, and the group is well capitalised.
a) Describe the organisation’s processes for identifying and assessing climate-related risks and b) Describe the organisation’s processes for
managing climate-related risks
PROCESSES FOR IDENTIFYING, ASSESSING AND MANAGING CLIMATE-RELATED RISKS
Below is a high level summary of Chesnara’s Risk Management Framework:
Chesnara’s Risk Management
Policy which sets out the
framework of principles and
practices, policies and
strategies for the group’s Risk
Management System.
The Risk Management
System supports the
identification, assessment and
reporting of risks.
The Group’s Risk Appetite
reflects the Chesnara board’s
view on the amount of risk the
group is willing to take and
sets boundaries to determine
when there is too much or too
little risk.
The Group Risk Management
Framework is designed
to embed effective risk control
systems with a holistic and
transparent approach to risk
identification, assessment,
management, monitoring and
reporting. The definition
and scope of each principal risk
category is based on a
set strategic and operating
principles/tolerance limits.
In addition, Chesnara’s Investment Policy contains investment criteria
which are monitored by the Investment Committee.
The Group Chief Risk Officer is responsible for maintaining the overall
Risk Management Framework. The CEOs for each business unit are
required to ensure that the framework is fully integrated into the
business model and decision making processes. Each of our divisions
are required to apply the Risk Management Policy and operate within
the limits set by the risk appetite. Each business unit is responsible for
identifying risks which might create, enhance, accelerate, prevent,
hinder, degrade or delay the achievement of the group’s objectives,
together with the sources of risks, areas of impact, events, and their
causes and potential consequence. These risks are recorded in the
risk register and evaluated based on the likelihood of occurrence and
severity of impact. Depending upon the nature and impact of the risk,
the risk is either accepted, avoided, managed or transferred. Climate-
related risks and opportunities are identified and evaluated according
to this framework by the respective management teams in our
business units.
Management teams keep up to date through the monitoring and
assessment of emerging risks, reviewed by the executive teams on a
quarterly basis.
Given that we consider climate change to be a cross-cutting risk, that
manifests through other existing risk types, climate-related risks and
opportunities are identified, assessed and managed in a similar
manner to other known and emerging risks. Primarily for Chesnara,
climate change risk will arise through other financial risks e.g. equity
risk, credit risk etc (PR1 - Investment and liquidity risk) and also
regulatory risk given the level of ongoing change. With regards to the
sector specific guidance, we believe the impact of: physical risks from
changing frequencies and intensities of weather-related perils;
transition risks resulting from a reduction in insurable interest due to a
decline in value; transition risks of changing energy costs; and liability
risks that could intensify due to a possible increase in litigation, we
consider the impact would currently fall into low materiality and
therefore not disclosed within the TCFD report. Chesnara has
developed an Environmental, Social and Governance (ESG) Policy
Statement for the group, in which it recognises the importance of
understanding climate change risk in its operations and its investments
and continued monitoring of associated risks.
Chesnara believes its businesses that hold investments (insurance
companies and investment companies) should consider sustainability
and implications for climate change in their investment policies. It
expects each company to consider the implications of these for its
business and investments, and document its position. Chesnara’s
businesses have adopted, either directly or via their respective fund
managers, the six UN Principles of Responsible Investment with the
aim to continue to invest responsibly with ESG considerations in mind
and to provide a choice of sustainable funds to customers, e.g. green
investments which aim to solve climate issues or which primarily
focus on companies that invest in improving health. The group is also
exposed to strategic and reputational risks (PR9 – Reputational risk)
arising from its action or inaction in response to climate change.
The 2022 Group ORSA process (and previous ORSAs) assessed on
both a qualitative and quantitative basis, climate change risks. This
included a group-wide consistent climate change scenario that
assessed the impact of the 2019 PRA Climate Change Stress Test.
The 2019 PRA Climate Stress Test includes three scenarios: sudden
transition, long-term orderly transition and climate policy failure, and
considers both the transitional and physical risks within these. The
results and insights from the ORSA are taken account of by the board
for the purposes of capital management and business planning, noting
that, as a life insurance company, Chesnara is not generally exposed to
physical risks, so proportionality has been applied.
79
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk
management
INTEGRATION OF PROCESSES FOR IDENTIFYING, ASSESSING AND MANAGING CLIMATE-RELATED RISKS
An integral part of Chesnara’s governance and Risk Management
Framework is compliance with the Prudential Solvency II Regulations
to perform the ORSA on an annual basis. The Chesnara board is
responsible for the overall design of the ORSA process including its
annual review. Climate-related risks are considered within the ORSA
process and the impact of material risks upon the solvency and
resilience of the business is documented. The views of the Actuarial
Function Holder and any recommendations or prior feedback from
the regulator is taken into account when conducting the assessment
at business unit level. Conclusions drawn from the risk and solvency
assessment are reported to the respective regulators by each of our
businesses every year.
Each business unit provides quarterly to its own Audit & Risk
Committee and the Chesnara Audit & Risk Committee, and on a
monthly basis to the Group Executive Committee, a forward looking
perspective on risks that are emerging. A summary of principal risks
and emerging risks is also provided quarterly to the Chesnara board.
From a climate change perspective this involves considering the
content of relevant publications and guidance, in relation to the
Chesnara risk landscape, such as the reports published by the
Intergovernmental Panel on Climate Change (IPCC) on the physical
climate change risks to the environment. Similarly, our management
teams evaluate the possible effects of transition risk by keeping
abreast of relevant policy and legal developments, technological
advancements, changes in market risk due to demand shifts and any
legal and reputational risk exposure. Amongst other matters,
business performance and risk management are discussed at the
Group Executive Committee on a monthly basis.
Chesnara’s approach to assessing financial risk is to identify and
assess factors that could potentially threaten the continued
successful delivery of the anticipated stakeholder outcomes over a
3-year time horizon, including risks to the business model and
strategy. The Chesnara board requires the management teams to
ensure a good understanding of the solvency position at any point in
time. In Q2 2022 a series of stress and scenario tests were selected
for the ORSA with the requirement to follow the testing principles set
out in the Group Risk Management System Policy. As well as current
known risks, the stresses and scenarios took account of forward
looking and emerging risks.
These selected stresses and scenarios along with the rationale were
reviewed and approved by the Chesnara board. The tests conducted
covered changes in equity asset values, yields and credit spreads,
fluctuations in currency rates, expense inflation, post COVID-19 fixed
interest rate shock, persistency of the in-force books, any material
impact of physical and transition risk due to climate change, and
operational resilience. Performance against the business plans as well
as known and emerging risks and opportunities are discussed at
quarterly business review meetings at entity and group level.
Climate-related risk impacts and opportunities are considered at
these meetings.
More detail on Chesnara’s Risk Management Framework is set out in this Section B of the Annual Report and Accounts.
80
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 METRICS AND TARGETS
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
In March 2023, our board signed off the group’s long-term sustainability targets:
1. Net zero financed scope 3 emissions by 2050, with the interim targets and transition plan to be determined during 2023 in line with the
IIGCC’s Net Zero Investment Framework (Financed emissions).
2. Net zero scope 1, 2 and 3 (other/non financed) by 2028 (Operational emissions) where we are in control of emissions.
Setting these long-term targets is arguably the easy part and now the hard work really starts; determining short-term actions needed to deliver them and
working to implement those actions. This work will continue during 2023.
To support the understanding of above, the difference between carbon neutral and net zero is explained below.
NET ZERO
CARBON NEUTRAL
When a company first reduces all its GHG emissions as much as possible,
and only then offsets the remaining residual emissions with removals.
When a company’s CO2 emissions are fully balanced by a combination of
CO2 reductions and/or offset by removals without necessarily reducing any
of its GHG emissions.
More detail on our targets is noted below and further progress will be made on baselining and developing our transition plans over the coming year.
The table below sets out how we intend to report on our targets; however, some of the entries are still ‘work in progress’ as we continue on with the
sustainability work during 2023.
COMMITMENT
IMPACT
PERFORMANCE
1
2
Net zero scope 3 financed emissions
(absolute value) by 2050.
Interim targets and baseline year to be
defined during 2023.
Net zero (absolute value) operational
emissions by 2028.
Interim targets and baseline year to be
defined during 2023.
Our net zero transition plan will detail how we
intend to achieve our net zero targets, including
what the risks around this are and the associated
costs. To be defined during 2023.
Performance data not yet available as we
expect scope 3 financed emissions to be
available for 2023 reporting.
Our net zero transition plan will detail how we
intend to achieve our net zero targets, including
what the risks around this are and the associated
costs. To be defined during 2023.
Performance data not yet available as we
have not yet defined our baseline year and
interim targets; however, the movement
on prior year is shown below. We expect
this to be available for 2023 reporting.
Performance against these targets will be reported annually to the board
through the GSC and each year in our Annual Sustainability Report. The
control framework for the preparation of these results will be developed
alongside the transition plans, however, for the collection of the operational
emissions data, there is a control mechanism in place which involves a
number of layers of internal review. The basis of preparation has been
explained in some detail below the emissions table within this report on
page 83.
As well as the above targets and commitments, we commit to assessing
and investing in sustainability solutions, by intentionally directing capital into
activities that deliver (or enable) the achievement of the UN Sustainable
Development Goals. Actions against this will be reported each year, starting
in 2023, detailing the level of investments, the source and the division
responsible. These activities will be monitored by the GSC and reported
annually to the board.
Carbon offsetting
We know that carbon offsetting is not the answer to making our business
sustainable and the first step is to remove as many emissions from our
activities and investments as possible. We also however recognise that it is
unlikely that we will be able to fully mitigate our carbon emissions through
normal activities, so to ensure that we minimise our impact on the
environment, the group has, as consistent with previous years, decided to
be 'carbon neutral' for its operational emissions by fully offsetting our
remaining emissions. The goal of our transition plan will be to reduce these
required offsets to as close to zero as possible. Adopting the same
approach for 2022 as we did last year, the group has decided to offset
200% of the total remaining emissions (575 tonnes) through planting 1,150
trees in the UK and providing financial support to a number of alternative
energy production projects (wind power and solar power) and also clean
drinking water. These are high quality carbon reduction projects that comply
with international verification standards and are amongst the Carbon
Footprint Limited’s offset projections portfolio, details of which can be
found at www.carbonfootprint.com.
81
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk
management process.
Chesnara’s greenhouse gas emissions, energy consumption and water usage data are provided below.
Energy usage
Chesnara is fully committed to complying with the Energy Saving Opportunity Scheme Regulations 2014 (ESOS). The group’s energy consumption in the
form of lighting, heating and fuel usage is assessed by an independent company every four years. The next assessment is due in December 2023.
Energy consumption in the group is reported on an actual basis where the records are kept in the business (scope 2 – office use and scope 3 – business
travel) and converted to emission measures using standard conversion factors from the UK government website. For commuting and home working, where
detailed records are not kept, estimates have been agreed for each division as appropriate. These estimates have then had the standard conversion factors
applied. Our energy consumption over the last two years is shown in the following table.
2022: Energy consumption (KwH '000)
2021: Energy consumption (KwH '000)*
837
583
1,824
2,404
UK & Offshore
Global (exc UK & Offshore)
Total
2,661
2,987
*2021 energy consumption has been restated (2021 actual was 4,641) in line with a more appropriate home working percentage for the Netherlands, as documented in more detail below.
Water usage**
2022: cubic meters (m3)
2021: cubic meters (m3)
UK & Offshore
Global (exc UK & Offshore)
762
145
1,609
1,310
Total
2,371
1,455
* *Excludes Waard since water usage is incorporated in the office service charge. Usage has increased compared to 2021 due to the acquisitions in the year and the new offices acquired.
Chesnara’s Environmental Policy encourages all employees to take
reasonable steps to reduce waste, and to re-use and recycle office materials,
and the document reiterates our commitment to carbon neutrality. In
addition to this, we use a mixture of renewable energy across the business,
including the use of solar panels in Scildon. The Chesnara office in the UK
also moved to a 100% renewable energy contract at the end of 2021.
With regard to the sector specific guidance requiring insurance companies
to provide aggregated risk exposure to weather-related catastrophes of
their property business by relevant jurisdiction; the extent to which their
insurance underwriting activities are aligned with a well below 2°C
scenario; and also indicate which insurance underwriting activities are
included – this has been considered and the impact is either immaterial or
not applicable to the business, and therefore, no disclosure has been made.
82
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks
The table below has been prepared based on the requirements within the Streamlined Energy & Carbon Reporting (SECR) framework.
All our employees mainly operate from offices or from home under a hybrid working model, which came into place following the offices being closed during the
height of the COVID-19 pandemic. To increase energy efficiency, management in each of our business units take practicable steps to minimise the effect of
our operations on the environment and our workforce is encouraged to conserve energy, use video conferencing, and minimise waste.
Furthermore, we use environmentally friendly certified paper, unwanted equipment is recycled or donated, and staff refreshments are purchased from
sustainable sources. Scildon’s offices within our Netherlands division were redesigned to limit carbon emissions and active management of energy usage
has reduced the emissions this year. Scildon also uses solar power for some of its energy consumption, and all Scildon’s company cars are electric. Whilst a
number of these actions are a continuation from the previous year, there have also been new steps taken this year.
We measure and report greenhouse gas emissions from our operations in accordance with the GHG Protocol Corporate Accounting and Reporting Standard
(revised edition) and the Defra Carbon Trust conversion factors, as well as the disclosure requirements in Part 7 of the Companies Act 2006. The table
below has been prepared based on the requirements within the Streamlined Energy & Carbon Reporting (SECR) framework. The data shown in the table
covers all group owned entities over which Chesnara has financial and operational control.
Tonnes of CO2
UK &
Offshore
2022
Global (exc
UK &
Offshore)
2021 (restated**)
Total
UK &
Offshore
Global (exc
UK &
Offshore)
Scope 1 Combustion of fuel and operation of facilities
Scope 2 Electricity, heat, steam and cooling purchased for own use
Scope 3 Business travel
Scope 3 Remote working
Scope 3 Commuting
–
30.3
30.3
59.1
51.4
–
112.4
34.9
124.3
91.2
Total operational emissions (upstream)
171.1
362.8
–
142.7
65.2
183.4
142.6
533.9
10.8
4.9
63.6
30.4
109.6
120.1
27.7
180.3
159.5
487.7
Total
130.9
32.7
243.9
189.8
597.3
Carbon offset*
Total net emissions
Company's chosen intensity measurement:
(171.1)
(362.8)
(533.9)
(109.6)
(487.7)
(597.3)
–
–
–
–
–
–
Tonnes of CO2e per employee on upstream activities
0.863
0.958
0.926
0.942
1.363
1.260
*In both 2021 and 2022, the group offset more than the gross emissions figure, as explained earlier in the report, but only 100% of emissions offset is shown here.
**During the preparation of the 2022 disclosures, we have refined our calculations and the underlying assumptions used to calculate emissions and, therefore, have restated the 2021
comparatives to be on the same basis.
Scope 3 financed emissions (downstream) not yet available but will be provided in the 2023 TCFD report.
There are 6 (2021: 8) company-leased vehicles in total across the group which are used primarily for commuting and not business-related activities, this is
in addition to 13 company-owned vehicles.
Basis of preparation – the table below details the key assumptions and methods of calculation by scope:
Scope 1
Scope 2
Scope 3
There are no emissions that fall under the category of scope 1 for the group, which is activities controlled by the organisation that
release emissions into the atmosphere such as from combustion on owned controlled boilers and furnaces.
The emissions that fall within this category are related to the energy usage for the group’s offices. This excludes the usage of the
outsourcers as they do not work exclusively for the group and, therefore, we have not been able to estimate the impact. The
government-set conversion factors are used to calculate the carbon emissions based on the kWh of gas and electricity used during the
course of the year. We believe this is a prudent approach in estimating the emissions for the European divisions.
The 15 disclosure categories published under the GHG Protocol for scope 3 emissions have been considered, and the main emissions from
our operations fall within categories 6 (business travel) and 7 (employee commuting). We understand there may be a very low level of
emissions under category 5 (waste generated in operations); however, we believe this to be minimal. The figures in the table also comprise
emissions incurred by our staff and our outsourcers as a result of remote working. A summary of the calculation process is noted below:
– Office emissions – energy usage for the year is converted into carbon emissions using the government-set conversion factors.
– Business travel – distance travelled is converted into carbon emissions based on the mode of transport where available and the
government-set conversion factors (car, rail, air).
– Remote working – the appropriate working from home % is used to calculate total home working hours for all FTEs across the
group. The government-set conversion factors are then used to calculate the carbon emissions based on the number of hours.
– Commuting – the appropriate office attendance is multiplied against the number of staff and the average commute distance to give a
total commuting distance (this is split by mode of transport where available). The government-set conversion factors are then used
to calculate the emissions.
As part of the work for 2023, we will be calculating and reporting our financed emissions as well as working on refining the calculation
for the operational emissions, where possible. More detail of which will be provided in next year’s TCFD report.
83
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 CORPORATE AND SOCIAL RESPONSIBILITY ∙
CLIMATE-RELATED FINANCIAL DISCLOSURES (CONTINUED)
Inherent within the calculations are a number of assumptions that we
believe provide a comfortable level of prudence, particularly in the
commuting estimates and the fact that we use a blended average of energy
usage for office emissions when we actually have 100% renewable energy
sources in some of the group’s offices. However, this is partly offset by
other minor areas such as being unable to estimate the mileage impact
from employees using taxis in the course of business travel, and emissions
associated with waste management from our offices. Over the course of
2022, we have refined our data collection across the group to make the
calculations more accurate, and as such, this has resulted in variances from
the prior year that are not driven by underlying operational change. Over the
course of 2023, we will continue to challenge and assess the judgements
and assumptions that underpin the results to ensure that they are reflective
of actual practice. A waterfall chart has been presented below that captures
the movement between 2021 and 2022 emissions which identifies the
different categories of change, as a number of the items have resulted in a
material change.
9 4 9 . 9
Movem ent in gro up carb o n em is s i ons 2021 -2022 (tCO 2e )
5 9 7. 3
( 3 5 2 . 6 )
6 3 . 0
3 2 . 6
3 . 9
5 3 3 . 9
( 1 4 3 . 3 )
( 1 5 . 2 )
(4 . 4)
2 0 2 1
c a r b o n
e m i s s i o n s
R e s t a t e m e n t
2 0 2 1 r e s t a t e d
c a r b o n
e m i s s i o n s
I m p r o v e d l e v e l
o f d e t a i l r e
m o d e o f
t r a n s p o r t
C h a n g e i n
e m i s s i o n s
f a c t o r
I n c r e a s e d
o f f i c e
a t t e n d a n c e v s
r e d u c e d h o m e
w o r k i n g
A c q u i s i t i o n s
I n c r e a s e d
b u s i n e s s t r av e l
p o s t C OV I D -1 9
O t h e r
2 0 2 2 c a r b o n
e m i s s i o n s
A brief explanation of the blocks has been provided below:
– Acquisitions – reflects the impact of the acquisitions during 2022 of
CASLP and Robein Leven, which increased the number of group offices and
the number of staff.
– Improved level of detail – as explained above we refined our calculations
through the collection of a deeper level of detail. This has resulted in a
reduction, indicating that our estimates in the previous years have been
prudent, as we have flagged in our supporting narrative.
– Increased office attendance vs home working – in 2022, the group
moved to a hybrid working arrangement, which saw the level of office
attendance increase from that in 2021. As a result, whilst home working
emissions are lower, the impact of increased commuting in place of this has
resulted in a higher overall carbon output. Whilst this shows as a rise in
emissions, it needs to be taken in the context that 2021 was still an
anomaly year, affected by the COVID-19 pandemic.
– Business travel – has increased during 2022 as restrictions were lifted
following COVID-19, albeit at a much reduced level to 2019 pre-pandemic.
Intensity measurement: In previous accounts, we presented an intensity
measurement that was based on office space. As part of our work on
sustainability and climate change during 2022, we believe a more
appropriate measure would be to consider operational emissions against
staff, given a large proportion of our emissions are driven from commuting
and home working (classified as upstream activities). We will look to
determine an appropriate intensity measure for financed emissions
(downstream) over 2023 as the detail of the targets is determined. With
regard to the sector specific guidance requiring insurance companies to
disclose weighted average carbon intensity or GHG emissions associated
with commercial property and speciality lines of business, this has been
considered and the impacts expected to be immaterial and not wholly
applicable to Chesnara, therefore, it has not been disclosed.
The Strategic Report was approved by the board on 29 March 2023 and
signed on its behalf by:
Luke Savage
Chair
Steve Murray
Chief Executive Officer
84
STRATEGIC REPORTCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
Non-Financial Information Statement
This section of the Annual Report constitutes Chesnara’s Non-Financial Information Statement, produced to comply with section 414CB of the Companies
Act 2006. The following table sets out where, within our Annual Report, we provide further details on the matters required to be disclosed under the
section listed above. In particular, it covers the impact we have on the environment, our employees, social matters, human rights, anti-corruption and
anti-bribery matters, policies pursued and the outcome of those policies, and principal risks that may arise from the company’s operations and how we
manage those risks, to the extent necessary for understanding of the company’s development, performance and position and the impact of its activity.
Reporting requirement
Anti-corruption and anti-bribery
Business model
Employees
Environmental matters
Non-financial key performance indicators
Principal risks
Respect for human rights
Social matters
Section(s) and page(s)
Corporate & Social Responsibility (p69)
Overview of our Strategy, Business Model, Culture & Values (p24-25)
Corporate & Social Responsibility (p67-68), S172 (p35-36)
Corporate & Social Responsibility (p70-84), S172 Statement (p34)
S172 Key Stakeholders (p32-34), Business Reviews (p38-43)
Risk Management – Principal Risks and Uncertainties (p59-65)
Corporate & Social Responsibility (p68)
Corporate & Social Responsibility (p68)
85
SECTION BCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 SECTION C:
CORPORATE
GOVERNANCE
Montelbaanstoren, Amsterdam
86 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
CORPORATE GOVERNANCE 88 Board profile and board of directors
90 Governance overview from the Chair
92 Corporate Governance Report
96 Nomination & Governance
Committee Report
98 Directors’ Remuneration Report
119 Audit & Risk Committee Report
126 Directors’ Report
129 Directors’ Responsibilities Statement
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022 87
SECTION C
CORPORATE GOVERNANCE
BOARD PROFILE AND BOARD OF DIRECTORS
The role for the Chesnara board of directors is to establish the culture, values and ethics of the group and
provide leadership to maintain high standards of corporate governance and behaviour throughout all levels
of the organisation.
The diversity of skills, knowledge and experience of our board members ensure we continue to deliver
against our strategic objectives. The board composition, as summarised on the right, indicates the core
competencies that have been identified as being key to the board discharging its responsibilities and shows
the collective score of the current board.
The biographies below show the specific areas of specialism each board member provides, with each letter
correlating to the competency 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.
THE BOARD
LUKE SAVAGE
CHAIR
Non-executive Chair of the board, Luke 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 and as Chair
in February 2020.
Committee membership: Nomination & Governance (Chair to 31
December 2021) and a member of the Remuneration Committee
(from February 2020). Attends the Audit & Risk Committee by
invitation.
Current directorships/business interests:
– Numis Corporation plc, Chair
– DWF Group plc, NED
– Chesnara Holdings BV
Skills and experience:
A B
C
D
E
F
G
H
I
J
L M
JANE DALE
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR AND
CHAIR OF THE AUDIT & RISK COMMITTEE
Appointment to the board: Appointed to the Chesnara plc board
in May 2016 and as Chair 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, Chair of the Audit & Risk Committee
– CASLP Ltd, Chair of the Audit & Risk Committee
– Covea – Covea Insurance plc and Covea Life Limited, NED and
Chair of the Audit Committee
– Anacap Financial Partners – Amber Financial Investments Limited,
NED and Chair;
– Novia Financial plc and Novia Financial Holdings Limited, NED
– Global Risk Partners Limited, NED and Chair of the Governance &
Audit Committee and Chair of the Remuneration Committee
Skills and experience:
A B C D E
F
G H I
J
K
88
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
STEVE MURRAY
GROUP CHIEF EXECUTIVE
Appointment to the board: Appointed as a director of Chesnara on
2 August 2021 and as Group Chief Executive on 19 October 2021.
Career, skills and experience: Steve joined Chesnara from Royal
London where as part of their Group Executive Committee he was
Chief Commercial Officer with group-wide accountability for M&A
and Strategy, Transformation and Analytics & Insight as well as
accountability for its legacy business with c5million customers and
the take to market activity across the UK insurance and savings. He
was also a NED of Royal London Asset Management. Prior to that he
spent 15 years at Standard Life across a variety of roles, including its
demutualisation and IPO before leading Group M&A and strategy. He
then worked in the UK & European insurance business initially as
CEO of 1825 financial planning before becoming MD Commercial &
Strategy. After leading the first phase of the separation of the UK &
European insurance business to Phoenix, he was appointed as
Deputy Head of the Private Market division in Aberdeen Standard
Investments. Steve started his career with EY.
Current directorships/business interests:
– Movestic Livförsäkring AB
– Scildon NV Supervisory Board
– Waard Group Supervisory Board
– Chesnara Holdings BV
– Cattanach – a private charity, Chair
Skills and experience:
A
B C
ED
F
G
H
I
J K
L M
DAVID RIMMINGTON
GROUP FINANCE DIRECTOR
Appointment to the board: Appointed as Group Finance Director
with effect from May 2013.
Career, skills and experience:
David trained as a chartered accountant with KPMG, has 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 six
years as Head of Group Management Reporting.
Current directorships/business interests:
– CA Services Ltd
– Movestic Livförsäkring AB
Skills and experience:
A B C
D
E
F
G H
I
J
L M
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
L
Commercial management
Operational change management
Customer operational/management
Information technology
M
Environmental, social and governance (ESG)
SUMMARY
• • • • • • • •
• • • • • • •
• • • • • • • •
• • • • • • • •
• • • • • • • •
• • • • • • • •
• • • • • •
• • • • • • • •
• • • • • • • •
• • • • • • • •
• • • • • •
• • • • • •
• • • • • •
Annual assessment confirms
that our board continues to hold
significant experience in the
insurance sector and also has a
range of specialisms which ensure
all aspects of our competency
profile are well covered.
In the diagram to the left 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.
CAROL HAGH
NON-EXECUTIVE DIRECTOR
AND DESIGNATED WORKFORCE NED
EAMONN FLANAGAN
NON-EXECUTIVE DIRECTOR AND CHAIR OF THE
REMUNERATION COMMITTEE from 15 January 2022
Appointment to the board: Appointed to the Chesnara plc board
on 14 February 2022.
Committee membership: Nomination & Governance Committee
and Remuneration Committee.
Current directorships/business interests:
– Countrywide Assured plc, NED
– CASLP Ltd, NED
– Old Game New Rules Ltd, Director and Founder
– Women on Boards, Ambassador
Skills and experience:
A
B C
D E
HF
I
J
K L M
Appointment to the board: Appointed to the Chesnara plc board
in July 2020 and as Chair of the Remuneration Committee in
January 2022.
Committee membership: Audit & Risk and Remuneration.
Current directorships/business interests:
– Movestic Livförsäkring AB, NED and Chair of the Audit & Risk
Committee (from 10 June 2022)
– Movestic Fonder AB. Chair
– AJ Bell, NED
– Randall & Quilter Investment Holdings Ltd (Bermuda), NED
Skills and experience:
A B
C D
E
F
G H
I
J K L M
KARIN BERGSTEIN
NON-EXECUTIVE DIRECTOR
MARK HESKETH
NON-EXECUTIVE DIRECTOR
Appointment to the board: Appointed to the Chesnara plc board
on 14 February 2022.
Committee membership: Nomination & Governance and Audit
& Risk.
H
Current directorships/business interests:
– Movestic Livförsäkring AB, NED
– Chesnara Holdings BV
– Van Lanschot Kempen N.V., NED
– Bank Nederlandse Gemeenten N.V., NED
– University Medical Center Groningen, NED
– Bergstein Advies B.V., General Manager
– Foundation for Continuity of NN Group, NED
Appointment to the board: Appointed to the Chesnara plc board
in December 2018 and as Chair of the Nomination & Governance
Committee in January 2022.
Committee membership: Nomination & Governance and Audit
& Risk.
Current directorships/business interests:
– Countrywide Assured plc, NED
– CASLP Ltd, NED
– Chesnara Holdings BV, NED
– Stonebridge International Insurance Limited, Chair
– Bethany Christian Trust, Treasurer and NED
– Bethany Enterprises Ltd, NED
Skills and experience:
A C
D E
F
H
I
J
K L
M
Skills and experience:
A B
C D
E
F
G
H
I
J
K
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
89
CORPORATE GOVERNANCE
GOVERNANCE OVERVIEW
BY THE CHAIR
‘Our robust governance framework
enables us to effectively manage
risks and opportunities, as well as
take appropriate steps to address
relevant environmental and social
issues in a proportionate manner.’
90
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
Dear Shareholder,
On behalf of the Chesnara board, I am pleased
to present our Corporate Governance Report
for the year ended 31 December 2022.
Chesnara’s corporate governance framework
underpins the delivery of sustainable value to
our customers and shareholders through
effective deployment of our staff and
technology, and constructive engagement
with our suppliers, partners and regulators.
The board sets the tone for the group’s culture
and values with a view to achieving the
strategic objectives by assigning clear roles
and responsibilities and setting high
expectations of business performance and
ethical conduct.
I believe that our robust governance
framework enables us to effectively manage
risks and opportunities, as well as take
appropriate steps to address relevant
environmental and social issues in a
proportionate manner.
In December 2020, the FCA introduced a rule
for UK premium listed firms requiring
disclosure, on a comply or explain basis, against
the recommendations of the TCFD. Our TCFD
report can be found on pages 70 to 84. We have
also published our first annual sustainability
report which can be found on our website:
www.chesnara.co.uk.
This section of the Annual Report and
Accounts sets out our governance policies
and practices, and includes details of how
the company has materially, during 2022,
applied the UK Corporate Governance Code
2018 (the ‘Code’).
The board recognises that sustainability and stewardship are central
to a company’s ability to operate responsibly. The board is also
mindful of the ever-increasing importance of the interests of its
employees, customers and suppliers for the purposes of delivering
sustainable performance, whilst engaging constructively
with regulators and shareholders to understand and meet
their expectations.
No NED chairs the board and a board committee nor does a NED
chair more than one Chesnara plc board committee. The principles
and policies that support the governance framework outlined in the
Group Corporate Governance & Responsibilities Map are designed
to encourage high standards of ethical and business conduct and
consideration of matters such as diversity. Each of the businesses
within the group has continued to make further progress in
ensuring that the governance arrangements remain effective, whilst
also integrating environmental and social factors within their risk
assessment system.
This report summarises the steps the board and its committees
have taken to fulfil their governance responsibilities.
Luke Savage
Chair
29 March 2023
SECTION C
Current balance of executive and
non-executive directors
2
1
5
Chair Non-executive Executive
Board tenure
3
2
3
Over 6 years 2–6 years 0–2 years
Current gender diversity of the board
3
5
Male Female
Current ethnic diversity of the board
1
7
White Ethnic minority
91
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C CORPORATE GOVERNANCE REPORT
The group’s governance framework has continued to operate effectively in 2022 and we have taken further
steps to improve our approach.
Compliance with the Code
The company has complied throughout the year with all of the relevant
provisions of the Code including Provision 29 on the risk management and
internal controls systems noted in the respective sections that follow. The
UK Corporate Governance Code is available at www.frc.org.uk.
The board
At 31 December 2022, the board comprised of a non-executive Chair, five
other non-executive directors and two executive directors.
Biographical details of current directors are given on pages 88 and 89 and a
board profile, which assesses the core competencies required to meet the
group’s strategic objectives, is provided on page 89. The board, which plans
to meet at least eight times during the year, has a schedule that it reviews
annually on 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.
The roles of the Chair and Group Chief Executive
The division of responsibilities between the Chair of the board and the
Group Chief Executive is clearly defined and has been approved by the
board. The Chair 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 availability of timely information, ensuring its
effectiveness, encouraging challenge from non-executive directors and
setting its agenda. The Chair 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
Jane Dale, who has been a non-executive board member since May 2016,
was appointed as the Senior Independent Director in October 2018. The
Senior Independent Director supports the Chair in both the delivery of the
board’s objectives and in ensuring 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 Chair present, at least annually,
and conducts the annual appraisal of the Chair’s performance and provides
feedback to the Chair and the board on the outputs of that appraisal.
Directors and directors’ independence
During 2022 a review was conducted to assess the independence of the
board as a whole when set against a matrix of key measures set out in the
Code. The table below shows the results of that review under the Code
Provisions 11, 12 and 17 and Principle G.
In addition:
(i) three directors of the company were during the year also directors of
Countrywide Assured plc and of CASLP Ltd from the date of its acquisition,
those being Miss Dale, Miss Hagh and Mr Hesketh. Further segregation of the
boards was introduced by Messrs Flanagan, Murray and Rimmington resigning
their Countrywide Assured directorships from 14 February 2022;
Code
consideration
Provisions
11 & 12
Questions
1. Are at least half the board, excluding the chair, NEDs whom
the board considers to be independent?
2. Has the board appointed one of the independent NEDs to
be the Senior Independent Director (SID) to provide a
sounding board for the chair and serve as an intermediary
for the other directors and shareholders?
Principle G
3. Does the board include an appropriate combination of
Provision 17
executive and non-executive (and, in particular,
independent non-executive) directors, such that no one
individual or small group of individuals dominates the
board’s decision making?
4.
Is there a clear division of responsibilities between the
leadership of the board and the executive leadership of the
company’s business?
5. Has the board established a Nomination Committee to lead
the process for appointments, ensure plans are in place for
orderly succession to both the board and senior
management positions, and oversee the development of a
diverse pipeline for succession?
6. Are a majority of members of the Nomination Committee
independent NEDs?
7.
Is the Nomination Committee chaired by an individual other
than the chair of the board when it is dealing with the
appointment of their successor?
Y
Y
Y
Y
Y
Y
Y
(ii) four directors of the company, being Miss Bergstein (from 01 May 2022)
and Messrs Hesketh, Savage and Murray, are also directors of Chesnara
Holdings BV, which is in the process of being liquidated;
(iii) two directors of the company, being Messrs Flanagan and Rimmington, were
also directors of Movestic Livförsäkring AB throughout the year and were joined
during 2022 by Miss Bergstein and Mr Murray; and
(iv) Mr Murray was also a director of the Scildon, Waard and Robein Leven
Supervisory Boards 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.
92
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE
The following statement, together with the Directors’ Remuneration Report on pages 100 to 111, the
Nomination & Governance Committee Report on pages 96 to 97, and the Audit & Risk Committee Report on
pages 119 to 125 describes how the principles set out in the UK Corporate Governance Code 2018 (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 2022.
The review went further and, based on Code Provision 10, assessed
each NED against a list of ten Yes/No questions, where, for each, a ‘No’ is
determined to be a positive assessment of independence.
The table below shows the results of that review:
Questions:
Has the non-executive director?
LS JD EF MH CH KB
1. Been an employee of the company or group within
the last five years?
No No No No No No
2a. Had within the last three years, a material business
relationship with the company: – Directly?
No No No No No No
2b. Had within the last three years, a material business
relationship with the company: As a partner,
shareholder, director or senior employee of a body
that has such a relationship with the company?
No No No No No No
3. Received additional remuneration from the
company apart from a director’s fee?
No No No No No No
4. Participated in the company’s share option or
performance-related pay scheme?
No No No No No No
5. A member of the company’s pension scheme?
No No No No No No
6. Got close family ties with any of the company’s
advisors, directors or senior employees?
No No No No No No
7. Held cross-directorships or had significant links with
other directors through involvement in other
companies or bodies?
No No No No No No
8. Represented a significant shareholder?
No No No No No No
9. Served on the board for more than nine years from
the date of their first appointment?
No No No No No No
As a result of this review the board considers that all non-executive directors
were independent during the year under review.
The board has no familial relationship with any other member of the board or
senior management team.
Other than their fees, and reimbursement of taxable expenses, which are
disclosed on page 102, 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. Independent professional advice of this nature was drawn
upon with regard to remuneration matters. This has been disclosed on page
99 and page 101 in the Remuneration Report.
The board is satisfied that its overall balance 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, their
views carry significant weight in the company’s decision making and bring
diverse cultural and territory insight and skills.
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 Corporate Governance & Responsibilities 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 and training, 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 including IFRS 17, climate change, corporate reporting, BEIS corporate
reform, directors’ duties and cyber risk. Members of the CA plc and CASLP Ltd
boards, who served during the period under review, have considerable
knowledge and experience of the UK-based businesses of the group. Similarly,
Miss Bergstein and Messrs Savage, Flanagan, Hesketh, Murray and
Rimmington, through their membership of the overseas boards, between them
displayed considerable knowledge and experience of the Swedish and/or Dutch
based businesses of the group.
Information
Regular reports and information are circulated to the directors in a timely
manner in preparation for board and committee meetings.
As stated above, the company’s directors are also variously members of the
boards of subsidiaries within the UK, Dutch and Swedish divisions. These
boards hold scheduled meetings, at least quarterly, which are serviced by
regular reports and information, covering 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,
information technology and security, 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 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.
‘THE BOARD OF DIRECTORS
RECEIVE REGULAR UPDATES AS
WELL AS SPECIFIC SPECIALIST
AND REGULATORY TRAINING.’
93
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C CORPORATE GOVERNANCE REPORT (CONTINUED)
Board effectiveness and performance evaluation
As part of the annual performance, an external effectiveness evaluation of
the board and each of its committees was undertaken. The 2022 board
effectiveness reviews were facilitated by an external third party, Nasdaq
Governance Solutions. This was through an anonymous questionnaire and
individual meetings with each director and regular attendee to obtain their
views on what was working well and what could be improved.
Employee engagement
With COVID-19 still a feature of the external environment, we continued with
our policy to ensure that our employees remained safe, whilst also maintaining
the necessary service standards for our customers. Hybrid working
arrangements are in place across the group to the extent appropriate to
each territory and business unit to allow staff to continue to work from home
to some extent.
The questionnaire contained wide-ranging matters, 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 under a
separate process, contributed to a formal performance evaluation of the Chair.
The outcome of the reviews 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 required to discharge
their responsibilities to the company. The evaluation findings were presented
back to each committee and formally approved on that basis before each
committee then confirmed to the board that it continued to operate effectively.
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.
The Company Secretary holds a register of interest, and a log of all potential
conflicts raised is maintained and updated. The board is empowered to
authorise potential conflicts and agree what measures, if any, are required to
mitigate or manage them. No material conflicts of interest were noted in 2022.
Whenever a director takes on additional external responsibilities, the Chair
considers any potential conflicts that may arise and whether or not the
director continues to have sufficient time to fulfil his or her duties taking into
account Chesnara’s policy on executive directors’ external appointments.
There were considered to be no such concerns in 2022.
Customer/third party conflicts of interest
The board has a policy in place to manage customer and third-party conflicts
of interest. This policy sets out how the company and its regulated
subsidiaries manage conflicts of interest fairly, both between the relevant
company and its customers, between groups of customers and between
customers, suppliers and shareholders.
No material conflicts of interest were noted in 2022.
The board has a standard agenda item at each of its meetings to cover culture
and stakeholder engagement, including workforce engagement. This has
helped highlight workforce and other stakeholder matters as part of board
discussion and decision making.
A full description of our employee engagement and well-being is provided in
our corporate and social responsibility section on pages 67 to 68.
Customer/supplier engagement
The board remains vigilant to ensure the importance of customer and
supplier engagement remains high on the group’s agendas.
TCFD
In accordance with Listing Rules, we have compiled our second report
covering the broad range of climate-related information to be disclosed under
the four overarching pillars (Governance, Strategy, Risk Management and
Metrics & Targets) of the TCFD, of which the full report is contained on pages
70 to 84.
Company Secretary
Amanda Wright became Group General Counsel & Company Secretary from
3 October 2022 when Al Lonie stood down as Group Company Secretary.
Amanda is responsible for advising the board, through the Chair, on all
governance matters. The directors had access to the advice and services of a
Company Secretary throughout the year.
Remuneration Committee
Full details of the composition and work of the Remuneration Committee are
provided on page 101.
Audit & Risk Committee
Full details of the composition and work of the Audit & Risk Committee are
provided on pages 119 to 125.
Nomination & Governance Committee
Full details of the composition and work of the Nomination & Governance
Committee are provided on pages 96 and 97.
The attendance record of each of the directors at scheduled board and committee meetings for the period under review is:
Scheduled
board1
Nomination &
Governance
Committee
Remuneration
Committee
Audit & Risk
Committee
Luke Savage – Non-executive Chair
14 (14)
Veronica Oak2 – Non-executive Director (resigned 14 January 2022) 0 (0)
14 (14)
Steve Murray – Executive Director (appointed 19 October 2021)
14 (14)
David Rimmington – Executive Director
14 (14)
Jane Dale – Non-executive Director
14 (14)
Mark Hesketh – Non-executive Director
14 (14)
Eamonn Flanagan – Non-executive Director
Karin Bergstein3 – Non-executive Director
12 (12)
Carol Hagh4 – Non-executive Director
12 (12)
The figures in brackets indicate the maximum number of scheduled meetings
in the period during which the individual was a board or committee member.
4 (4)
0 (0)
n/a
n/a
4 (4)
4 (4)
n/a
4 (4)
4 (4)
7 (7)
0 (0)
n/a
n/a
n/a
n/a
7 (7)
n/a
6 (6)
n/a
0 (0)
n/a
n/a
8 (8)
8 (8)
8 (8)
6 (6)
n/a
Notes.
1. The number of scheduled board meetings includes 6 meetings that were called at
short notice to discuss ad hoc/subject specific matters.
2. Veronica Oak stepped down from the board effective 14 January 2022.
3. Karin Bergstein was appointed to the board effective 14 February 2022.
4. Carol Hagh was appointed to the board effective 14 February 2022.
94
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE
Relations with shareholders
– the boards have responsibility for the satisfactory management and control of
The Group Chief Executive and the Group Finance Director meet with
risks through the specification of internal procedures;
institutional shareholders and are available for additional meetings when
required. Should they consider it appropriate, institutional shareholders are able
to meet with the Chair, the Senior Independent Director and any other director.
The Chair is responsible for ensuring that appropriate channels of communication
are established between the Group Chief Executive and the Group Finance
Director with shareholders and, with support from the Senior Independent
Director as appropriate, 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. This
programme continued during 2022 with enhanced use made of audio and video
facilities. Following the issuance of a Tier 2 bond in 2022, the company also
meets with existing and prospective debt investors. These include specific
meetings for the debt investor community as well as ad hoc meetings arranged
either directly or through investor conferences. A significant proportion of the
company’s shareholders are retail investors. In order to ensure that these retail
investors have access to relevant information, the company maintains a detailed
website for investors which includes access to equity research. Management
also undertake webinars on the company’s prospects that are publicly available
to private investors.
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.
At our AGM on 17 May 2022 all resolutions were passed, with votes for
ranging from 99.99% to 96.50% (votes against ranging from 0.01%
to 3.50%).
Our next AGM is to be held on 16 May 2023 and details of the resolutions to
be proposed can be found in the Notice of the Meeting on pages 227 to 233.
It is intended that the meeting be held in person at the time of writing, with
the Chairs of the board committees available to answer such questions as
appropriate. Shareholders are nonetheless encouraged to submit in advance
any questions that they may have in order that the Chairs of the board
committees can answer them on the day.
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 methods and 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 ongoing 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, local regulators
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, CASLP, Waard Group, Movestic and Scildon. The principal risks and
uncertainties of the group can be found on pages 59 to 65.
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:
– 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;
– there is an explicit Risk function, which is supported by compliance; and
– the Internal Audit functions provide independent assurance that the risk
management, governance and internal control processes are operating
effectively.
As an integral part of this regime a detailed risk register is maintained, which is
used to identify, monitor and assess risk by appropriate classification of risk. It
includes climate change risk.
With regards to Countrywide Assured plc, CASLP, Waard Group, Robein Leven,
Scildon and Movestic, the group ensures that effective oversight is maintained,
by way of the membership of Chesnara directors on their local boards and
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 2022, and that it has considered 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 the findings by the Internal
Audit and Compliance functions on the operation of controls, internal financial
controls, as well as 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’s 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 pages 119 to 125. 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, however it does acknowledge the need
to enhance certain aspects of its general IT controls across the group, which
will be considered as part of the IFRS 17 implementation. There has been no
change of status to this up to the date of approval of this report.
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 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
software. 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 Statement on Going Concern is included in the Directors’ Report on page
128 and the Long-Term Viability Statement is set out on page 56.
Financial crime and whistleblowing
Amongst others, the company operates policies for Anti-Bribery & Corruption
as well as Anti-Fraud in order to manage risks such as financial crime, money
laundering, fraud, corruption and terrorist financing. Related to this, a
Whistleblowing Policy is also operated to facilitate the communication of
wrongdoing or suspected wrongdoing with clear communication lines
highlighted to enable individuals to advise of their concerns in a safe and
confidential manner. No instances of whistleblowing or financial crime were
noted during the year. These policies are all reviewed annually and staff are
asked to attest to their embedding and understanding. A Gifts & Hospitality
Register is maintained and no breaches were recorded during the year.
95
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C
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.
96 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
NOMINATION & GOVERNANCE COMMITTEE
During the period under review, the committee comprised
Mark Hesketh, who also served as Chair of the committee,
Jane Dale, Luke Savage, Karin Bergstein and Carol Hagh,
with Karin and Carol having joined from their 14 February
appointment. No individual participated in discussion
or decision making when the matter under consideration
related to themselves.
The committee Chair reports material findings and
recommendations from each meeting at the next
board meeting.
The Terms of Reference for the committee can be found on
the company website, www.chesnara.co.uk.
The role of the Nomination & Governance Committee is to:
– keep under review the balance, structure, size, diversity and
composition of the board and its committees, ensuring that
they remain appropriate;
– assess the independence of each NED and any
circumstances that are likely to impair, or could impair, their
independence;
– 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;
– scrutinise and hold to account the performance of the
executive directors against agreed performance objectives
and advise the Remuneration Committee of their assessments;
– 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 four times and
attendance at those meetings is shown on page 94. This
reflected the committee reverting to its more typical number
of meetings following an uplift in 2021 when it oversaw the
recruitment of Steve Murray as Group Chief Executive and
Karin and Carol as our two newest non-executive directors.
By invitation, the Group CEO attends the Nomination &
Governance Committee, but was not present when matters
relating to his own performance were discussed.
The composition of the board
The committee has continued to focus on succession planning, with a view
to maintaining an appropriate composition for the board and its committees
to support the continued development of the group. The review also
identified areas where the board should evolve to meet any expected future
business and strategic direction of the group.
The development of talent below board level is vital and an area of focus for
the board. The company continues to both build an internal leadership
pipeline for senior roles and ensure that the necessary skills and experience
exist within the business to deal with challenges and to achieve set
objectives. A notable example of this is the appointment in October of
Amanda Wright to the new role of Group General Counsel and incorporating
the Group Company Secretary role within that.
Board appointment process
The committee adopts a formal and transparent procedure for the
appointment of new directors to the board.
The board’s typical process may include the use of 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, these external recruitment
consultants would be asked to provide candidates from a diverse range of
backgrounds. Details of candidates who are deemed suitable, based on
merit and against objective criteria, are submitted to the committee and the
committee will review a short list of suitable candidates and put forward for
interview by the board and the executive management team those most
suitably qualified. Any candidate deemed suitable for appointment will, if
necessary, first have to go through the fit and proper assessment process as
outlined in the FCA Senior Managers & Certification Regime (SMCR).
The board engaged the services of Flint Hyde as independent external
recruitment consultants in anticipation of Veronica Oak retiring from her role
as a non-executive director in January 2022. With their support as
independent external recruitment consultants for this exercise, Karin
Bergstein and Carol Hagh were appointed on 14 February 2022 and both
have contributed strongly to the board since joining.
Diversity
The committee is mindful of the corporate governance developments in the
areas of diversity and gender balance, including the requirements under the
Disclosure and Transparency Rules.
The board recognises the benefits of having diversity across all areas of the
group – please see the equal opportunities section on page 67 for further
detail. When considering the make-up of the board, the benefits of diversity
are reviewed and balanced where possible and appropriate, along with the
breadth of skills, sector experience, gender, race, disability, age, nationality
and other contributions that individuals may make. In identifying suitable
candidates, the committee seeks candidates from a range of backgrounds,
with the final decision being based on merit against the role criteria set.
Through its Board Diversity Policy, the board maintains its practice of
embracing diversity and has to date operated a measurable gender-based
target of having at least 33% female representation. The directors have
more recently set themselves the measurable target of having at least 40%
representation of both male and female membership on the board by
31 December 2025 in recognition of the recommendations of the FTSE
Women Leaders Review. In addition, the company will target having a
female appointee to at least one of the key senior roles of Chair; Senior
Independent Non-executive Director; Group CEO or Group CFO by that date.
Actual levels of gender diversity will be monitored and be reported upon
in the Annual Report and Accounts. The board currently comprises five
men and three women (37.5%), with the role of Senior Independent
Non-executive Director held by Jane Dale.
Further, Chesnara has determined that it will ensure that it continues to
meet the measurable target of having at least one director from an ethnic
minority on the board in line with the Parker guidance. In consideration of
the longer term, the board has discussed increasing its range of knowledge
and experience from outside financial services and also a broader
geographical experience base but is satisfied with its current composition.
The business operates to principles for other roles and is mindful that it has
a small workforce and therefore considers that it needs to take associated
staff turnover expectations into account.
Review of effectiveness
The board and its committees undertook annual effectiveness reviews and the
respective Chairs 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 Chair. The evaluations did not identify any additional
changes needed to board composition over and above those that had been
initiated.
Any areas where increased focus and/or action was considered to be of
potential value has either been addressed in 2022 or will be taken into
account as appropriate during 2023. The 2022 board effectiveness reviews
were facilitated by an external third party, Nasdaq Governance Solutions.
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 and senior executives across the group.
Mindful of the need for effectiveness and engagement, the committee
through its annual review of board and committee memberships was
determined to make a number of changes in 2022. Carol Hagh and Karin
Bergstein were appointed as non-executive directors from 14 February.
Eamonn Flanagan became Chair of Movestic Livförsäkring AB Audit and Risk
Committee in June 2022. Karin joined the Movestic Livförsäkring AB and
Chesnara Holdings BV board and Carol the Countrywide Assured and
CASLP boards with Jane Dale and Mark Hesketh joining her as NEDs of
CASLP Ltd.
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 ongoing training is essential to maintaining an effective
and knowledgeable board. The Company Secretary supports the Chair 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 2022, 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
as well as our own internal IFRS 17 project team ahead of this far reaching
accounting change taking effect in 2023.
Directors standing for re-election
In accordance with the Code, all directors will offer themselves for
re-election at the company’s AGM on 16 May 2023. Following the annual
board effectiveness reviews of individual directors, as applicable and subject
to re-election/election, the Chair 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 Nomination & Governance Committee,
recommends the re-election of each director so proposed at the 2023 AGM.
The full 2023 AGM Notice can be found on page 227.
Mark Hesketh
Chair of the Nomination & Governance Committee
29 March 2023
97
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C
CORPORATE GOVERNANCE
DIRECTORS’ REMUNERATION
REPORT
REMUNERATION COMMITTEE
CHAIR’S ANNUAL STATEMENT
‘I look forward to engaging with you
on the activities of the Committee
and the decisions we have taken.’
Dear Investor,
On behalf of the board and its Remuneration Committee
(‘Committee’), I am pleased to present the Directors’
Remuneration Report for the year ended 31 December
2022, for which we seek shareholder support at our
forthcoming Annual General Meeting. It is three years
since shareholders last approved the Remuneration Policy
and we have therefore also reviewed our Directors’
Remuneration Policy over the last year. Our revised
Remuneration Policy will be put to shareholders for a
binding vote at our AGM on 16 May 2023 and, if approved,
will be effective from that date.
Summary of the year
Chesnara has a very clear strategic focus across three key areas:
1. Maximising value from our existing business;
2. Acquiring life and pension businesses that meet the strategic
criteria of the company; and
3. Enhancing value through profitable new business generation.
These three strategic objectives are underpinned by the culture,
values and risk appetite of the group, which looks to deliver
positive investment returns and value for money for our
customers. From a remuneration perspective we seek to achieve
strong alignment between the interests of stakeholders and
executive directors and continue to operate two executive
incentive schemes: the Short-Term Incentive Scheme (STI) and
Long-Term Incentive Scheme (LTIP).
As covered in the financial report, we have seen good delivery
on our key performance metrics in 2022:
1. Strong solvency ratio of 197% well above our usual operating range.
2. Acquisition strategy saw the completion of two transactions in
2022 (Sanlam Life & Pensions UK and Robein Leven), with a
third, the insurance portfolio of Conservatrix, announced in July
and completed on 1 January 2023.
3. £9.5m of new business profits were generated on a
commercial basis.
4. Cash generation† of £82.7m contributed to the funding
requirements of the dividend.
5. Given the material reduction in asset values across global
markets, we saw EcV† decline by £78.2m before the impact of
dividend distributions of £34.3m.
6. An increase in dividend of 3% retaining our track record of
growing the dividend every year for the last 18 years.
98 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
Workforce
LTIP performance measures
It is our normal practice to award all employees an annual salary increase
which takes into account factors such as inflation.
In 2023, UK employees below executive level received a general salary
increase from a pot of 6.0%, with the exception of individual awards being
made as a result of staff progression. Senior executives were awarded up to
5%, other than the Group CEO as covered later.
In addition, we supported staff through the current cost of living challenges
with two one-off non-contractual net payments of £1,000 for non-higher
rate tax payers.
Executive performance in 2022
Executive director remuneration outcomes for 2022
In light of the performance of the executive team in 2022 relative to the
financial targets and strategic objectives set, the Remuneration Committee
is satisfied that the reward outcomes are appropriate and that our
Remuneration Policy worked as intended.
Details on STI can be found on page 103 and under the 2020 LTIP awards
on page 105. The targets and performance outcome can be found in the
table on pages 103 and 105.
The impact of acquisitions is excluded from the cash generation† and EcV†
results for STI award purposes given their funding can have a distorting
impact on short-term results. To recognise the importance of potential M&A
growth, the Committee uses its discretion to assess whether activity and
results during a year warrants an award. Any awards made are subject to the
overall STI cap of 100% of basic salary.
During 2022, the acquisition strategy has been reinvigorated with a substantial
proportion of the Tier 2 debt successfully deployed to create over £20m of
incremental Economic Value† during the year. The Committee has assessed
that the STI should recognise delivery of the acquisition component of the
group strategy. An award of 30% of on-target was deemed appropriate for
executive directors which was also applied to a broader population of group
and other staff for their support on acquisition activity not otherwise
recognised. This recognises the fact that all management and staff either
directly or indirectly contribute to delivering successful acquisitions and the
work is onerous and often incremental to core responsibilities.
The Committee has reviewed the position of the 2020 LTIP ahead of the
vesting to understand whether any windfall gain has arisen in respect of the
award which was granted at a price of 320.0p.
Taking into account the Chesnara share price as at 8 March 2023 (294.0p).
the Committee is satisfied that no windfall gains have occurred and that no
adjustment is required on vesting.
Review of the Directors’ Remuneration Policy (the ‘Policy’)
This year the Committee has conducted a review of the current Policy, which
received a vote in favour of 94.49% at the 2020 AGM. As part of the review,
the Committee considered market best practices; the alignment of our existing
structures with strategy; and a comparison of both structure and quantum to
comparator companies. Our objective is to ensure that the company
continues to have a remuneration package for executive directors which
motivates and retains, whilst aligning with both the company’s strategy and
the shareholder experience. We were supported throughout our work by
PwC as Committee advisor following their appointment in October 2022.
Based on the review, the Committee believes that the remuneration
structures within the current Policy remain fit for purpose and aligned to
business strategy. The core structure will therefore retain the market-
standard elements of base salary, benefits, pension aligned to that of the
wider workforce, Short-Term Incentive Scheme (‘STI’ ie annual bonus} and
Long-Term Incentive Plan (LTIP). The Policy continues to meet the UK’s high
governance standards with features such as 35% deferral of STI outcomes
into shares for 3 years; 2 year post-vesting holding periods for LTIP awards
of executive directors joining from May 2021; malus and clawback; and
minimum shareholding requirements. For this reason, the Committee is not
intending to make any significant changes to the company’s remuneration
structure, other than for the 200% shareholding requirement, including for
2 years post-employment, being extended to include those who joined prior
to May 2021 and commencing with the LTIP grants of 2023.
Following the changes proposed to the weighting of the annual bonus
measures in FY 2022, the Committee was satisfied that these measures
remain appropriately balanced and aligned to strategy. The Committee
therefore focused its review of the LTIP performance measures which are
currently 50% relative Total Shareholder Return (‘TSR’) (against the FTSE
Higher Yield index) and 50% Economic Value† (‘EcV’).
Following the review, the Committee is proposing the following three
amendments:
Calibration of the relative TSR component
– With the support of its advisors, the Committee conducted a detailed review
of the relative TSR comparator group and considered a number of
alternatives with reference to TSR correlation and volatility analysis. The
analysis indicated that the current peer group has higher TSR correlation
than the other general sector peer groups considered (e.g. FTSE All Share,
FTSE Financial Services) and was therefore considered the most appropriate
general sector group. Whilst a group of European Life Insurance companies
was the most correlated and most similar in terms of volatility, the resulting
peer group was considered too small to be robust for a relative TSR
performance measure at this time.
– The Committee therefore intends to retain the current peer group but with a
change to the calibration of the maximum pay-out to reflect the relative
performance of life insurance peers.
– The measure currently vests at maximum for performance in line with the
upper quartile of the comparator group. It is now proposed to vest at
maximum for TSR performance 6% per annum higher than the median
company in the comparator group over the performance period. Based on
historical TSR performance analysis, this calibration aims to ensure that a
maximum pay-out is achieved for performance comparable to the upper
quartile of life insurance peer companies.
– The calibration of threshold is unchanged such that Chesnara must
perform as a minimum at the median of the comparator group for any payout
to be achieved.
Addition of a third metric, namely commercial cash generation†
– A third metric, commercial cash generation†, is proposed to be included in
the LTIP.
– This ensures that a further portion of the LTIP pay-out is contingent on the
delivery of results against one of the group’s key cash KPIs that has been
drawn out in our external messaging for some time.
– We define cash generation† as the movement in the group’s surplus Own
Funds above the group’s internally required capital whilst our commercial
cash generation† metric looks through the impact of technical components
like the symmetric adjustment, modelling changes and corporate acquisition
activity to show the group’s view of the surplus being generated. It is used
as a measure of assessing how much dividend potential has been
generated, subject to ensuring other constraints are managed. The
Committee is satisfied that this reduces overlap in the measurement of cash
generation† between the STI and LTIP.
Reweighting of metrics
– All three metrics will be equally weighted as one third of the assessment.
This reflects the importance of the EcV† and commercial cash metrics in
measuring the delivery of the group’s strategy, whilst continuing to ensure
that a meaningful portion of the outcome is based on an assessment of
performance relative to peers in line with market norms.
The Directors’ Remuneration Policy has been amended to reflect this
change of approach as well as to enable some flexibility in the choice of LTIP
metrics over the next Policy cycle so that LTIP measures may be updated to
ensure they continue to reflect business priorities.
I am grateful for the valuable input of our shareholders provided as part of
the consultation exercise that we conducted in Q1 2023.
In addition, enhanced malus and clawback provisions have been included in
both the new STI and LTI schemes.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
99
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C
DIRECTORS’ REMUNERATION REPORT • REMUNERATION COMMITTEE CHAIR’S
ANNUAL STATEMENT (CONTINUED)
Implementation of pay in 2023
Last year, I confirmed that we had appointed our new Group CEO, Steve
Murray, on a lower salary compared with his predecessor. I also noted that
the Committee would return in future years to ask for shareholders’ support
in rewarding success with future pay rises for Steve, predicated on company
performance and his development in role. The Committee has been very
impressed with the new Group CEO’s performance in his first full financial
year in charge of the group. Under his leadership, the group has:
– Reported a strong set of financial results in a challenging macro-economic
environment, including positive commercial cash generation† of £46.6 million.
– Retained a resilient balance sheet with a strong solvency ratio of 197%,
above the usual 140–160% operating range.
– Completed our inaugural Tier 2 debt raise, raising £200m with a 10.5-year
term at a competitive 4.75% coupon to strengthen funding capacity from an
M&A perspective.
– Maintained momentum in acquisitions through the completion of the Sanlam
Life & Pensions UK and Robein Leven transactions and the completion of
Conservatrix’s insurance portfolio in the Netherlands on 1 January 2023.
The team, under the new Group CEO’s tutelage, has executed three
acquisitions, including the recent Conservatrix deal, deploying c£84 million
of capital and adding an estimated £40 million of EcV† and £10 million of
annual, steady state cash generation† to the group. We remain very positive
on the outlook for further M&A.
Non-executive director fees
The board took into account individual NEDs’ updated responsibilities
including changes made post the appointment of Carol Hagh and Karin
Bergstein to the group board and wider benchmarks for NED pay when
determining increases to their fees. The Chair’s fee was raised by 5.9%,
broadly in line with the general uplift to UK staff salaries. Directors’ fees
are set-out on page 110.
Employee engagement
The management teams in each of the businesses are responsible for
ensuring that employees are kept informed and their views are considered
on key subject matters.
The Committee engaged with staff on the development of the Group’s
Remuneration Principles and the alignment of directors’ pay with UK
employees through a meeting held between myself as Remuneration
Committee Chair and the Group CEO with representatives from across the
UK team.
The Committee believes that these proposals in respect of our new Policy
and its implementation in 2023 will ensure that the remuneration structure
in operation for the executive directors and senior leadership roles is
motivating and creates a strong incentive to deliver sustainable growth and
value to shareholders. We hope that they meet our shareholders’ clear
expectations for an appropriate remuneration approach and will be voted for
favourably in the resolutions proposed at the 2023 AGM.
– Made a number of excellent hires to leadership positions including
Head of Strategy & Investor Relations and Group General Counsel &
Company Secretary.
– Increased the interim dividend 3% year-on-year, extending the
company’s excellent and long-term track record of increasing its dividend to
shareholders.
– Supported staff through the current cost of living challenge with two
non-contractual net £1,000 payments (excluding higher rate taxpayers).
– Delivered shareholder returns towards the upper quartile of our comparator
group since the Group CEO’s appointment.
I hope my annual statement, together with our Remuneration Report,
provides a clear account of the operation of the Remuneration Committee
during 2022 and how we have put our Remuneration Policy into practice. As
the new Chair of the Remuneration Committee, I look forward to engaging
with you on the activities of the Committee and the decisions we have taken.
The Committee has therefore decided to increase the Group CEO’s salary by
5% as part of the annual review process, in line with that of his executive
team but that level being below the 6.0% increase awarded to UK
employees, and to deliver an additional 4% to reflect his development in role
and there having not been an award made in 2022 which was 4% for all staff
and other executives. The Committee believes that his revised salary of
£457,800 is an appropriate positioning for FY 2023 given Steve’s
development in role since appointment whilst taking into account movements
in market pay since John Deane’s retirement. The Committee intends to
review the Group CEO’s salary next year as he further develops in role,
mindful of his performance and reward positioning compared to other such
roles in peer organisations and within the parameters of the proposed Policy.
The Committee also proposes to increase the maximum LTIP that may be
granted to the Group CEO under the Policy from 100% to 125% of salary
and to implement this for Steve in 2023. In combination, while the salary
and LTIP proposals result in an increase to the Group CEO’s total
compensation level, this remains below the level of comparable sized
companies in the FTSE Small Market Cap peer group.
The Group FD’s salary increase will be 5%, below the level of the wider UK
workforce. No change is proposed for the Group FD’s LTIP award.
The Committee believes that these proposals will ensure that the
remuneration structure in operation for the executive directors with effect
from 1 January 2023 is motivating and creates a strong incentive to deliver
sustainable growth and value to shareholders. The executive directors’
remuneration for 2023 can be found on page 118.
100
Eamonn Flanagan
Chair of the Remuneration Committee
29 March 2023
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE
DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT
SECTION C
This section sets out how the Remuneration Committee has implemented its Remuneration Policy for executive
directors during 2022. Other than the single total figure of remuneration for each director tables on page 102,
statement of directors’ shareholding and share interests on page 106, 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 and that of other senior managers at each of its meetings in 2022. Members of the Remuneration Committee during the course of the year were:
Committee members1
Role on the
committee
Luke Savage
Eamonn Flanagan2
Carol Hagh3
Committee member
Committee Chair
Committee member
Committee
member since
February 2020
July 2020
February 2022
Attendance
in 2022
Maximum possible
meetings in 2022
7
7
6
7
7
6
Notes.
1. By invitation, the Group CEO attends the Remuneration Committee but was not present when matters relating to his own remuneration were discussed.
2. Eamonn Flanagan joined the committee in July 2020, and was appointed Chair on 15 January 2022.
3. Carol Hagh joined the committee on 14 February 2022.
The Committee appointed PricewaterhouseCoopers LLP (‘PwC’) as its independent advisor from 10 October 2022 following a competitive tender process. During 2022 the Committee
incurred external advisor fees totalling £24,665 excluding VAT. PwC is a member of the Remuneration Consultants Group and a signatory to its Code of Conduct and the Committee is
therefore satisfied that the advice PwC provided was objective and independent.
Highlights 2022
In 2022, the Committee met seven times and dealt with the following matters:
Area of focus
Matter considered
Executive director
remuneration and reward
Assessed and recommended to the board, approval of the outcome of awards made in 2021 under the STI Scheme and in 2020 and
2021 under the LTIP Scheme having given due consideration to the risk report provided by the Audit & Risk Committee. The Committee
also approved the outcomes of the buyout awards made to Steve Murray as Group CEO on appointment.
Approved the targets and the grant of awards to executives in 2022 under the 2014 STI Scheme and the 2014 LTIP Scheme and
undertook a half-year evaluation. Also considered whether the share price at the time of making the LTIP award was likely to give rise
to a ‘windfall’ for directors. Although the share price was higher compared to that used for awards the previous year, the price was
close to the share price average for the year and so no adjustment was deemed appropriate.
All employee and
executive remuneration
Reviewed the UK employee general salary increase of 6%. Supported staff through the current cost of living challenge with two
non-contractual net £1,000 payments (excluding higher rate taxpayers), and took these into account when considering executive
pay decisions.
Terms of Reference
Review of the
Remuneration Policy
Committee evaluation
Reviewed participation in the LTIP and determined to expand the LTIP participation to a targeted group of senior leaders and key talent
who are able to materially influence the delivery of group strategy, ensuring that, for the first time, a critical group of executives in the
business are aligned to the same long-term goals.
The Committee’s Terms of Reference were reviewed. A number of minor modifications were made in consultations with our
advisors, PwC, to improve the structure of the document. No material revisions were made to the scope of Committee duties as they
were felt to continue to be appropriate for the activities of the Committee and provide adequate scope to cater for the expectations
set by the Code.
A revised Remuneration Policy will be presented to shareholders at the AGM in May 2023. Details are set out on pages 112 to 118.
An evaluation of the committee’s performance by way of an externally facilitated 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 and economic conditions generally.
Directors’ remuneration
reporting
The Committee reviewed the draft Directors’ Remuneration Report for the 2022 Report and Accounts and recommended its
approval by the Chesnara board.
Performance against
strategic objectives
Shareholder engagement
The Committee reviewed the executive directors’ performance against objectives set.
The Committee Chair responded to questions/queries raised by shareholders and conducted a consultation exercise in February
2023 following the review of the Directors’ Remuneration Policy.
Employee engagement
The Committee engaged with staff on the alignment of directors’ pay with UK employees through a meeting held between the
Committee Chair, the Group CEO and a cross-section of the UK workforce.
Chair’s fees
The Committee reviewed the level of fees payable to the Chair.
Remuneration principles
The Committee reviewed the Group Remuneration Principles, which guide the remuneration policies throughout the group.
101
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C
DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT (CONTINUED)
Single total figure of remuneration for each director (audited information)
The remuneration of the executive directors for the years ended 31 December 2022 and 31 December 2021 is made up as follows:
Executive directors’ remuneration as a single figure – year ended 31 December 2022
Name of director
Steve Murray4
David Rimmington
Total
Salary
and fees
£000
All taxable
benefits
£000
Non-taxable
benefits
£000
420
300
720
21
15
36
2
7
9
STI
£000
321
226
547
Executive directors’ remuneration as a single figure – year ended 31 December 2021
Name of director
Steve Murray4
David Rimmington
Total
Salary
and fees
£000
All taxable
benefits1
£000
Non-taxable
benefits
£000
175
289
464
8
60
68
–
7
7
STI
£000
240
255
495
LTIP2
£000
Pension3
£000
294
76
370
LTIP
£000
283
12
295
36
29
65
Pension3
£000
15
27
42
Total for
2022
£000
1,094
653
1,747
Total for
2021
£000
721
650
1,371
Fixed
£000
Variable
£000
479
351
830
615
302
917
Fixed
£000
Variable
£000
198
383
581
523
267
790
Notes.
1. 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 LTIP Scheme.
3. The pension component in the single figure table represents employer contributions. No directors were members of a defined benefit scheme.
4. Steve Murray joined Chesnara on 2 August 2021 and was appointed as a director and the Group CEO on 19 October 2021.
5. No portion of the award is attributable to share price growth.
6. This vesting outcome has been applied to the average share price between 1 October 2022 and 31 December 2022 (276.6p) to produce the estimated LTIP figures shown for 2022
above. There will be a true-up based on the actual share price on the day of vesting which will be shown in the 2023 Annual Report and Accounts.
The remuneration of the non-executive directors for the years ended 31 December 2022 and 31 December 2021 is made up as follows, with the fee element
being fixed and the benefits being variable in nature:
Non-executive directors’ remuneration as a single figure – year ended 31 December 2022 and 2021
Name of director
Luke Savage
Eamonn Flanagan
Jane Dale
Mark Hesketh
Carol Hagh7
Karin Bergstein7
Total
Fees
£000
128
66
71
66
55
55
441
2022
Benefits
£000
–
–
–
–
–
–
–
Total
£000
128
66
71
66
55
55
441
Fees
£000
123
61
66
61
–
–
311
2021
Benefits
£000
–
–
–
–
–
–
–
Total
£000
123
61
66
61
–
–
311
Note.
7. Carol Hagh and Karin Bergstein were appointed as non-executive directors on 14 February 2022.
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.
UK employee share ownership is encouraged and facilitated through participation in the SAYE Scheme (subject to minimum service requirement).
The Committee engaged directly with employees on the alignment of directors’ pay with UK employees, including with regard to the proposed 2023 salary increase.
102
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE 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.
Short-Term Incentives
The amounts reported as STI in 2022 derive from awards made under the 2014 STI scheme. The amounts awarded to the executive directors under this scheme
are based on performance against three core measures; cash generation†, total EcV earnings† 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
Percentage
award for
on target
performance
Minimum
threshold for
maximum
performance
Percentage
award for
maximum
performance
On target
performance
Actual
result
Actual
percentage
total award
Actual
percentage
award, as
percentage
of salary
Total
award (£)
Steve Murray
Cash
generation1
Total EcV
earnings2
Group strategic
objectives
Mergers &
Acquisitions3
Total
David
Rimmington
Cash
generation1
Total EcV
earnings2
Group strategic
objectives
Mergers &
Acquisitions3
Total
£20.95m
0%
£26.19m¹
25.0%
£34.04m
35.0%
£57.96m¹
35.0%
35.0%
147,000
£10.55m
0%
£15.08m
25.0%
£22.62m
35.0%
£(98.64)m
–
–
–
75%
n/a
0%
n/a
100%
15.0%
125%
30.0%
88.0% of
max
26.4%
26.4%
110,766
n/a
n/a
n/a
n/a
£20.90m
15.0%
15.0%
63,000
65.0%
100.0%
76.4%
76.4%
320,766
£20.95m
0%
£26.19m1
25.0%
£34.04m
35.0%
£57.96m1
35.0%
35.0%
105,107
£10.55m
0%
£15.08m
25.0%
£22.62m
35.0%
£(98.64)m
–
–
–
75%
n/a
0%
n/a
100%
15.0%
125%
30.0%
84.0% of
max
25.2%
25.2%
75,568
n/a
n/a
n/a
n/a
£20.90m
15.0%
15.0%
45,046
65.0%
100.0%
75.2%
75.2%
225,721
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 total EcV earnings before exceptional items on page 52 has been adjusted in line with the basis of the target.
3. A component to recognise delivery of the acquisition strategy which is not captured by the cash generation† or EcV components of the STI metrics. The Remuneration Committee
assesses delivery of the acquisition strategy and applies discretion as to whether an award is appropriate. This component exists because acquisition impacts are excluded from the
cash generation† and EcV metrics of the STI scorecard and the Committee consider many factors relating to the acquisition strategy. The judgement was largely influenced by the
completion of value adding deals in the year where acquisitions created £21.4m of incremental value and the total executive STI award of £0.1m represents 0.5% of this value gain.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
103
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C CORPORATE GOVERNANCE
DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT (CONTINUED)
The following table details the requirements for delivery of the strategic objectives for 2022 and actual outcomes:
Objectives area
Objectives and performance
Outcome
Steve Murray
Operational delivery (20%) Completion of the next phases of key operational
programmes with associated delivery of benefits.
Communication and
culture (15%)
Improve external and internal communications with
key stakeholders.
M&A (40%)
Proactively identify and execute value enhancing M&A.
Gained detailed understanding of key operational programmes across
the group, UK and Netherlands and enhanced group oversight and
quality of check and challenge.
Strong feedback from investors and external parties about the
improvement in the investor story and significant level of engagement
with major investors, analysts and wealth managers. Increased internal
communications on strategy and results.
Improved board materials on the M&A pipeline and timeliness of wider
strategic discussion.
Active development of the pipeline of prospects both in terms of
targets as well as potential partnering options.
Supported the announcement of three transactions and completion of
two deals with the value cases on track for delivery.
People (10%)
Development of direct reports and improve wider talent pool. Participated in group and subsidiary board meetings and ancillary
ESG (15%)
Continued development of appropriate environmental/
climate, people and sustainability policies and practices, for
the benefit of our stakeholders.
committees, and initiated various reforms to streamline elements of
governance going forward including more effective planning and
tracking of actions.
Provided strong support to the Chair and SID in the recruitment of our
two new NEDs. Strengthened the executive team with new hires and
role changes.
Group-wide programme and Steering Committee in place and with
more proactive engagement with external parties improving the
understanding and assessment of Chesnara’s position. ESG is a
core component of acquisition due diligence and we have a clear
roadmap looking forward. Initial targets ready for communication
with external parties.
David Rimmington
Enhance investor
relations (15%)
IFRS 17 (25%)
Improve investor relations materials and coverage
and look to broaden shareholders including in the Wealth
Management area.
Positively restructured investor presentation and held a significant
number of investor, broker, wealth manager, analyst meetings together
with Group CEO and Head of Investor Relations. Supported the updating
of analyst notes from Investec, Panmure Gordon, Peel Hunt and Hardman.
Planning and delivery of IFRS 17 across group and divisions. Delivery broadly in line with challenging plan with the major milestone of
Balance sheet (30%)
Proactive management of the group’s balance sheet,
including in support of M&A.
People (10%)
Enhance the finance function talent pool.
the first dry run met and a provisional, unaudited opening balance sheet
produced ready to be communicated externally alongside the 2022 full
year results. Due to the provisional status of the opening balance sheet
figures these were not deemed appropriate for inclusion in the Report and
Accounts IAS 8 disclosure. Good progress has been made on the
consolidation software implementation project.
Tier 2 debt issuance completed. De-risking of group balance
sheet via an FX hedge implemented in December. Active
assessment of deal benefit cases and oversight of financial due
diligence on opportunities.
Significant focus on attracting quality resource to drive the IFRS 17
programme and agreed plan to migrate some of the team into BAU during
2023. Succession planning is a clear part of the work undertaken. Additional
talent brought into the Finance function including Head of Tax.
ESG (20%)
Continued development of appropriate environmental/
climate, people and sustainability policies and practices, for
the benefit of our customers, shareholders, staff, suppliers
and other stakeholders, which respond to regulatory and
non-regulatory guidance and industry practice.
Programme has delivered the vision of a sustainable Chesnara and
informed our strategy in this area including the group’s long-term
net zero targets and a clear set of objectives and actions for the
team to progress including with asset managers and the launch of
a biodiversity fund, a solar fund and engaged in a partnership to
re-green land in Tanzania.
In converting performance against the measures assessed for 2022 set out in the previous tables, the directors’ STI awards are specified below:
Name of director
Steve Murray
David Rimmington
Total
Salary
on which award
is based
£
Maximum
potential award
as % of salary
Actual award as
% of salary
Total
value of award
£
420,000
300,306
100.00%
100.00%
76.37%
75.16%
320,766
225,721
546,487
35% of the above awards are granted as deferred share awards that will vest at the end of a three-year deferred period.
104
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022 Long-Term Incentive Scheme awards
The following table sets out the amounts that are due to vest on 28 April 2023 under the 2014 LTIP, for which performance conditions were satisfied during
the year.
For the Group CEO, Award 1 is a buy-out award granted under the 2014 LTIP in lieu of a cash bonus based with performance conditions related to personal
performance and no holding period, although it is subject to the minimum shareholding requirement.
Award 2 is a buy-out award granted under the 2014 LTIP in lieu of an LTIP grant from Steve’s ex-employer Royal London, with performance conditions
aligned to the Chesnara 2020 LTIP award (50% EcV† and 50% relative TSR). For the relative TSR component, the Committee exercised its discretion to
measure performance from the date that the Group CEO was appointed in role on 19 October 2021 as this was considered to be a fair and motivating
approach to the performance condition on the basis that it was from this point that the Group CEO was able to affect the company’s TSR performance.
Individual
Measure
Weight
Ranges and targets
Actual outcome
Minimum
achievement
(as % of
target)
Target
achievement
Max
achievement
Opening
EcV
Closing
EcV
Performance
achieved
% of
award
vesting
Value of
award £
100%
n/a
n/a
n/a
n/a
n/a
n/a
100.0%
143,043
50%
=Median
(14.3)%
15.9%
n/a
n/a
6.8%
43.7%
143,799
50%
50%
50%
=94.3%
£733.0m
£755.0m
£670.0m
£511.3m
67.7%
0.0%
nil
=Median
=94.3%
(7.8)%
£733.0m
19.4%
£755.0m
£670.0m
£511.3m
9.6%
67.7%
34.0%
0.0%
76,383
nil
Steve Murray
Award 1
Personal1
Performance
Award 2 – TSR
Award 2 – EcV
David
Rimmington
TSR
EcV
The table below sets out potential LTIP interests that have accrued during the year, and each directors’ interest in that scheme:
Face value on the
date of grant2
% of award
vesting for
minimum
performance
Length of vesting period
– 3 years
Date of vesting
Name of
executive director
Name of
scheme
Date award
was granted
Amount of
options
awarded1
Steve Murray
2014 LTIP
28 April 2022
147,627
2014 LTIP
2014 LTIP
26 November
2021
26 November
2021
119,089
140,105
David Rimmington
2014 LTIP
28 April 2022
105,556
2014 LTIP
28 April 2021
94,502
2014 LTIP
28 April 2020
81,213
2014 LTIP
28 April 2019
71,070
2014 LTIP
28 April 2018
60,805
2014 LTIP
28 April 2017
61,996
2014 LTIP
28 April 2016
71,259
£420,000
based on share price (284.50p)
£340,000
based on share price (285.50p)
£400,000
based on share price (285.50p)
£300,306
based on share price (284.50p)
£259,882
based on share price (275.00p)
£259,882
based on share price (320.00p)
£254,785
based on share price (358.50p)
£249,300
based on share price (410.00p)
£237,600
based on share price (383.25p)
£222,328
based on share price (312.00p)
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
12.5%
12.5%
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.
3. LTIP awards from 2019 onwards are subject to a two-year holding period in addition to the three-year performance period.
† Alternative Performance Measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
28 April 20253
28 April 20233
28 April 20243
28 April 20253
28 April 20243
28 April 20233
28 April 20223
28 April 2021
28 April 2020
28 April 2019
105
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C
DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT (CONTINUED)
Basis of awards and summary of performance measures and targets
2014 LTIP
Share options awarded are based on the share price at close of business on date of award and a percentage of basic salary, that being Steve Murray 100% and
David Rimmington 75% in 2014 and 2015, 90% in 2016 to 2021, and 100% in 2022. 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.
EcV† growth target
For awards granted in 2018 onwards, 50% of the award will vest subject to the EcV outcome being within a certain range of its target.
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. For executives who joined Chesnara before
1 May 2021 (i.e. David Rimmington), their minimum is 100% of basic salary and for executives joining from 1 May 2021 (e.g. Steve Murray) the minimum is
200% of salary. As at 31 December 2022 this criterion has been met for David Rimmington. Steve Murray who joined on 2 August 2021 has not
unsurprisingly met this requirement as yet. 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 Chair and
non-executive directors are encouraged to hold shares in the company but are not subject to a formal shareholding guideline.
The following table 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 2022 or the date of resignation.
No changes took place in the interests of the directors between 31 December 2022 and 29 March 2023.
Shares held:
1 January 2022
Shares held:
31 December
2022
Options:
With
performance
measures
Options:
Without
performance
measures1
Options:
Vested but
unexercised
Options:
Exercised
during
the year
Percentage of
shareholding
target held2
–
108,282
20,000
3,333
30,000
5,362
–
–
166,977
69,671
108,282
20,000
3,333
30,000
15,362
–
–
246,648
461,168
281,271
–
–
–
–
–
–
29,525
85,737
–
–
–
–
–
–
742,439
115,262
50,456
7,760
–
–
–
–
–
–
58,216
99,044
–
–
–
–
–
–
–
99,044
101.2%
190.4%
–
–
–
–
–
–
–
Name of director
Steve Murray
David Rimmington
Luke Savage
Jane Dale
Eamonn Flanagan
Mark Hesketh
Carol Hagh3
Karin Bergstein3
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 2022 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 2023 Annual Report and Accounts.
2. Calculated using the share price of 284.00p at 31 December 2022.
3. Karin Bergstein and Carol Hagh were appointed as directors on 14 February 2022.
† Alternative performance measure (APM) used to enhance understanding of financial performance.
Further information on APMs can be found in the additional information section of this Annual Report and Accounts.
106
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE
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
2022
Number
granted
during
year
Number
exercised
during
year
Number
waived/
lapsed
during
year
Number of
shares under
option and
unexercised at
31 December
2022
End of
performance
period Vesting date
Performance
period
Date of
expiry of
option
2014 LTIP
(2022 award)
2014 LTIP
(2021 award)
2014 LTIP
(2021 award)
2014 LTIP
(2021 award)
2014 LTIP
(2021 award)
2014 LTIP
(2021 award)
2014 LTIP
(2021 award)
2014 LTIP
(2021 award)
2014 STI
(2022 award)
2014 LTIP
(2022 award)
2014 LTIP
(2021 award)
2014 LTIP
(2020 award)
2014 LTIP
(2019 award)
2014 STI
(2022 award)
2014 STI
(2021 award)
2014 STI
(2020 award)
2014 STI
(2019 award)
Share save
28/04/22
26/11/21
26/11/21
26/11/21
26/11/21
26/11/21
26/11/21
26/11/21
28/04/22
28/04/22
28/04/21
28/04/20
28/04/19
28/04/22
28/04/21
28/04/20
28/04/19
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
30/10/20
219.80
Y
A
R
R
U
M
E
V
E
T
S
I
N
O
T
G
N
M
M
R
D
V
A
D
I
I
–
147,627
–
50,456
119,089
50,456
119,089
20,722
140,105
33,625
–
–
–
–
–
–
–
–
29,525
–
–
(50,456)
(48,588)
(70,501)
–
–
–
–
–
–
–
–
–
–
–
–
147,627
31/12/23
28/04/25
3 Years
28/04/32
–
–
31/12/21
31/12 /21
5 Months
26/11/31
31/12/21
30/06/22
3 Years
26/11/31
50,456
31/12/22
31/12/22
1 Year
26/11/31
119,089
31/12/22
28/04/23
3 Years
26/11/31
20,722
30/06/23
30/06/23
2 Years
26/11/31
140,105
31/12/23
28/04/24
3 Years
26/11/31
33,625
29,525
31/12/23
30/06/24
3 Years
26/11/31
n/a
28/04/24
3 Years
28/04/31
533,542
177,152
(99,044)
(70,501)
541,149
–
105,556
94,502
81,213
71,070
–
–
–
–
31,327
18,803
27,418
7,760
8,189
–
–
–
–
308,955
136,883
–
–
–
–
–
–
–
–
–
–
–
–
–
105,556
31/12/24
28/04/25
3 Years
28/04/32
94,502
31/12/23
28/04/24
3 Years
28/04/31
81,213
31/12/22
28/04/23
3 Years
28/04/30
(71,070)
–
31/12/21
28/04/22
3 Years
28/04/29
–
–
–
–
–
31,327
18,803
27,418
7,760
8,189
(71,070)
374,768
n/a
n/a
n/a
n/a
n/a
28/04/25
28/04/24
28/04/23
28/04/22
01/12/23
n/a
n/a
n/a
n/a
n/a
28/04/32
28/04/31
28/04/30
28/04/29
01/06/24
There has been no change made to share options granted or offered and the main conditions for the exercise of these rights compared to the previous year.
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 following graph 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
LTIP, and the FTSE UK Life
Insurance Index has been
selected due to Chesnara’s
inclusion within this Index.
350
300
250
200
150
100
50
0
x
e
d
n
I
R
S
T
Jan 2013
Jan 2014
Jan 2015
Jan 2016
Jan 2017
Jan 2018
Jan 2019
Jan 2020
Jan 2021
Jan 2022
Jan 2023
107
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C
DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT (CONTINUED)
The table below sets out the details for the director undertaking the role of Group CEO:
Year
2022
2021
2021
2020
2019
2018
2017
2016
2015
2014
2013
Individual performing
Group CEO role
Steve Murray
Steve Murray
John Deane
John Deane
John Deane
John Deane
John Deane
John Deane
John Deane
Graham Kettleborough
Graham Kettleborough
Group CEO single
figure of total
remuneration
£000
STI pay-out
against maximum
Long-term incentive
vesting rates against
maximum opportunity
1,094
721
978
782
1,111
965
1,142
902
596
712
702
76.37%
57.00%
95.57%
53.38%
98.79%
31.08%
86.96%
98.33%
81.96%
91.30%
100.00%
60.42%
58.42%
–
–
19.93%
67.99%
80.95%
–
–
34.52%
n/a
Note
1 & 5
1
2
2
2
2
2
2
2
3
4
Notes.
1. Steve Murray joined Chesnara on 2 August 2021 and was appointed Group CEO on 19
October 2021.
2. John Deane was appointed Group CEO on 1 January 2015 and stood down on 18
October 2021.
3. 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 STIs awarded in that year could not exceed
100% of the CEO’s salary. The STI 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 STI 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.
4. During 2013 no LTIP value was earned because the STI in isolation accounted for the full
100% combined bonus cap.
5. During 2022, Steve Murray had two LTIP awards that vested, with one vesting at 100%
and the other vesting at 43.65%. The figure reported above is a combined percentage,
based upon the total number of shares vesting under both schemes.
Rolling 5 year percentage change in remuneration for the executive and non-executive directors and group employees
The table below shows the percentage change in remuneration for the executive and non-executive directors and the company’s employees as a whole
between the years 2022 and 2021. In future years, this analysis will be repeated until a rolling 5 year comparison is ultimately reported.
Percentage change
in remuneration in 2022
compared with 2021
Group CEO
%
Salary and fees
All taxable benefits
STIs
–
162.51
33.7
Percentage change
in remuneration in 2021
compared with 2020
Group CEO
%
Salary and fees
All taxable benefits
–
–
Group
Finance
Director
%
4.0
(75.0)
(11.4)
Group
Finance
Director
%
–
300.001
STIs
80.0
72.4
Percentage change
in remuneration in 2020
compared with 2019
Group Chief
Executive
%
Salary and fees
All taxable benefits
STIs
2.0
(39.1)1
(44.9)
Group
Finance
Director
%
2.0
20.31
(41.0)
Luke
Savage
%
Jane Dale
%
Eamonn
Flanagan2
%
Mark
Hesketh2
%
Carol Hagh
%
Karin
Bergstein
%
Group
employees
%
3.7
–
n/a
6.8
–
n/a
7.4
–
n/a
7.4
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4.0
6.6
(22.8)
Luke
Savage
%
Jane Dale
%
Eamonn
Flanagan
%
Mark
Hesketh
%
Carol Hagh
%
Karin
Bergstein
%
Group
employees
%
–
–
n/a
–
–
n/a
–
–
n/a
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
(1.1)
2.9
Luke
Savage
%
Jane Dale
%
Eamonn
Flanagan
%
Mark
Hesketh
%
Carol Hagh
%
Karin
Bergstein
%
Group
employees
%
n/a
n/a
n/a
–
n/a
n/a
n/a
n/a
n/a
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2.0
13.3
n/a
Notes
1. All taxable benefits include amounts paid in lieu of accrued dividends and interest arising upon the exercise of share options under the 2014 STI Scheme for the Group CEO. For the
Non-Executive Directors, these 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. The increases for Eamonn Flanagan and Mark Hesketh reflect the additional responsibilities they took on with regard to chairing Remuneration and Nominations Committees respectively
as well as chairing Movestic Fonder AB and joining the CA With-Profits Committee respectively.
108
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE Comparison of total remuneration for the Group CEO and UK employees
We set out here our analysis on CEO pay ratio reporting as required by The Companies (Miscellaneous Reporting) Regulations 2018. 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 2022 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 Group CEO’s 2022 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.
Comparison of total remuneration
Group CEO
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)
2022
2021
2020
2019
£
£
Ratio
£
Ratio
£
1,094,000
75,497
14.5 : 1
105,120
10.4 : 1
170,794
13.7 : 1
11.3 : 1
15.7 : 1
9.7 : 1
8.2 : 1
11.8 : 1
Ratio
6.4 : 1
5.4 : 1
4.8 : 1
6.6 : 1
The Remuneration Committee considers that the ratio is consistent with our Remuneration Policy and that no actions arise from this analysis.
Base salaries of all employees, including our executive directors, are set with reference to a range of factors including market practice, experience and
performance in role.
The 2022 ratios are broadly consistent with the prior year. Over the longer term, the CEO pay ratios have moved broadly in line with the CEO’s single
figure of remuneration. The Committee notes that the pay ratios for 2022 reflect the nature of the CEO’s package being more heavily weighted towards
variable pay compared to more junior colleagues (consistent with our reward policies), and this means the ratio is likely to fluctuate depending on the
performance of the business and associated outcomes of incentive plans in each year.
Furthermore, the Committee is satisfied that our pay and broader people policies drive the right behaviours and reinforce the group’s values which in turn
drive our culture. For these reasons, the Committee believes that the ratios are consistent with these policies.
Relative importance of spend on pay
The following graph shows the actual expenditure of the group and change
between the current and previous years:
Due to Chesnara adopting a strategy of outsourcing much of its activities in
the UK, 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 (which consists of administration
expenses and costs associated with the acquisition of new business). 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
140
120
100
80
60
40
20
0
2022 2021
+40%
128.5
92.0
+24%
32.8
26.4
Total employee
pay
Business
acquisition and
maintenance
expenditure
+3%
35.0
33.9
Dividends
Statement of Implementation of Remuneration Policy in the following financial year
The following states how remuneration will be implemented for the executive and non-executive directors in 2023. In respect of the LTIP awards
to be granted to the executive directors, the proposals are subject to the approval by shareholders of the proposed new Directors’ Remuneration
Policy at the 2023 AGM.
Salaries and fees
Will be set in accordance with the company’s Policy.
Executive directors
Steve Murray (Group CEO) received a 9% uplift in recognition of the general 5% for executives and a step toward recognising that he received no
uplift in 2022, pending assessment in his performance following a longer period in his role. David Rimmington (Group FD) received a 5% uplift in
line with other executives but below the 6% pot for all other UK staff.
109
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION C DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT (CONTINUED)
Non-executive directors
The Chair’s fee has been increased by 5.9%, broadly in line with the pay award for UK staff and taking into account its position at the low end of
the benchmark group. The fee level for other non-executive directors has been increased by different levels in parallel with a review of individual
responsibilities, particularly with regard to chairing board committees compared to the benchmarks. Jane Dale’s fee has been increased by 5.7%
in recognition of her responsibilities as the chair of the Audit & Risk Committee as well as the increased complexity of the UK subsidiary
Countrywide Assured plc, plus now CASLP Ltd. Eamonn Flanagan’s fee was increased by 6.1% in recognition of his responsibilities as the chair of
the Remuneration Committee as well as his appointment to chair the Movestic Livförsäkring AB Audit & Risk Committee in mid 2022. Mark
Hesketh’s fee was increased by 6.1% in recognition of his responsibilities as the chair of the Nomination & Governance Committee as well as the
increased complexity of the UK subsidiary Countrywide Assured plc, plus now CASLP Ltd. Carol Hagh’s fee has been increased by 4.9% for the
increased complexity of the UK operation with CASLP Ltd now added and also for her role as Workforce NED. Karin Bergstein’s fee has been
increased by 4.9% in light of her contribution across the full reach of our territories and the requirements this places upon her.
The table below sets out the anticipated payments to non-executive directors for 2023:
Luke Savage
Eamonn Flanagan
Jane Dale
Mark Hesketh
Carol Hagh
Karin Bergstein
Total
Fees
£000
135.0
69.5
74.5
69.5
64.5
64.5
477.5
Benefits1
£000
1
1
1
1
1
7
12
Total
£000
136.0
70.5
75.5
70.5
65.5
71.5
489.5
Note
1. Benefits shown here mainly 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. The figure for Karin Bergstein represents amounts payable to the Dutch tax authorities by the company, under Dutch
social security legislation.
2023 award under the 2023 Short-Term Incentive Scheme
The Remuneration Committee proposes to grant awards to the executive directors under the 2023 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 2023 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
Steve
Murray
Cash generation
EcV earnings
Group strategic objectives
David
Rimmington
Cash generation
EcV earnings
Group strategic objectives
35.0%
35.0%
30.0%
35.0%
35.0%
30.0%
70.0%
70.0%
75.0%
70.0%
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
25.0%
25.0%
15.0%
25.0%
25.0%
15.0%
35.0%
35.0%
30.0%
35.0%
35.0%
30.0%
The STI will be implemented and operated by the Remuneration Committee as set out within the Policy.
Measures
Following review by the Remuneration Committee, changes were approved
for 2019 onwards to remove the IFRS component used in prior years and
base performance assessment on cash generation† and EcV† earnings
metrics both 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. For 2023,
group strategic objectives remain weighted 30% of the total to ensure that a
sufficient proportion of the bonus potential is attributed to good outcomes in
relation to ESG and acquisitions. 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 Policy, able to make discretionary adjustments if
deemed necessary. As agreed in advance by the Remuneration Committee,
the financial results for the year are adjusted to look through any impact of
the symmetric adjustment and WP transfers/restrictions, be they negative or
positive. The results for STI purposes exclude the impact of any acquisition
activity in the year other than through the exercise of committee discretion.
Successful acquisitions are rewarded primarily through the LTIP scheme.
110
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.
Targets
The cash generation† and EcV† earnings 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
The 2023 Scheme includes malus and clawback provisions covering a material
misstatement of the company’s results, regulatory breach, gross misconduct
on the part of the participant, reputational damage to the company, a material
failure of risk management, insolvency or corporate failure if this arises
within two years of an award vesting and it is a precondition that the executive
accepts such provisions at the time of the award.
† Alternative Performance Measure (APM) used to enhance understanding of financial
performance. Further information on APMs can be found in the additional information
section of this Annual Report and Accounts.
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022CORPORATE GOVERNANCE 2023 award made under the 2023 LTIP
In 2023 the Remuneration Committee proposes to grant awards to the executive directors under the Chesnara 2023 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 and commercial cash generation targets are commercially sensitive and will not be disclosed until
2025 together with the actual performance against those targets.
Individual
Share award
Measures
Weighting
Ranges and targets
Vesting rates in terms of % of basic salary
% of basic
salary
125%
Steve
Murray
David
Rimmington
100%
Minimum
achievement
(as % of target)
Target
achievement
Maximum
achievement
(as % of target)
Minimum
achievement
Target
achievement
Maximum
achievement
TSR
EcV
Commercial cash
generation
TSR
EcV
Commercial cash
generation
33.3%
33.3%
33.3%
33.3%
33.3%
33.3%
20 yrs
£000
Total
£000
Contractual cash flows (undiscounted)
Insurance contract liabilities
Unit-linked
With DPF
Annuities in payment
Other non-linked
2,634,557
235,134
108,938
632,632
2,634,557
70,321
8,212
127,412
–
27,145
7,855
99,539
–
86,444
21,860
248,754
–
58,862
29,946
284,033
–
29,979
21,424
172,057
–
4,489
13,773
84,587
–
4,175
12,056
61,752
2,634,557
281,415
115,126
1,078,134
Total insurance contract liabilities
3,611,261
2,840,502
134,539
357,058
372,841
223,460
102,849
77,983
4,109,232
Investment contract liabilities
Unit-linked
Other
Total investment contract liabilities
Liabilities relating policyholder’s fund
held by the group
Lease liabilities
Borrowings
Derivatives
5,800,871
3,998
5,800,871
3,998
5,804,869
5,804,869
1,130,476
1,233
211,976
3,850
1,130,476
699
211,976
3,850
Total financial liabilities
7,152,404
7,151,870
Other liabilities
Other provisions
Deferred tax liabilities
Reinsurance payables
Payables related to direct insurance
and investment contracts
Deferred income
Income taxes
Other payables
Bank overdrafts
7,953
8,095
48,821
149,723
2,383
4,426
35,150
19
7,953
8,095
48,821
149,723
2,383
4,426
35,150
19
–
–
–
–
534
–
–
534
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,800,871
3,998
–
5,804,869
–
–
–
–
1,130,476
1,233
211,976
3,850
–
7,152,404
–
–
–
–
–
–
–
–
7,953
8,095
48,821
149,723
2,383
4,426
35,150
19
Total
11,020,235 10,248,942
135,073
357,058
372,841
223,460
102,849
77,983 11,518,206
168
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31 December 2021
Carrying values and cash
flows arising from:
Carrying value
£000
<1 yr
£000
1-2 yrs
£000
2-5 yrs
£000
5-10 yrs
£000
10-15 yrs
£000
15-20 yrs
£000
>20 yrs
£000
Total
£000
Contractual cash flows (undiscounted)
Insurance contract liabilities
Unit-linked
With DPF
Annuities in payment
Other non-linked
2,755,508
297,650
90,736
674,518
2,755,508
70,957
4,890
99,018
–
30,836
4,680
87,239
–
85,106
13,144
234,748
–
65,310
18,312
269,417
–
35,956
13,443
161,614
–
6,587
8,957
77,287
–
4,499
8,316
54,091
2,755,508
299,251
71,742
983,414
Total insurance contract liabilities
3,818,412
2,930,373
122,755
332,998
353,039
211,013
92,831
66,906
4,109,915
Investment contract liabilities
Unit-linked
Other
Total investment contract liabilities
Liabilities relating policyholder’s fund
held by the group
Lease liabilities
Borrowings
Derivatives
4,116,514
4,058
4,116,514
4,058
4,120,572
4,120,572
990,700
2,019
47,185
–
990,700
843
47,185
–
–
–
–
–
479
–
–
Total financial liabilities
5,160,476
5,159,300
479
Other liabilities
Other provisions
Deferred tax liabilities
Reinsurance payables
Payables related to direct insurance
and investment contracts
Deferred income
Income taxes
Other payables
Bank overdrafts
992
15,699
70,414
129,262
2,809
6,527
23,991
256
992
15,699
70,414
129,262
2,809
6,527
23,991
256
–
–
–
–
–
–
–
–
–
–
–
–
661
–
–
661
–
–
–
–
–
–
–
–
–
–
–
–
44
–
–
44
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,116,514
4,058
–
4,120,572
–
–
–
–
990,700
2,027
47,185
–
–
5,160,484
–
–
–
–
–
–
–
–
992
15,699
70,414
129,262
2,809
6,527
23,991
256
Total
9,228,838 8,339,623
123,234
333,659
353,083
211,013
92,831
66,906 9,520,349
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. Note 6(i) on page 164 provides more information on the assets held to match these liabilities.
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 Limited 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 171. 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.
169
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
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. During the year, Chesnara plc has implemented a foreign currency hedge.
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
Liabilities
Net assets
US dollar
Assets
Liabilities
Net assets
2022
£000
2021
£000
3,938,942
(3,850,345 )
4,553,626
(4,461,968 )
88,597
91,658
2,604,290
(2,361,034 )
2,598,222
(2,304,904 )
243,256
293,318
150
(117 )
33
840
(402 )
438
162
(122 )
40
673
(97 )
576
(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. We believe these risk variables represent the ones that are most reasonably possible to occur in the future, to which the group results
are sensitive.
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 on the next page.
170
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Gross of reinsurance
Variation in/arising from
100 basis point increase in market rates of interest
100 basis point 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
Net of reinsurance
Variation in/arising from
100 basis point increase in market rates of interest
100 basis point 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
2022
2021
Profit before
tax
£m
Shareholders ’
equity
£m
Profit before
tax
£m
Shareholders ’
equity
£m
(40.1 )
31.1
2.1
(2.6 )
(4.4 )
4.5
(19.1 )
16.9
(29.9 )
23.1
1.6
(2.0 )
6.1
(4.3 )
21.3
(16.4 )
(45.8 )
25.6
2.5
(2.8 )
1.3
(1.1 )
(0.1 )
0.1
(34.2 )
19.0
1.9
(2.2 )
10.2
(8.3 )
32.6
(26.7 )
2022
2021
Profit before
tax
£m
Shareholders ’
equity
£m
Profit before
tax
£m
Shareholders ’
equity
£m
(45.4 )
36.7
5.5
(6.0 )
(4.4 )
4.5
(19.1 )
16.9
(34.2 )
27.7
4.3
(4.7 )
6.1
(4.3 )
21.3
(16.4 )
(59.1 )
39.4
6.5
(6.8 )
1.3
(1.1 )
(0.1 )
0.1
(45.0 )
30.2
5.2
(5.4 )
10.2
(8.3 )
32.6
(26.7 )
The impact of a 100 basis point increase in market rates of interest has reduced in 2022 relative to 2021, due to the rise in interest rates over the year, which has
reduced the convexity of assets and liabilities making them less sensitive to a further rise in interest rates. The gross of reinsurance impact of a 100 basis point
decrease in market rates of interest has risen, but when reinsurance is taken into account the sensitivity has fallen for the same reason that interest rates
have risen.
The 10% increase and decrease in equity sensitivities have fallen relative to 2021 due to the fall in equity markets, which has reduced the amount of equities
being stressed across the group.
The impact of a 10% movement in the SEK: sterling and EUR: sterling exchange rates in 2022 reflect the new currency hedge in Chesnara plc, which acts to make
an adverse currency movement more favourable and vice-versa for a favourable currency movement. More generally, the impacts on profit before tax have been
measured with regards to performance over 2022 on the income statement.
(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;
– The mortgage loan portfolio held by Waard with respect to the interest and capital repayments due from the borrowers;
– 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.
171
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
6 Management of financial risk (continued)
(v) Credit risk management (continued)
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. The group limits its exposure to reinsurance counterparties
with a credit rating lower than BBB- and the creditworthiness of reinsurance exposures is regularly monitored as part of the group’s risk framework.
The creditworthiness of major reinsurers is considered on an annual basis by reviewing their financial strength.
The following table presents the assets of the group which are subject to credit risk and a reconciliation to the balance sheet carrying value of each item:
31 December
2022
Amount
subject to
credit risk
£000
196,280
32,803
432,650
915,1 1 1
–
531
141
41,614
14,052
695
93,609
Balance
sheet
carrying Policyholder
linked
£000
value
£000
196,315
32,803
8,157,208
932,711
1,130,476
305,228
141
36,672
14,125
5,846
175,294
–
–
6,547,136
9,455
990,700
293,811
–
14,842
119
21
2,396
2021
Amount
subject to
credit risk
£000
247,750
38,295
310,918
968,744
–
–
264
20,771
16,221
7,212
67,691
Balance
sheet
carrying
value
£000
247,750
38,295
6,858,054
978,199
990,700
293,811
264
35,613
16,340
7,233
70,087
Policyholder
linked
£000
35
–
7,724,558
17,600
1,130,476
304,697
–
(4,942 )
73
5,151
81,685
Reinsurers’ share of insurance contract liabilities
Amounts deposited with reinsurers
Holdings in collective investment schemes
Debt securities
Policyholders’ funds held by the group
Financial assets held at amortised cost
Derivative financial instruments
Insurance and other receivables
Reinsurers’ share of accrued policyholder claims
Income taxes
Cash and cash equivalents
Total
9,259,333
1,727,486
10,986,819
7,858,480
1,677,866
9,536,346
The amounts presented above as policyholder linked 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.
The acquisition of the Argenta portfolio included a substantial number of saving plans designed to save the capital amount due to a bank to pay off personal
mortgages. Common in the Netherlands is a structure whereby the insurance company providing the savings vehicle invests in the policyholder’s mortgage,
which are held by the bank that provides the mortgage. The arrangement with the bank is structured such that any impact as a result of default of the mortgage
by the policyholder is incurred by the bank only, with no impact to Chesnara. These assets earn the same interest as the mortgage, thereby providing a perfect
investment match against the insurance liability.
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 2022
Reinsurers share of insurance contract liabilities
Amounts deposited with reinsurers
Holdings in collective investment schemes
Debt securities at fair value through income
Policyholders’ funds held by the group
Financial assets held at amortised cost
Derivative financial instruments
Insurance and other receivables
Reinsurers share of accrued policyholder claims
Income taxes
Cash and cash equivalents
AAA
£000
–
–
303,625
315,798
–
–
–
2,300
–
–
–
AA
£000
119,208
32,803
190,942
317,852
71,666
–
–
9,387
12,724
–
17,374
A
£000
BBB
£000
Below BBB
£000
Unrated
£000
Total
£000
–
–
2,297,517
172,504
248,382
33,307
141
2,226
–
–
147,260
2,919
–
328,123
124,701
116,873
–
–
1,620
394
–
160
–
–
85,256
–
86,392
–
–
–
–
–
–
74,188
–
4,951,745
1,856
607,163
271,921
–
21,139
1,007
5,846
10,500
196,315
32,803
8,157,208
932,711
1,130,476
305,228
141
36,672
14,125
5,846
175,294
Total
621,723
771,956
2,901,337
574,790
171,648
5,945,365
10,986,819
172
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Credit rating
As at 31 December 2021
Reinsurers share of insurance contract liabilities
Amounts deposited with reinsurers
Holdings in collective investment schemes
Debt securities at fair value through income
Policyholders’ funds held by the group
Financial assets held at amortised cost
Derivative financial instruments
Insurance and other receivables
Reinsurers share of accrued policyholder claims
Income taxes
Cash and cash equivalents
AAA
£000
–
–
439,477
214,886
–
–
–
2,574
–
–
–
AA
£000
170,076
38,295
279,300
365,487
66,006
–
–
9,421
14,924
–
5,868
A
£000
BBB
£000
Below BBB
£000
Unrated
£000
Total
£000
–
–
2,508,789
303,109
309,634
–
170
8,954
–
–
64,389
3,822
–
352,639
94,621
22,600
–
–
887
832
–
175
–
–
137,722
–
73,320
–
–
–
–
–
–
73,852
–
3,140,127
96
519,140
293,811
94
13,777
584
7,233
(345 )
247,750
38,295
6,858,054
978,199
990,700
293,811
264
35,613
16,340
7,233
70,087
Total
656,937
949,377
3,195,045
475,576
211,042
4,048,369
9,536,346
The ‘Financial assets held at amortised cost’, which consists of the two mortgage loan portfolios, 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 at 31 December 2022.
Included within reinsurers’ share of insurance contract provisions and amounts deposited with reinsurers (in respect of investment contracts) above, is a total
significant exposure of £69.2m as at 31 December 2022 (31 December 2021: £76.0m) to ReAssure, which has been included within the ‘AA’ rating category.
Of the ReAssure amount £43.6m (31 December 2021: £50.0m) 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 plc 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 2022 and 31 December 2021.
Monument Re makes up £50.2m of the unrated exposure to reinsurers share of insurance contract liabilities as at 31 December 2022 (31 December 2021: £69.9m).
This is protected through the use of a funds withheld arrangement under which the reinsurer has deposited collateral to CA plc in respect of the value of expected
future reinsured claim payments.
Debt securities
As at 31 December 2022
Austria
Belgium
France
Germany
Italy
Ireland
Netherlands
Poland
Portugal
Spain
UK
Other
Europe
USA
Other
North America
Australia
Other
Asia Pacific
Total
Policyholder Policyholder Non-linked/
shareholder
£000
linked with-profit
£000
£000
–
–
653
–
–
–
521
–
–
–
13,767
2,184
–
–
5,193
361
–
–
2,484
–
–
424
25,882
4,845
17,935
32,861
149,488
104,304
18,274
17,124
123,086
431
–
20,839
172,907
107,249
Total
£000
17,935
32,861
155,334
104,665
18,274
17,124
126,091
431
–
21,263
212,556
114,278
17,125
39,189
764,498
820,812
475
–
475
–
–
–
7,950
1,568
81,387
593
89,812
2,161
9,518
81,980
91,973
–
–
–
12,540
7,386
12,540
7,386
19,926
19,926
17,600
48,707
866,404
932,71 1
173
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
6 Management of financial risk (continued)
(v) Credit risk management (continued)
Debt securities
As at 31 December 2021
Austria
Belgium
France
Germany
Italy
Ireland
Netherlands
Poland
Portugal
Spain
UK
Other
Europe
USA
Other
North America
Australia
Other
Asia Pacific
Total
Policyholder Policyholder Non-linked/
shareholder
£000
linked with-profit
£000
£000
–
–
825
–
–
–
551
–
–
–
4,556
2,931
–
–
3,965
480
–
–
2,339
–
–
495
38,044
5,906
30,849
34,183
170,026
161,920
31,148
24,263
79,981
616
1,738
18,620
136,634
110,657
Total
£000
30,849
34,183
174,816
162,400
31,148
24,263
82,871
616
1,738
19,115
179,234
119,494
8,863
51,229
800,635
860,727
590
–
590
–
–
–
9,547
174
82,665
1,101
92,802
1,275
9,721
83,766
94,077
–
–
–
7,436
15,959
7,436
15,959
23,395
23,395
9,453
60,950
907,796
978,199
There are no direct holdings in debt securities within Russia or Ukraine.
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 2022 comprise:
UK: This segment represents the group’s UK life insurance and pensions run-off portfolio and comprises the business of Countrywide Assured plc (CA) and
Sanlam Life & Pensions UK (SLP).
CA consists of its original business and that of City of Westminster Assurance Company Limited which was acquired in 2005 and the long-term business
transferred to CA during 2006. It also contains Save & Prosper Insurance Limited 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. It 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.
Sanlam Life & Pensions UK (SLP) was acquired on 28 April 2022, and subsequently changed its the legal name to CASLP.
CA and CASLP are 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 company Movestic
Kapitalforvaltning AB (investment fund management company) 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 closed Dutch life 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.
On 1 October 2019, the Waard Group acquired a small portfolio of policies from Monuta insurance, which consists of term and savings policies.
On 21 November 2019, the Waard Group completed a deal to acquire a portfolio of term life insurance policies and saving mortgages insurance policies (from
Belgian Insurance provider Argenta Assuranties N.V.). The completion took place on the 31 August 2020, at which stage Waard Group obtained control.
174
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On 31 December 2020, Waard entered into an agreement to acquire a portfolio of term life insurance policies, unit-linked policies and funeral insurance policies
from Dutch insurance provider Brand New Day Levensverzekeringen N.V. (BND). The portfolio was successfully migrated on 10 April 2021.
On 25 November 2021, Waard entered into an agreement with Monument Re Group to acquire Robein Leven, a specialist provider of traditional and linked savings
products, mortgages and annuities in the Netherlands. The acquisition was successfully completed on 28 April 2022, thereby extending the existing group.
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. This segment is closed to new business.
Scildon: This segment represents the group’s open 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 of the reporting segments and the group as a whole. There were no changes to the measurement basis for segment profit during the year ended
31 December 2022.
(i) Segmental income statement for the year ended 31 December 2022
Insurance premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue
Fee and commission income
Net investment return
Other operating income
UK
£000
33,065
(14,170 )
18,895
27,928
(297,659 )
17,704
Waard
Group
Movestic
Scildon
(Sweden ) (Netherlands ) (Netherlands )
£000
£000
£000
Other group
activities
(UK )
£000
12,120
(4,651 )
32,128
(3,776 )
240,144
(22,224 )
7,469
15,927
(876,844 )
30,667
28,352
133
(6,599 )
–
217,920
49,392
(302,326 )
–
–
–
–
–
(3,585 )
–
Total
£000
317,457
(44,821 )
272,636
93,380
(1,487,013 )
48,371
Segmental revenue, net of investment return
(233,132 )
(822,781 )
21,886
(35,014 )
(3,585 )
(1,072,626 )
Net insurance contract claims and benefits incurred
Net change in investment contract liabilities
Fees, commission and other acquisition costs
Administrative expenses:
Depreciation charge on property and equipment
Other
Operating expenses
Financing costs
137,517
130,099
(20,827 )
(36 )
(25,081 )
(2 )
(228 )
(937 )
871,205
(22,348 )
–
(13,287 )
(8,698 )
(823 )
(23,640 )
–
(1,303 )
–
(6,939 )
–
(1 )
(42,797 )
–
(390 )
–
(25,523 )
–
–
–
–
–
70,143
1,001,304
(44,868 )
–
(14,231 )
–
(9,497 )
(36 )
(85,061 )
(8,700 )
(10,549 )
(Loss)/profit before tax and consolidation adjustments
(11,690 )
2,331
(9,997 )
(103,724 )
(27,313 )
(150,393 )
Other operating expenses:
Charge for amortisation of acquired value of in-force business
Charge for amortisation of acquired value of customer relationships
Fees, commission and other acquisition costs
(7,075 )
–
–
(2,171 )
(45 )
1,312
(830 )
–
–
(3,183 )
–
124
–
–
–
(13,259 )
(45 )
1,436
Segmental income less expenses
(18,765 )
1,427
(10,827 )
(106,783 )
(27,313 )
(162,261 )
Profit arising on business combinations and portfolio acquisitions
9,565
–
5,796
–
–
15,361
(Loss)/profit before tax
Income tax credit
(9,200 )
14,177
1,427
14
(5,031 )
1,307
(106,783 )
27,686
(27,313 )
5,383
(146,900 )
48,567
(Loss)/profit after tax
4,977
1,441
(3,724 )
(79,097 )
(21,930 )
(98,333)
Further analysis of the segmental profit before tax and consolidation adjustments can be found on page 54 of the financial review section.
175
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
7 Operating segments (continued)
(ii) Segmental balance sheet as at 31 December 2022
UK
£000
Waard
Group
Movestic
Scildon
(Sweden ) (Netherlands ) (Netherlands )
£000
£000
£000
Other group
activities
(UK )
£000
Total
£000
Total assets
Total liabilities
Net assets
Investment in associates
Additions to non-current assets
4,772,475
(4,601,373 )
3,952,482
(3,850,513 )
587,787
(519,950 )
1,927,937
(1,846,714 )
1 12,671
(201,685 )
11,353,352
(11,020,235 )
171,102
101,969
67,837
81,223
(89,014 )
333,1 17
–
–
–
10,548
–
254
–
769
–
–
–
11,571
An explanation of the nature of valuation differences between the measurements in reportable segments’ assets and liabilities can be found in Accounting Policy
Note 2(g).
(iii) Segmental income statement for the year ended 31 December 2021
Insurance premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue
Fee and commission income
Net investment return
Other operating income
UK
£000
36,004
(87,353 )
(51,349 )
22,140
179,662
13,681
Waard
Group
Movestic
Scildon
(Sweden ) (Netherlands ) (Netherlands )
£000
£000
£000
Other group
activities
(UK )
£000
13,796
(5,374 )
8,422
18,029
821,381
32,887
32,546
(3,406 )
29,140
76
1 1,928
–
229,700
(19,748 )
209,952
49,730
160,006
–
–
–
–
–
1 1
–
Total
£000
312,046
(115,881 )
196,165
89,975
1,172,988
46,568
Segmental revenue, net of investment return
164,134
880,719
41,144
419,688
1 1
1,505,696
Net insurance contract claims and benefits incurred
Net change in investment contract liabilities
Fees, commission and other acquisition costs
Administrative expenses:
Amortisation charge on software assets
Depreciation charge on property and equipment
Other
Operating expenses
Financing costs
(34,545 )
(77,568 )
(316 )
–
–
(16,090 )
5
–
(2,787 )
(820,901 )
(23,598 )
(1,306 )
(115 )
(12,794 )
(5,972 )
(1,179 )
(35,849 )
–
(713 )
–
(54 )
(4,407 )
–
(1 )
(396,718 )
–
(1,816 )
(36 )
(577 )
(20,992 )
–
–
–
–
–
(469,899 )
(898,469 )
(26,443 )
–
–
(11,554 )
3
(1,092 )
(1,342 )
(746 )
(65,837 )
(5,964 )
(2,272 )
Profit/(loss) before tax and consolidation adjustments
35,620
12,067
120
(451 )
(12,632 )
34,724
Other operating expenses:
Charge for amortisation of acquired value of in-force business
Charge for amortisation of acquired value of customer relationships
Fees, commission and other acquisition costs
(1,443 )
–
–
(2,467 )
(55 )
1,878
(838 )
–
–
(3,436 )
–
542
–
–
–
(8,184 )
(55 )
2,420
Segmental income less expenses
34,177
11,423
(718 )
(3,345 )
(12,632 )
28,905
Loss arising on business combinations and portfolio acquisitions
–
–
Profit/(loss) before tax
Income tax (expense)/credit
34,177
(4,979 )
1 1,423
(1 )
(93 )
(81 1 )
188
–
–
(93 )
(3,345 )
444
(12,632 )
2,830
28,812
(1,518 )
Profit/(loss) after tax
29,198
1 1,422
(623 )
(2,901 )
(9,802 )
27,294
176
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(iv) Segmental balance sheet as at 31 December 2021
UK
£000
Waard
Group
Movestic
Scildon
(Sweden ) (Netherlands ) (Netherlands )
£000
£000
£000
Other group
activities
(UK )
£000
Total
£000
Total assets
Total liabilities
Net assets
Investment in associates
Additions to non-current assets
8 Fees and commission income
Year ended 31 December
Fee income
Policy-based fees
Fund management-based fees recognised under IFRS 15
Fund management-based fees recognised under IFRS 4
Benefit-based fees
Change in deferred income – gross
Change in deferred income – reinsurers’ share
Total fee income
Commission income
2,551,611
(2,420,861 )
4,568,400
(4,462,163 )
389,846
(347,961 )
2,122,474
(1,963,052 )
54,674
(34,801 )
9,687,005
(9,228,838 )
130,750
106,237
41,885
159,422
19,873
458,167
–
–
–
–
–
11,590
197
4,483
–
–
–
16,270
2022
£000
44,822
31,599
4,473
9,250
453
(31 )
90,566
2,814
2021
£000
43,620
27,318
5,964
10,242
508
(41 )
87,611
2,364
Total fee and commission income
93,380
89,975
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
Derivative financial instruments
Investment properties
Net investment return
2022
£000
37,475
32,598
4,771
2021
£000
12,325
33,150
100
(1,318,751 )
(231,742 )
(3,921 )
(7,443 )
1,145,279
(18,492 )
605
21
(1,487,013 )
1,172,988
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 2021: £nil).
177
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
10 Other operating income
Year ended 31 December
Fee income from investment managers
Charges to policyholder funds for yield tax
Other
Total other operating income
11 Insurance contract claims and benefits
Year ended 31 December
Claims and benefits paid to insurance contract holders
(Decrease)/increase in insurance contract provisions
Total insurance contract claims and benefits
Reinsurer’s share of claims and benefits
Net insurance contract claims and benefits incurred
12 Change in investment contract liabilities
Year ended 31 December
2022
£000
39,978
8,344
49
2021
£000
40,932
5,561
75
48,371
46,568
2022
£000
2021
£000
458,530
(510,572 )
506,490
23,577
(52,042 )
(18,101 )
530,067
(60,168 )
(70,143 )
469,899
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
(611,073 )
(392,884 )
2022
£000
2021
£000
707,1 19
195,460
Total (decrease)/increase in investment contract liabilities
Reinsurers’ share of investment contract liabilities
Net (decrease)/increase in investment contract liabilities
(1,003,957 )
2,653
902,579
(4,1 10 )
(1,001,304 )
898,469
Investment contract benefits comprise benefits accruing to holders of investment contracts issued by the group.
178
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
Impairment losses
Total
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
Depreciation of right-of-use assets
Other goods and services
Total
2022
£000
2021
£000
6,420
(5,626 )
6,235
(4,483 )
794
1,752
37,189
(8,102 )
17,818
(8,891 )
29,087
8,927
4,733
8,838
(20 )
–
4,441
8,929
(26 )
–
43,432
24,023
Note
44
2022
£000
37,850
1,725
1,785
732
12,837
659
29,509
2021
£000
31,358
2,055
1,382
749
1 1,246
739
20,396
85,097
67,925
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
Fees payable to the company’s auditor for the audit of the company’s financial statements
Fees payable to the company’s auditor and its associates for other services to the group:
The audit of the company’s subsidiaries pursuant to legislation*
Audit-related assurance services**
Total
*Includes £609k (2021: £112k) audit fees in respect of the Movestic, Waard and Scildon audit in the year performed by EY.
**Includes £344k (2021: nil) fees related to assurance services in respect of Waard and Scildon in the year performed by EY.
2022
£000
447
1,712
1,071
2021
£000
443
836
217
3,230
1,496
179
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
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
Payment of yield tax relating to policyholder funds
Other
Total
16 Financing costs
Year ended 31 December
Interest expense on bank borrowings
Interest expense on financial reinsurance
Interest expenses on lease liabilities
Interest expense on Tier 2 debt
Other interest
Total financing costs
2022
£000
2021
£000
13,259
8,184
45
55
8,344
356
5,561
403
8,700
5,964
Note
35
2022
£000
609
796
28
8,887
229
2021
£000
1,036
1,138
95
–
3
10,549
2,272
Interest expense on bank borrowings and Tier 2 debt 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
CA and other group activities – net expense
Movestic – net expense
Waard Group – net credit/(expense)
Scildon – net credit
Total net credit/(expense)
UK business
CA and other group activities
Year ended 31 December
Current tax
Current year
Overseas tax
Adjustment to prior years
Net expense
Deferred tax
Origination and reversal of temporary differences
Total income tax credit/(expense)
180
2022
£000
19,560
14
1,307
27,686
2021
£000
(2,149 )
(1 )
188
444
48,567
(1,518 )
2022
£000
(3,180 )
1 1
1,549
2021
£000
(2,732 )
–
(2 )
(1,620 )
(2,734 )
21,180
585
19,560
(2,149 )
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 19.0% (2021: 19.0%)
Non- taxable profit on acquisition of subsidiary
Other permanent differences
Effect of UK tax bases on insurance profits
Offset of franked investment income
Variation in rate of tax on amortisation of acquired in-force value
Impact of new life tax regime
Effect of change in tax rate
Other
Under provided in previous years
2022
£000
2021
£000
(69,982 )
21,545
13,296
(4,750 )
194
7,796
–
3,337
(421 )
108
–
–
(4,094 )
–
414
–
1,435
(8 )
–
29
77
(2 )
Total income tax credit/(expense)
19,560
(2,149 )
The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year remained
at 19%.
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 credit/(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 20.6% (21.4%)
Non-taxable income in relation to unit-linked business
Impact of different tax rate for subsidiaries
Non-taxable fair value adjustment
Temporary differences
Permanent differences
Unrecognised tax recoverable
Non-deductible expenses
Under provided in prior years
2022
£000
2021
£000
(4 )
–
(4 )
18
14
–
(7 )
(7 )
6
(1 )
2022
£000
2021
£000
1,427
1 1,423
(294 )
1,460
–
(164 )
47
–
(886 )
(149 )
–
(2,353 )
2,737
–
(108 )
(19 )
–
(175 )
(76 )
(7 )
Total income tax credit/(expense)
14
(1 )
181
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
17 Income tax (continued)
Movestic (continued)
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 credit
Reconciliation of effective tax rate on profit before tax
Year ended 31 December
Loss before tax
Income tax using the domestic corporation tax rate of 25%
Impact of different tax rate for subsidiaries
Permanent differences
Total income tax credit
Scildon
Scildon
Year ended 31 December
Current tax
Adjustments for prior year
Net expense
Deferred tax
Origination and reversal of temporary differences
Impact to changes in tax rates
Total income tax credit
Reconciliation of effective tax rate on profit before tax
Year ended 31 December
Loss before tax
Income tax using the domestic corporation tax rate of 25%
Non-taxable fair value adjustment
Permanent differences
Non-deductible expenses
Total income tax credit
182
2022
£000
2021
£000
(1,077 )
–
(1,077 )
2,384
1,307
2022
£000
(5,031 )
1,307
–
–
1,307
(349 )
(66 )
(415 )
603
188
2021
£000
(811 )
243
–
(55 )
188
2022
£000
(3,960 )
–
2021
£000
(1,032 )
–
(3,960 )
(1,032 )
31,646
–
1,789
(313 )
27,686
444
2022
£000
2021
£000
(106,783 )
(3,345 )
27,550
–
136
–
863
(94 )
(15 )
(310 )
27,686
444
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 Investment subsidiary
Company
Year ended 31 December
Balance at 1 January
Additions – Arising on acquisition
Capital contribution
Balance at 31 December
Impairment:
Balance at 1 January
Impairment for the year
Balance at 31 December
Carrying amounts:
At 1 January
At 31 December
Note
51
2022
£000
354,720
37,850
46,476
2021
£000
354,720
–
–
439,046
354,720
–
(25,000 )
(25,000 )
–
–
–
354,720
354,720
414,046
354,720
During the year, as a result of the assessment performed on whether an investment is impaired by assessing whether any indicators of impairment exist, the
company carried out a review of the recoverable amount of Countrywide Assured plc. The review led to the recognition of an impairment loss of £25m, which
has been recognised in profit or loss.
Included within additions is the £37.9m consideration for the acquisition of CASLP, a £25m capital contribution made to CASLP upon acquisition and £21.5m capital
contribution made to Waard to provide funding for the Conservatrix acquisition.
19 Deferred acquisition costs
Year ended 31 December
Balance at 1 January
Additions
Amortisation charged to income
Impairment losses
Foreign exchange translation difference
Balance at 31 December
Current
Non-current
Total
The amortisation charged to income is recognised in fees, commission and other acquisition costs (see Note 13).
2022
£000
63,327
13,704
(13,571 )
–
(655 )
2021
£000
69,051
13,420
(13,370 )
–
(5,774 )
62,805
63,327
1 1,202
51,603
10,927
52,400
62,805
63,327
183
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
20 Acquired value of in-force business (AVIF)
Year ended 31 December
Cost:
Balance at 1 January
Additions – Arising on acquisition
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
Note
2022
£000
2021
£000
51
214,461
59,579
291
221,886
771
(8,196 )
274,331
214,461
164,832
13,259
(682 )
160,231
8,184
(3,583 )
177,409
164,832
49,629
61,655
96,922
49,629
The amortisation charged to the Consolidated Statement of Comprehensive Income is recognised in other operating expenses (see Note 15).
2022
£000
2021
£000
28,756
2,400
(625 )
28,790
2,540
(2,574 )
30,531
28,756
19,872
1,785
(426 )
20,282
1,382
(1,793 )
21,231
19,871
9,300
8,885
21 Software assets
31 December
Cost:
Balance at 1 January
Additions
Foreign exchange translation difference
Balance at 31 December
Amortisation and impairment losses:
Balance at 1 January
Amortisation charge for the year
Foreign exchange translation difference
Balance at 31 December
Carrying amounts at 31 December
184
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22 Property and equipment
31 December
Cost:
Balance at 1 January
Additions – Arising on acquisition
Addition
Disposals
Revaluation
Foreign exchange translation difference
Balance at 31 December
Amortisation and impairment losses:
Balance at 1 January
Additions – Arising on acquisition
Addition
Depreciation charge for the year
Disposals
Foreign exchange translation difference
Balance at 31 December
Carrying amounts at 31 December
2022
£000
2021
£000
14,462
4,388
512
(1,601 )
798
481
14,1 14
–
1,833
(954 )
570
(1,101 )
19,040
14,462
6,632
4,364
–
1,391
(1,425 )
184
5,396
–
1,089
1,488
(849 )
(492 )
1 1,146
6,632
7,894
7,830
The group leases several assets including office buildings, office and IT equipment and motor vehicles. The average lease term is 3 years.
Right-of-use assets
Non-investment
property
£000
Property &
equipment
£000
Motor
vehicles
£000
Hardware
£000
Software
£000
Other
£000
Carrying amounts at 1 January
Additions
Disposals
Depreciation charge
Foreign exchange translation difference
Carrying amounts at 31 December
1,873
98
(205 )
(568 )
(22 )
1,176
29
–
–
(19 )
–
10
37
7
–
(33 )
2
13
39
–
–
(33 )
(1 )
5
–
–
–
–
–
–
13
–
–
(6 )
(1 )
6
Amount recognised in profit and loss
Non-investment
property
£000
Property &
equipment
£000
Motor
vehicles
£000
Hardware
£000
Software
£000
Other
£000
Interest expense on lease liabilities
Fixed lease expense
Total cash outflow for leases
33
605
638
–
19
19
–
33
33
–
35
35
–
–
–
–
5
5
Right-of-use assets
Non-investment
property
£000
Property &
equipment
£000
Motor
vehicles
£000
Hardware
£000
Software
£000
Other
£000
Carrying amounts at 1 January
Additions
Disposals
Depreciation charge
Foreign exchange translation difference
Carrying amounts at 31 December
2,583
98
–
(619 )
(189 )
1,873
51
–
–
(20 )
(2 )
29
102
8
(17 )
(49 )
(7 )
37
92
–
–
(46 )
(7 )
39
–
–
–
–
–
–
2
16
–
(5 )
–
13
2022
Total
£000
1,991
105
(205 )
(659 )
(22 )
1,210
2022
Total
£000
33
697
730
2021
Total
£000
2,830
122
(17 )
(739 )
(205 )
1,991
185
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
22 Property and equipment (continued)
Amount recognised in profit and loss
Non-investment
property
£000
Property &
equipment
£000
Motor
vehicles
£000
Hardware
£000
Software
£000
Other
£000
Interest expense on lease liabilities
Fixed lease expense
Total cash outflow for leases
43
645
688
–
19
19
1
48
49
1
47
48
–
–
–
–
6
6
23 Investment properties
31 December
Balance at 1 January
Additions – Arising on acquisition
Additions
Disposals
Revaluation
Foreign exchange translation difference
Balance at 31 December
2021
Total
£000
45
765
810
2021
£000
1,124
–
–
–
21
(74 )
2022
£000
1,071
102,974
865
(2,758 )
(7,734 )
63
94,481
1,071
Investment properties were bought for investment purposes in line with the investment strategy of the group. The properties are independently valued in
accordance with International Valuation Standards on the basis of determining the open market value of the investment properties on an annual basis. The latest
valuations were conducted as at 31 December 2022. Within the investment properties, part of it is directly held (SIPP Commercial Property). There is no observable
input and therefore its classed as level 3 totalling £75.8m, see Note 24.
Both of these amounts are disclosed in net investment return (see Note 9). Expenses incurred in the operation and maintenance of investment properties are
disclosed in other operating expenses (see Note 15).
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
Policyholders’ funds held by the group
Derivative financial instruments
Total assets measured at fair value through income
Financial assets held at amortised cost
Total
2022
£000
2021
£000
9,169,152
1,130,476
141
7,842,605
990,700
264
10,299,769
305,228
8,833,569
293,811
10,604,997
9,127,380
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.
Financial assets that are not held at fair value or managed on a fair value basis, consist of mortgage loan portfolio cash deposits and a mortgage loan portfolio,
which are both held at amortised cost. The fair value of these assets as at 31 December 2022 was £294.3m (31 December 2021: £294.7m) and the change in
fair value in the year was a decrease of £0.4m. All other financial assets are held on a fair value basis and have a value of £10,317.3m as at 31 December 2022
(31 December 2021: £8,833.6m) with a change in fair value in the year of an increase of £1,483.7m (31 December 2021: £677.6m).
186
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 2022
Financial assets
Investment properties
Financial assets
Equities – Listed
Holdings in collective investment schemes
Debt securities – fixed rate:
Government bonds
Listed
Debt securities – floating rate listed
Total debt securities
Policyholders’ funds held by the group
Derivative financial instruments
Total
Current
Non-current
Total
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
1,215
–
93,266
94,481
79,233
7,942,461
420,681
429,316
3,554
853,551
1,130,476
–
–
46,505
24,200
54,960
–
79,160
–
141
–
168,242
79,233
8,157,208
–
–
–
–
–
–
444,881
484,276
3,554
932,71 1
1,130,476
141
10,006,936
125,806
261,508
10,394,250
2,192,019
8,202,231
10,394,250
–
–
–
–
6,856,574
1,130,476
3,681
7,990,731
Financial liabilities
Investment contracts at fair value through income
Liabilities related to policyholders’ funds held by the group
Derivative financial instruments
Total
–
1,130,476
–
6,856,574
–
3,681
1,130,476
6,860,255
Fair value measurement at 31 December 2021
Financial assets
Investment properties
Financial assets
Equities – Listed
Holdings in collective investment schemes
Debt securities – fixed rate:
Government bonds
Listed
Debt securities – floating rate listed
Total debt securities
Policyholders’ funds held by the group
Derivative financial instruments
Total
Current
Non-current
Total
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
1,071
–
–
1,071
6,352
6,602,615
–
65,210
–
190,229
6,352
6,858,054
554,146
406,608
17,349
978,103
990,700
–
96
–
–
96
–
264
–
–
–
–
–
–
554,242
406,608
17,349
978,199
990,700
264
8,578,841
65,570
190,229
8,834,640
2,309,678
6,524,962
8,834,640
Financial liabilities
Investment contracts at fair value through income
Liabilities related to policyholders’ funds held by the group
Total
–
990,700
4,120,573
–
990,700
4,120,573
–
–
–
4,120,573
990,700
5,1 1 1,273
187
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
24 Financial instruments (continued)
Investment properties
The investment properties are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered
Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations
of occupancy rates, rental income and growth. Properties undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital
expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs.
Holdings in collective investment schemes
The fair value of holdings in collective investment schemes classified as Level 2 in 2021 are related to our UK operation, and Scildon operation for the prior
year. These do not meet the classification as Level 1, as their fair value is determined using valuation techniques with observable market inputs. The holdings
classified as Level 3 £133.1m (Dec 2021: £173.9m) also relate to our Scildon operation, and represent investments held in a mortgage fund. These are classified
as Level 3 as the fair value is derived from valuation techniques that include inputs that are not based on observable market data. There is also a small holding
of assets classified as Level 3 £35.1m (Dec 2021: £16.3m) from our Movestic operation which are unlisted. The valuation of the vast majority of these assets is
based on unobservable prices from trading on the over-the-counter market.
Debt securities
The debt securities classified as Level 2 at 2021 and 2022 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.
Derivative financial instruments
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. Further detail can be found in Note 27.
Investment contract liabilities
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.
Significant unobservable inputs in Level 3 instruments valuations
The Level 3 instruments held in the group are in relation to investments held in an Aegon managed Dutch Mortgage Fund that contains mortgage-backed assets
in the Netherlands. The fair value of the mortgage fund is determined by the fund manager on a monthly basis using an in-house valuation model. The valuation
model relies on a number of unobservable inputs, the most significant being the assumed conditional prepayment rate, the discount rate and the impairment
rate, all of which are applied to the anticipated modelled cash flows to derive the fair value of the underlying asset.
The assumed Conditional Prepayment Rate (CPR) is used to calculate the projected prepayment cash flow per individual loan and reflects the anticipated early
repayment of mortgage balances. The CPR is based on 4 variables:
– Contract age – The CPR for newly originated mortgage loans will initially be low, after which it increases for a couple of years to its maximum expected value,
and subsequently diminishes over time.
– Interest rate differential – The difference between the contractual rates and current interest rates are positively correlated with prepayments. When contractual
rates are higher than interest rates of newly originated mortgages, we observe more prepayments and the vice versa.
– Previous partial repayments – Borrowers who made a partial prepayment in the past, are more likely to do so in the future.
– Burnout effect – Borrowers who have not made a prepayment in the past, while their option to prepay was in the money, are less likely to prepay in the future.
The projected prepayment cash flows per loan are then combined to derive an average expected lifetime CPR, which is then applied to the outstanding balance
of the fund. The CPR used in the valuation of the fund as at 31 December 2022 was 4.9% (31 December 2021: 6.1%).
The expected projected cash flows for each mortgage within the loan portfolio are discounted using rates that are derived using a matrix involving the following
three parameters:
– The remaining fixed rate term of the mortgage
– Indexed Loan to Value (LTV) of each mortgage
– Current (Aegon) mortgage rates.
At 31 December 2022 this resulted in discounting the cash flows in each mortgage using a range from 4.29% to 4.92% (31 December 2021: 1.29% to 2.02%).
188
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) An impairment percentage is applied to those loan cash flows which are in arrears, to reflect the chance of the loan actually going into default. For those loans
which are 1, 2 or 3 months in arrears, an impairment percentage is applied to reflect the chance of default. This percentage ranges from 0.60% for 1 month in
arrears to 13.70% for loans which are 3 months in arrears (31 December 2021: 0.60% for 1 month in arrears to 13.70% for loans which are 3 months in arrears).
Loans which are in default receive a 100% reduction in value.
The value of the fund has the potential to decrease or increase over time. This can be as a consequence of a periodic reassessment of the conditional prepayment
rate and/or the discount rate used in the valuation model.
A 1 percent increase in the CPR would reduce the value of the asset by £1.7m (31 December 2021: £3.5m).
A 1 percent decrease in the CPR would increase the value of the asset by £2.1m (31 December 2021: £5.2m).
A 1 percent increase in the discount rate would reduce the value of the asset by £9.6m (31 December 2021: £13.7m).
A 1 percent decrease in the discount rate would increase the value of the asset by £11.1m (31 December 2021: £15.8m).
Reconciliation of Level 3 fair value measurements of financial instruments
Level 3 movement
31 December
At start of period
Additions – acquisition of subsidiary
Transfers into Level 3
Total gains and losses recognised in the income statement
Purchases
Settlements
Exchange rate adjustment
At the end of period
31 December
Financial liabilities
Borrowings
2022
£000
2021
£000
190,229
102,974
–
(42,224 )
14,691
(1 1,452 )
7,290
185,424
–
16,314
796
–
–
(12,305 )
261,508
190,229
Carrying amount
Fair value
2022
£000
2021
£000
2022
£000
2021
£000
208,849
47,185
157,000
46,588
Borrowings consist of the Tier 2 debt and an amount due in relation to financial reinsurance. As at the end of 2021, prior to the raising of the Tier 2 debt, it also
consisted of bank loans. The fair value of the Tier 2 debt is calculated using quoted prices in active markets and they are classified as Level 1 in the fair value
hierarchy. The amount due in relation to financial reinsurance is fair valued with reference to market interest rates at the balance sheet date. The fair value of the
bank loans are taken as the principal outstanding at the balance sheet date. These are calculated using floating rates with the amortised cost being determined
net of unamortised arrangement fees which form part of the effective interest rate calculation.
During the year, there was a transfer between Level 2 to Level 3 in relation to mortgage-backed assets. There were no other transfers between Levels 1, 2 and 3
during the year. The group holds no Level 3 liabilities as at the balance sheet date.
Company
Fair value measurement at 31 December
Holdings in collective investment schemes
Total
Current
Non-current
Total
2022
£000
2021
£000
106,291
39,456
106,291
39,456
106,291
–
39,456
–
106,291
39,456
There were no Level 2 and Level 3 assets. The amounts held in collective investment schemes at a Chesnara plc company level are in relation to liquidity funds.
189
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
25 Financial assets held at amortised cost
Year ended 31 December
Mortgage loan portfolio cash deposits
Mortgage loan portfolio
Current
Non-current
Total
2022
£000
2021
£000
271,920
33,308
274,014
19,797
305,228
293,81 1
2,932
302,296
1,764
292,047
305,228
293,81 1
Within the mortgage loan portfolio there is a balance of policyholder loans, which are short-term funding relating to the buying and selling of policies and are
recovered within 1 year of the reporting date. The fair value of these loans is derived from valuation techniques that include inputs that are not based on observable
market data. As result, these are classed as Level 3 amounting to £0.5m.
26 Insurance and other receivables and prepayments
Group
Insurance and other receivables
31 December
Receivables arising from insurance contracts
Brokers
Policyholders
Receivables arising from investment contracts
Policyholders
Reinsurance receivables
Commission receivables
Other receivables
Accrued interest income
Receivables from fund management companies
Other
Total
Current
Non-current
Total
The carrying amount is a reasonable approximation of fair value.
Prepayments
31 December
Prepayments
Current
Non-current
Total
The carrying amount is a reasonable approximation of fair value.
190
2022
£000
2021
£000
866
663
3,895
8,017
61
8,51 1
477
14,182
980
665
2,510
8,651
75
13,898
1,399
7,435
36,672
35,613
28,932
7,740
34,797
816
36,672
35,613
2022
£000
2021
£000
15,630
13,245
15,309
321
12,771
474
15,630
13,245
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27 Derivative financial instruments
During the year, Chesnara entered into a foreign currency hedge. There are derivatives held within the unit-linked and with-profits funds, and also an option to
repay a financial reinsurance contract early, which comprises an embedded derivative.
31 December
Exchange-traded futures
Foreign currency hedge
Financial reinsurance embedded derivative
Total
Current
Non-current
Total
2022
2021
Asset
£000
Liability
£000
Asset
£000
Liability
£000
141
–
–
141
141
–
141
119
3,498
233
3,850
3,713
137
3,850
170
–
94
264
203
61
264
–
–
–
–
–
–
–
Derivatives within unit-linked funds
As part of its investment management strategy, the group purchases derivative financial instruments as part of its investment portfolio for unit-linked investment
funds, which match the liabilities arising on its unit-linked insurance and investment business.
A variety of equity futures are part of the portfolio matching the unit-linked investment and insurance liabilities. Derivatives are used to facilitate more efficient
portfolio management allowing changes in investment strategy to be reflected by futures transactions rather than a high volume of transactions in the
underlying assets.
All the contracts are exchange-traded futures, with their fair value being the bid price at the balance sheet date. They are, accordingly, determined at Level 1 in the
three-level fair value determination hierarchy set out in Note 24.
Exchange-traded futures (by geographical investment market)
31 December
Australia
Switzerland
Europe
UK
Hong Kong
Japan
USA
Total
2022
2021
Asset
£000
Liability
£000
Asset
£000
Liability
£000
–
–
–
–
–
141
–
141
–
–
55
–
–
–
64
–
–
12
–
–
133
25
119
170
–
–
–
–
–
–
–
–
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 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 year end.
CA also purchases exchange rate futures to mitigate exchange rate risk within its with-profits funds.
These contracts are exchange-traded contracts in active markets with their fair value being the bid price at the balance sheet date. They are, accordingly, determined at
Level 1 in the three-level fair value determination hierarchy set out in Note 24.
191
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
27 Derivative financial instruments (continued)
Derivatives within Chesnara
As part of its investment management strategy, Chesnara entered into a foreign currency hedge to reduce Chesnara’s exposure to FX movements between
sterling and both the euro and Swedish krona.
These contracts are exchange-traded contracts in active markets with their fair value being the bid price at the balance sheet date. They are, accordingly, determined
at Level 2 in the three-level fair value determination hierarchy set out in Note 24.
Company
31 December
Foreign currency hedge
Total
Current
Non-current
Total
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
2022
2021
Asset
£000
Liability
£000
Asset
£000
Liability
£000
–
–
–
–
–
3,498
3,498
3,498
–
3,498
–
–
–
–
–
–
–
–
–
–
2022
£000
115,390
59,904
–
2021
£000
69,569
518
–
175,294
70,087
(19 )
(256 )
175,275
69,831
The effective interest rate on short-term bank deposits was 0.00% (2021: 0.00%), with an average maturity of 1 day (2021: 1 day). All deposits included in cash and
cash equivalents were due to mature within 1 month of their acquisition. All balances are current and available on demand.
Included in cash and cash equivalents held by the group are balances totalling £81.6m (2021: £5.5m) held in unit-linked policyholders’ funds.
31 December
Tier 2 debt
Bank loan (i)
Financial reinsurance
Lease liabilities
Total
1 January
2022
£000
Financing
cash flows
£000
Foreign
exchange
translation
differences
£000
–
31,273
15,912
2,019
200,000
(31,175 )
(5,960 )
(342 )
–
(98 )
(345 )
(459 )
49,204
162,523
(902 )
New
leases
£000
Other 31 December
2022
£000
changes (ii )
£000
–
–
–
–
–
356
–
–
15
200,356
–
9,607
1,233
371
211,196
(i)
The cash flows from bank loans and other borrowings make up the net amount of proceeds from borrowings and repayments of borrowings in the cash
flow statement.
(ii) Other changes include interest accruals and payments.
192
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company
31 December
Bank and cash balances
Cash deposits due within 1 month
Total
All balances are current and available on demand.
31 December
Tier 2 debt
Bank loan (i)
Lease liabilities
Total
2022
£000
1,274
97
2021
£000
6,558
97
1,371
6,655
1 January
2022
£000
Financing
cash flows
£000
–
31,273
158
200,000
(31,175 )
(62 )
31,431
168,763
Foreign
exchange
translation
differences
£000
–
(98 )
–
(98 )
New
leases
£000
Other 31 December
2022
£000
changes (ii )
£000
–
–
–
–
356
–
–
200,356
–
96
356
200,452
(i)
The cash flows from bank loans and other borrowings make up the net amount of proceeds from borrowings and repayments of borrowings in the cash
flow statement.
(ii) Other changes include interest accruals and payments.
29 Capital management
(a) Regulatory context
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. This regime currently remains applicable to the UK post Brexit, albeit the PRA
has made some changes to the provision of technical information such as the risk free yield curve, which is now based on SONIA swap rates, and the volatility
adjustment and symmetric adjustment, which are now derived using indices more relevant to the UK. A more thorough review of Solvency II by the PRA is
underway with the aim of adapting the regulatory framework to reflect the UK’s position outside the EU and ensure it is fit for the future. 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 UK and 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.
193
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
29 Capital management (continued)
(a) Regulatory context (continued)
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.
(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
Dividend paying limit: Own Funds stated as % of SCR
120%
120%
Management actions limit: Own Funds stated as % of SCR
110%
110%
Waard
Group
135%
135%
Scildon
Group
175%
175%
140%
110%
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 considered 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 140% of its SCR. Should Own Funds fall below 110% 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.
– Monthly solvency monitoring: Full solvency calculations are performed on a quarterly basis. For intra quarter months a monthly solvency estimate is produced.
Where full estimation routines are not practical intra valuation solvency can be monitored through trigger monitoring and sensitivity analysis. In addition to the
group level indicators, the Chesnara board will remain close to any indications of divisional solvency movements by means of divisional MI and quarterly business
reviews. 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, held Own Funds above their respective Solvency Capital Requirements at all times during the year.
194
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) Quantitative analysis
(i) Group solvency position
The unaudited solvency position of the group and its divisions at 31 December 2022, and at 31 December 2021, 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 2022 (unaudited)
Region
Own Funds (pre dividends)
Proposed dividend
UK
£m
Movestic
£m
194.2
(56.0 )
185.4
(12.0 )
Waard
Group
£m
85.0
(5.3 )
Other
group and
consolidation
Scildon adjustments
£m
£m
132.4
–
30.9
50.5
Group
£m
627.9
(22.8 )
Own Funds (post dividends)
138.2
173.4
79.7
132.4
81.4
605.1
SCR
Solvency surplus
Solvency ratio
Dividend paying limit (% of SCR)
Dividend paying limit (£)
Surplus over dividend paying limit
31 December 2021 (unaudited)
Region
Own Funds (pre dividends)
Proposed dividend
99.4
106.9
13.5
38.8
66.5
66.2
70.3
62.1
139%
162%
591%
188%
120%
119.3
18.9
120%
128.3
45.1
175%
23.6
56.1
135%
94.9
37.5
16.6
n/a
n/a
n/a
n/a
n/a
UK
£m
Movestic
£m
158.3
(27.5 )
234.4
–
Waard
Group
£m
50.5
(6.1 )
Other
group and
consolidation
Scildon adjustments
£m
£m
151.5
(5.0 )
(15.2 )
16.5
306.7
298.4
197%
140%
429.4
175.7
Group
£m
579.6
(22.1 )
Own Funds (post dividends)
130.8
234.4
44.4
146.5
1.3
557.5
SCR
Solvency surplus
Solvency ratio
Dividend paying limit (% of SCR)
Dividend paying limit (£)
Surplus over dividend paying limit
100.4
158.6
1 1.1
30.4
75.8
33.3
76.4
70.1
130%
148%
400%
192%
120%
120.5
10.3
120%
190.3
44.1
150%
16.7
27.8
175%
133.7
12.8
20.3
366.8
n/a
n/a
n/a
n/a
n/a
190.7
152%
1 10%
403.5
154.0
195
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
29 Capital management (continued)
(c) Quantitative analysis (continued)
(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 2022 (unaudited)
Region
Solvency II Own Funds (post dividends)
Add Back: Ring-fenced fund surplus restrictions
Add Back: Intangible assets
Add Back: Tier 2 debt and restriction
Add Back: Foreseeable dividends
Add Back: Difference in valuation of technical provisions
Add Back: Difference in deferred tax
Add Back: Other valuation differences
UK
£m
Movestic
£m
138.2
0.0
53.1
–
56.0
(48.6 )
(25.3 )
(2.3 )
173.4
–
77.9
–
12.0
(161.6 )
0.0
0.3
Other
group and
consolidation
Scildon adjustments
£m
£m
132.4
–
31.8
–
–
(100.8 )
17.8
–
81.4
–
–
(153.3 )
(50.5 )
42.1
(9.9 )
1.2
Waard
Group
£m
79.7
–
3.5
–
5.3
(26.8 )
7.5
(1.4 )
Group
£m
605.1
0.0
166.3
(153.3 )
22.8
(295.7 )
(9.9 )
(2.2 )
IFRS Net Assets
171.1
102.0
67.8
81.2
(89.0 )
333.1
31 December 2021 (unaudited)
Region
Solvency II Own Funds (post dividends)
Add Back: Ring-fenced fund surplus restrictions
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
UK
£m
Movestic
£m
130.8
7.9
(0.6 )
27.5
(48.5 )
13.4
0.3
234.4
–
81.9
–
(210.8 )
(0.2 )
0.9
Other
group and
consolidation
Scildon adjustments
£m
£m
146.5
–
32.4
5.0
(21.8 )
(2.7 )
–
1.3
–
–
(16.5 )
47.9
(1 1.5 )
(1.4 )
Waard
Group
£m
44.5
–
4.2
6.1
(16.0 )
4.5
(1.3 )
Group
£m
557.5
7.9
117.9
22.1
(249.2 )
3.5
(1.5 )
IFRS Net Assets
130.8
106.2
42.0
159.4
19.8
458.2
Further information on how the group uses Solvency II, and metrics derived from Solvency II, as Alternative Performance Measures can be found in Section E on
pages 235 to 241.
30 Insurance contract provisions
(a) Analysis of insurance contract provisions by operating segment
31 December
UK
Movestic
Waard Group
Scildon
2022
Gross Reinsurance
£000
£000
1,402,908
49,991
363,967
1,794,395
181,300
17,992
2,256
(5,233 )
Net
£000
1,221,608
31,999
361,711
1,799,628
2021
Gross Reinsurance
£000
£000
1,529,259
59,813
341,787
1,887,553
228,704
23,381
2,628
(6,963 )
Net
£000
1,300,555
36,432
339,159
1,894,516
Total insurance contract provisions
3,611,261
196,315
3,414,946
3,818,412
247,750
3,570,662
435,517
3,175,744
9,540
186,775
425,977
2,988,969
517,557
3,300,855
1 1,753
235,997
505,804
3,064,858
3,611,261
196,315
3,414,946
3,818,412
247,750
3,570,662
Current
Non-current
Total
196
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(b) Analysis of movement in insurance contract provisions
Year ended 31 December
2022
Gross Reinsurance
£000
£000
Net
£000
2021
Gross Reinsurance
£000
£000
Net
£000
Balance at 1 January
Additions – Arising on acquisition
Premiums received
Fees deducted
Reserves released in respect of benefits paid
Movements in provisions for contracts sold – Movestic
in current year
in prior years
Investment return
Other movements
Foreign exchange translation difference
3,818,412
378,756
284,997
(53,648 )
(592,604 )
8,018
(12,463 )
(318,613 )
(22,734 )
121,140
247,750
1,014
15,145
(1,197 )
(30,122 )
3,135
(6,206 )
(23,007 )
(9,503 )
(694 )
3,570,662
377,742
269,852
(52,451 )
(562,482 )
3,958,037
1 1,731
283,952
(62,021 )
(450,808 )
197,068
–
15,764
(1,250 )
39,122
3,760,969
1 1,731
268,188
(60,771 )
(489,930 )
4,883
(6,257 )
(295,606 )
(13,231 )
121,834
1 1,077
(10,214 )
260,433
(25,255 )
(158,520 )
5,406
(3,930 )
(2,459 )
151
(2,122 )
5,671
(6,284 )
262,892
(25,406 )
(156,398 )
Balance at 31 December
3,611,261
196,315
3,414,946
3,818,412
247,750
3,570,662
(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, including unit-linked business in CASLP, 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 in CA and CASLP 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.
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.
Where reinsurance exists, the value of reinsurance assets are calculated by considering the cash flows to and from the reinsurers and applying the principles used
for the calculation of gross technical provisions.
197
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
30 Insurance contract provisions (continued)
(c) Basis and assumptions for calculating insurance contract provisions (continued)
UK (continued)
(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. The mortality assumptions used on the blocks of business
most sensitive to changes in mortality assumptions are disclosed below.
Ex-Protection Life, Life Business: 80% TMN00 select and 80% TFN00 select (non-smokers), 80% TMS00 select and 80% TFS00 select (smokers).
Annuitant mortality (CA): 89% PMA08 table and 89% PFA08 table, with 100% CMI_2021 improvements with a 2.0% long-term convergence rate from
31 December 2022.
Annuitant mortality (CASLP conventional annuities): 110% PMA08 table and 110% PFA08 table, with 100% CMI_2019 improvements with a 2.0% long-term
convergence rate from 31 December 2022.
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*
2022
2021
SPI **
SPP **
SPI
SPP
2.063%
2.250%
3.000%
3.938%
2.063%
2.250%
3.000%
3.938%
–
5.000%
–
5.000%
*Trustee Investment Contract (TIC), a unit-linked contract.
**SPI (CA S&P Insurance business)/SPP (S&P Pension business).
Discount rates
CA uses appropriate rates of interest, for different product types, in discounting projected liabilities. As at 31 December 2022 for the material product types,
these lay between 3.40% and 4.85% (31 December 2021: between 0.65% and 1.70%).
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
25%
40%
45%
50%
BA
65%
B
CAA+
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 by CA are based on the charges made to CA by its two third party insurance administration services providers, with appropriate
margins. The renewal expenses assumed by CASLP reflect a per policy allocation of future expected expenses, with appropriate margins. These expenses 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 and CASLP funds.
Taxation
For BLAGAB contracts subject to policyholder tax 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 overleaf.
198
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 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 the S&P contracts with DPF has been assessed on a market consistent basis. This 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. The actual cost to shareholder depends principally on the future investment performance of the associated policyholders’
assets and on the rate of discontinuance of policies prior to maturity. 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
2022
£000
10,481
(1,399 )
2021
£000
18,812
(8,331 )
9,082
10,481
The cost of guarantees are sensitive to changes in the value of investments. A 1% decrease in investment yields would decrease net profit and net equity by £2.1m
(31 December 2021: £3.5m). A 10% fall in equities would decrease net profit and net equity by £2.63m (31 December 2021: £2.6m).
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 £680,000 as at 31 December 2022 (31 December 2021: £914,000).
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 3.1% per annum.
The Timed Investment Fund reserve is sensitive to changes in the value of equities, however a 10% fall in equities at 31 December 2022 would not impact net
equity. This is because the fund is expected to grow sufficiently that guarantees would not bite even after the fund value has been stressed.
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 2022 was £3.5m (31 December 2021: £3.5m). 403 policies invested in the fund (31 December 2021: 410), of which 18
(31 December 2021: 19) were paying premiums (for a total of approximately £6,000 per annum (31 December 2021: £6,000)).
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
4.41% pa
3.43% pa
3.40% 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 2022 was £0.1m (31 December 2021: £0.1m).
199
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
30 Insurance contract provisions (continued)
(c) Basis and assumptions for calculating insurance contract provisions (continued)
UK (continued)
(iii) Valuation of options and guarantees (continued)
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 2022 was £0.1m (31 December 2021: £1.0m). The reason for the fall in reserves relative to 2021 is the rise in
interest rates, which has reduced the additional guarantee cost arising when policyholders choose to defer retirement.
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 2022 was £0.03m (31 December 2021: £0.03m).
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 2022 was £0.3m (31 December 2021: £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 2022 is £0.1m (31 December 2021: £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.
(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 overleaf 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.
200
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (iii) Analysis of claims development – gross
Estimate of ultimates
End of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Current estimate of ultimate claims
Cumulative payments
2017
£000
2018
£000
2019
£000
2020
£000
26,231
17,178
16,810
16,246
14,744
17,466
12,546
10,662
9,867
14,709
1 1,686
8,859
2021
£000
1 1,623
9,034
2022
£000
8,565
14,744
(9,602 )
9,867
(7,632 )
8,859
(4,879 )
9,034
(3,886 )
8,565
(2,816 )
28,651
21,259
20,683
18,334
17,217
16,515
16,515
(1 1,972 )
In balance sheet
4,543
5,142
2,235
3,980
5,148
5,749
Provision for prior years
Liability in balance sheet
Analysis of claims development – net
Estimate of ultimates
End of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Current estimate of ultimate claims
Cumulative payments
20,934
47,732
2022
£000
5,449
2018
£000
8,620
9,366
8,986
8,504
7,528
2019
£000
8,594
4,821
4,208
3,784
2020
£000
9,506
7,296
5,633
2021
£000
6,402
6,014
7,528
(4,238 )
3,784
(2,898 )
5,633
(3,392 )
6,014
(2,761 )
5,449
(2,179 )
2017
£000
10,116
1,831
9,935
8,650
7,936
7,722
7,722
(4,536 )
In balance sheet
3,186
3,290
886
2,241
3,253
3,270
Provision for prior years
Liability in balance sheet
Netherlands (Waard Group)
(i) Basis
14,267
30,394
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.
Different assumptions are used for each portfolio (e.g. Waard Leven has different assumptions for the following portfolios: DSB, HW UL portfolio/DSB Index UL,
MGL, Argenta, BND). As an example, the most material portfolio (Argenta Savings Mortgages) uses the following mortality and discount rate assumptions:
Interest: EIOPA curve at 31 August 2020, without VA
Mortality: 80% of the generational prognosis table AG2018
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 IBNR which are regularly updated reflecting analysis of recent
reporting patterns.
201
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
30 Insurance contract provisions (continued)
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 non-linked contracts the insurance contract provisions are calculated as the discounted value of future claims and expenses less any expected premium
income. For any given policy if the net present value of future discounted cash flows is positive then no asset is recognised.
Additionally, a liability adequacy test is performed to verify the adequacy of the IFRS technical provisions. The test is carried out by comparing the carrying amount
of IFRS provisions with the best-estimate provisions calculated under Solvency II regulations. If the value of best-estimate provisions is higher, then the difference is
added to the total value of IFRS provisions as a LAT deficit.
(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 assumptions differ by product type, and there are also different assumptions applied within each product type depending on when the contract was written.
The unit-linked products are the most material, and an example of the mortality tables used are the GBM 1976 -1980 (males) and GBV 1976-1980 (females). For
annuities, an example of the mortality tables applied are the GBM 1980-1985 (males) and GBV 1980-1985 (females) tables and the discount rate assumption is the
Solvency II curve (including VA) less investment costs, where investment costs are determined annually.
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
Gross of reinsurance
CA
Change in net of tax
profits and equity
2022
£m
2021
£m
Scildon
Change in net of tax
profits and equity
2022
£m
2021
£m
Movestic
Change in net of tax
profits and equity
2021
2022
£m
£m
(0.4 )
1.2
(2.4 )
(12.2 )
(9.8 )
(2.3 )
(3.9 )
11.4
n/a
n/a
(2.0 )
2.9
(3.2 )
(15.6 )
(12.6 )
(3.0 )
(4.1 )
13.4
n/a
n/a
(14.6 )
(25.8 )
19.9
(4.1 )
(4.1 )
–
(0.8 )
0.5
n/a
n/a
(22.5 )
(33.2 )
19.5
(3.2 )
(3.2 )
–
(0.8 )
0.4
n/a
n/a
n/a
(0.6 )
0.5
n/a
n/a
n/a
n/a
n/a
(1.9 )
1.9
n/a
(1.3 )
1.1
n/a
n/a
n/a
n/a
n/a
(2.3 )
2.3
CA
Change in net of tax
profits and equity
2022
£m
2021
£m
Scildon
Change in net of tax
profits and equity
2022
£m
2021
£m
Movestic
Change in net of tax
profits and equity
2021
2022
£m
£m
(2.6 )
(3.2 )
2.4
0.8
1.1
(0.4 )
(3.7 )
5.0
n/a
n/a
(3.7 )
(8.0 )
8.5
(0.1 )
0.4
(0.5 )
(3.8 )
5.2
n/a
n/a
(14.4 )
(25.1 )
(18.9 )
(3.4 )
(3.4 )
–
(1.4 )
1.0
n/a
n/a
(22.2 )
(32.2 )
17.9
(3.7 )
(3.7 )
–
(1.6 )
(1.0 )
n/a
n/a
n/a
(1.2 )
1.2
n/a
n/a
n/a
n/a
n/a
(1.2 )
1.2
n/a
(2.3 )
2.2
n/a
n/a
n/a
n/a
n/a
(1.4 )
1.4
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
10% increase in morbidity alone
10% increase in policy maintenance expenses
10% mass lapse
5% increase in loss ratio
5% decrease in loss ratio
Net of reinsurance
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
10% increase in morbidity alone
10% increase in policy maintenance expenses
10% mass lapse
5% increase in loss ratio
5% decrease in loss ratio
202
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UK business (CA and CASLP)
Assumptions are adjusted for changes in mortality, investment return, policy maintenance expenses and expense inflation to reflect anticipated changes in market
conditions and market experience and price inflation.
CA and CASLP 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 overleaf 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 above sensitivities are calculated as an expected impact on IFRS-based profits, both gross and net reinsurance and net of 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 above quantifies a 10% increase in those expenses.
In 2022 the impact of CASLP’s sensitivities have been incorporated into the UK result, although this has not had a material effect as CASLP consists primarily of
investment contracts, which are not subject to these sensitivities.
The impact of a 100 basis point increase/decrease in investment returns has fallen over 2022 due to the rise in interest rates, which has reduced the convexity of
assets and liabilities making them less sensitive to interest rate movements.
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 net of reinsurance at 2022 is £(2.5)m (2021: £(2.5)m).
Dutch business (Scildon)
Similar to Waard, Scildon measures the majority of its insurance contract liabilities using historical assumptions, which usually means that the value of IFRS
provisions is fairly stable under many sensitivities. Similarly to CA, the impact of a 100 basis point increase in investment returns has fallen due to the rise in
interest rates over 2022, which has reduced the sensitivity of the assets being stressed to a further rise in interest rates. The impact of a 100 basis point increase
in credit spreads has fallen for the same reason.
31 Other provisions
Balance at I January 2022
Additions – Arising on acquisition
Charge in the year
Amounts utilised during the year
Balance at 3I December 2022
£000
992
9,809
174
(3,022 )
7,953
Prior to the acquisition of CASLP, the other provisions were an immaterial amount. Majority of provisions at the year end relate to mis-selling of £5.2m.
During the year, a provision of £174k was recognised representing interest on claims held within the client money account. These are clients who are either
deceased or we have no contact details for them. The provision is recalculated monthly based on the claims held at the end of the month. The interest rate is 1%
below the Bank of England base rate.
203
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
32 Investment contracts at fair value through income and amounts deposited with reinsurer
Analysis by operating segment
31 December
UK
Movestic
Total
Current
Non-current
Total
Investment
contract
liability
£000
2022
Amount
deposited
with
reinsurer
£000
Investment
contract
liability
£000
Net
£000
2021
Amount
deposited
with
reinsurer
£000
Net
£000
3,015,104
2,789,765
32,803
–
2,982,301
2,789,765
738,458
3,382,114
38,295
–
700,163
3,382,114
5,804,869
32,803
5,772,066
4,120,572
38,295
4,082,277
1 18,830
5,686,039
32,803
–
86,027
5,686,039
78,580
4,041,992
38,295
–
77,764
4,004,513
5,804,869
32,803
5,772,066
4,120,572
38,295
4,082,277
The fair values of the group’s investment contract liabilities have been disclosed according to a three-level valuation hierarchy in Note 24.
33 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
2022
£000
2021
£000
990,700
699,908
(3,242 )
(393,037 )
(22,249 )
(141,604 )
332,117
603,487
(2,775 )
197,739
(87,004 )
(52,864 )
1,130,476
990,700
20,370
1,1 10,106
16,404
974,296
1,130,476
990,700
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.
34 Lease liabilities
The group leases several assets including office buildings, office and IT equipment and motor vehicles.
Maturity analysis
31 December 2022
Non-investment property
Property and equipment
Motor vehicles
Hardware
Other
Total
Current
Non-current
Total
204
Carrying value
£000
0-1 year
£000
1-2 years
£000
2-5 years
£000
5-10 years
£000
>10 years
£000
562
5
18
5
5
595
682
10
–
–
1
693
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,199
10
13
5
6
1,233
635
598
1,233
Total
£000
1,244
15
18
5
6
1,288
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturity analysis
31 December 2021
Non-investment property
Property and equipment
Motor vehicles
Hardware
Other
Total
Current
Non-current
Total
35 Borrowings
Group
31 December
Carrying value
£000
0-1 year
£000
1-2 years
£000
2-5 years
£000
5-10 years
£000
>10 years
£000
1,901
28
38
40
12
592
19
29
36
7
609
10
1 1
5
5
2,019
683
640
659
–
–
–
–
659
44
–
–
–
–
44
–
–
–
–
–
–
Total
£000
1,904
29
40
41
12
2,026
685
1,334
2,019
Bank loan
Tier 2 debt
Amount due in relation to financial reinsurance
Amount due in relation to financial reinsurance
Total
Current
Non-current
Total
Company
31 December
Bank loan
Tier 2 debt
Total
Current
Non-current
Total
2022
£000
–
200,356
9,607
2,013
2021
£000
31,273
–
15,912
–
21 1,976
47,185
204,327
7,649
36,907
10,278
21 1,976
47,185
2022
£000
–
200,356
2021
£000
31,273
–
200,356
31,273
200,356
–
31,273
–
200,356
31,273
In 2022, the bank loan was fully repaid and replaced by Tier 2 Subordinated Notes Debt. The fair value of amounts due in relation to Tier 2 debt at 31 December
2022 was £148.0m (31 December 2021: £nil).
The bank loan as at 31 December 2021 comprised 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. During the year, the London Inter-Bank Offer Rate changed
to Sterling Overnight Index Average (SONIA) as a reference point. 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.
205
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
35 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 2022 was £nil (31 December 2021: £12.0m).
The fair value of the euro denominated bank loan at 31 December 2022 was £nil (31 December 2021: £18.5m).
The fair value of amounts due in relation to financial reinsurance at 31 December 2022 was £9.0m (31 December 2021: £16.4m).
Bank loans are presented net of unamortised arrangement fees. Arrangement fees are recognised in profit or loss using the effective interest rate method.
36 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
CA and other group activities
(a) Recognised deferred tax assets and liabilities
31 December
Profit arising on transition to new tax regime
Deferred acquisition costs
Deferred income
Acquired value in-force
Property, plant and equipment
Tax losses on pensions business
Unrealised and deferred investment gains
Excess expenses of management
Share-based payments
Right of use-assets/lease liabilities
Tax losses
Total
Comprising:
Net deferred tax liabilities
Total
206
2022
£000
2021
£000
(29,021 )
(134 )
5,756
15,304
106
(206 )
921
(16,520 )
(8,095 )
(15,699 )
(82 )
(8,013 )
(395 )
(15,304 )
(8,095 )
(15,699 )
2021
Assets/
(liabilities )
£000
Credit/
(charge )
in year
£000
Arising on
acquisition
£000
2022
Assets/
(liabilities )
£000
(275 )
(233 )
496
(614 )
–
–
(15,345 )
15,345
732
–
–
275
189
(79 )
4,452
(17 )
527
13,808
(2,926 )
144
78
4,757
–
1,470
–
(40,548 )
94
740
(12,210 )
119
–
–
–
–
1,426
417
(36,710 )
77
1,267
(13,747 )
12,538
876
78
4,757
106
21,208
(50,335 )
(29,021 )
106
21,208
(50,335 )
(29,021 )
106
21,208
(50,335 )
(29,021 )
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31 December
Profit arising on transition to new tax regime
Deferred acquisition costs
Deferred income
Acquired value in-force
Unrealised and deferred investment gains
Excess expenses of management
Share-based payments
Right of use-assets/lease liabilities
Total
Comprising:
Net deferred tax liabilities
Total
2020
Assets/
(liabilities )
£000
Credit/
(charge )
in year
£000
2021
Assets/
(liabilities )
£000
(436 )
(230 )
470
(763 )
(4,094 )
4,094
620
–
161
(3 )
26
149
(1 1,251 )
1 1,251
1 12
–
(339 )
445
(339 )
(339 )
445
445
(275 )
(233 )
496
(614 )
(15,345 )
15,345
732
–
106
106
106
The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year remained
at 19%. The future enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities where relevant, being the rate of corporation
tax that is expected to apply when the majority of those deferred tax balances reverse.
Note (i) The deferred tax credit to the Consolidated Statement of Comprehensive Income for the year is classified as follows:
Year ended 31 December
Income tax credit
(b) Items for which no deferred tax asset is recognised
31 December
Tax losses on pensions business
Transitional losses on non-pension business
Unrelieved expenses
Realised and unrealised investment losses
BLAGAB trade losses
Total
2022
£000
2021
£000
21,208
445
2022
£000
17,793
3
94,751
9,118
2,215
2021
£000
–
479
31,532
–
–
123,880
32,011
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.
There are no aggregate temporary differences arising on the acquisition of subsidiaries or associated undertakings, for which deferred tax has not been recognised.
207
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
36 Deferred tax assets and liabilities (continued)
CA and other group activities (continued)
Movestic
(c) Recognised deferred tax assets and liabilities
As at the balance sheet date, Movestic had a recognised deferred tax liability of £0.1m (31 December 2021: £0.2m), in respect of fair value adjustments arising
upon acquisition. Unrecognised deferred tax assets were nil at the balance sheet date in respect of corporation tax recoverable (31 December 2021: nil).
2021
Assets/
Arising on
business
(liabilities ) combinations
£000
£000
Credit/
(charge )
in year
£000
Foreign
exchange
translation
difference
£000
2022
Assets/
(liabilities )
£000
(1,071 )
1,992
–
2,206
214
2,170
(51 )
296
(908 )
6,664
921
2,206
2,384
245
5,756
921
921
2,206
2,384
2,206
2,384
245
245
5,756
5,756
2021
Assets/
(liabilities )
£000
Credit/ Recognised
through
(charge )
equity
in year
£000
£000
Foreign
exchange
translation
difference
£000
2022
Assets/
(liabilities )
£000
(6,114 )
3,552
–
(11 )
(550 )
(11,825 )
(1,572 )
789
(186 )
–
1 1
(189 )
(5,856 )
37,077
(16,520 )
31,646
(16,520 )
31,646
(16,520 )
31,646
–
–
–
–
–
–
–
–
–
–
(305 )
190
–
–
(39 )
(909 )
1,241
(5,630 )
3,556
–
–
(778 )
(18,590 )
36,746
178
15,304
178
15,304
178
15,304
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 asset
Total
Scildon
(e) Recognised deferred tax assets and liabilities
31 December
Fair value adjustment on acquisition
Deferred acquisition costs
LAT reserve
Defined benefit pension scheme obligations
Revaluation of buildings and investment properties
Valuation differences on technical provisions
Valuation differences on investments at fair value through profit and loss
Total
Comprising:
Net deferred tax liabilities
Total
208
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
37 Reinsurance payables
Payable to reinsurers
31 December
Payables in respect of insurance contracts
Payables in respect of investment contracts
Liability for assets withheld
Reinsurers’ share of deferred acquisition costs and claims deposits
Total
Current
Non-current
Total
The carrying value of payables to reinsurers is a reasonable approximation of fair value.
38 Payables related to direct insurance and investment contracts
2022
£000
928
9
47,756
128
2021
£000
3,742
13
66,510
149
48,821
70,414
48,821
–
70,414
–
48,821
70,414
31 December
Accrued claims
Intermediaries’ liabilities
Policyholder liabilities
Other
Total
Current
Non-current
Total
2022
Gross Reinsurance
£000
£000
97,481
1,666
20,809
29,767
14,125
–
–
–
Net
£000
83,356
1,666
20,809
29,767
2021
Gross Reinsurance
£000
£000
82,332
1,452
22,338
23,140
16,340
–
–
–
Net
£000
65,992
1,452
22,338
23,140
149,723
14,125
135,598
129,262
16,340
1 12,922
149,723
–
14,125
–
135,598
–
129,262
–
16,340
–
1 12,922
–
149,723
14,125
135,598
129,262
16,340
1 12,922
The carrying value of payables related to the direct insurance and investment contracts is a reasonable approximation of fair value.
39 Deferred income
31 December
Balance at 1 January
Additions
Release to income
Foreign exchange translation difference
Balance at 31 December
Current
Non-current
Total
2022
£000
2,808
–
(453 )
28
2021
£000
3,355
–
(508 )
(38 )
2,383
2,809
719
1,664
331
2,478
2,383
2,809
The release to income is included in fees and commission income (see Note 8). These are initial fees that relate to future provision of services that are deferred
and amortised over the anticipated period.
209
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
40 Other payables
Group
31 December
Accrued expenses
VAT
Employee tax
Other
Total
Current
Non-current
Total
Company
31 December
Accrued expenses
Other
Total
Current
Non-current
Total
2022
£000
11,572
1,309
5,459
16,810
2021
£000
10,952
50
3,077
9,912
35,150
23,991
35,150
–
23,991
–
35,150
23,991
2022
£000
2,047
454
2021
£000
3,001
323
2,501
3,324
2,501
–
3,324
–
2,501
3,324
The carrying value of other payables is a reasonable approximation of fair value.
41 Share capital and share premium
Group
31 December
Share capital
150,369,603
7,502
150,145,602
7,496
2022
2021
Number
of shares
issued
Share
capital
£000
Number
of shares
issued
Share
capital
£000
Share
premium
£000
142,332
Merger
reserve
£000
36,272
Share
premium
£000
142,085
Merger
reserve
£000
36,272
The number of shares in issue at the balance sheet date included nil shares held in treasury (31 December 2021: nil).
210
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company
31 December
Authorised:
Ordinary shares of 5p each
Issued:
Ordinary shares of 5p each
2022
2021
Number
of shares
Share
capital
£000
Number
of shares
Share
capital
£000
201,000,000
10,050
201,000,000
10,050
150,369,603
7,502
150,145,602
7,496
Share
premium
£000
142,332
Share
premium
£000
142,085
The number of shares in issue at the balance sheet date included nil shares held in treasury (31 December 2021: nil).
42 Other reserves
Group
31 December
Capital redemption reserve
Foreign exchange translation reserve
Balance at 31 December
Company
31 December
Capital redemption reserve
43 Retained earnings
Group
Year ended 31 December
Retained earnings attributable to equity holders of the parent company comprise:
Balance at 1 January
(Loss)/profit for the year
Share based payment
Dividends
Final approved and paid for 2020
Interim approved and paid for 2021
Final approved and paid for 2021
Interim approved and paid for 2022
Balance at 31 December
2022
£000
50
13,671
2021
£000
50
7,212
13,721
7,262
2022
£000
2021
£000
50
50
2022
£000
2021
£000
265,052
(98,333 )
867
270,442
27,294
593
–
–
(22,101 )
(12,195 )
(21,446 )
(1 1,831 )
–
–
133,290
265,052
The interim dividend in respect of 2021, approved and paid in 2021, was paid at the rate of 7.88p per share. The final dividend in respect of 2021, approved and
paid in 2022, was paid at the rate of 14.72p per share so that the total dividend paid to the equity shareholders of the parent company in respect of the year ended
31 December 2021 was made at the rate of 22.60p per share.
211
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
43 Retained earnings (continued)
The interim dividend in respect of 2022, approved and paid in 2022, was paid at the rate of 8.12p per share to equity shareholders of the parent company registered
at the close of business on 21 October 2022, the dividend record date.
A final dividend of 15.16p per share in respect of the year ended 31 December 2022 payable on 26 May 2023 to equity shareholders of the parent company
registered at the close of business on 6 April 2023, the dividend record date, was approved by the directors after the balance sheet date. The resulting total final
dividend of £22.8m has not been provided for in these financial statements and there are no income tax consequences.
The following summarises dividends per share in respect of the year ended 31 December 2021 and 31 December 2022:
Year ended 31 December
Interim – approved and paid
Final – proposed/paid
Total
Company
Year ended 31 December
Balance at 1 January
(Loss)/profit for the year
Share based payment
Dividends paid
Final approved and paid for 2020
Interim approved and paid for 2021
Final approved and paid for 2021
Interim approved and paid for 2022
Balance at 31 December
2022
P
8.12
15.16
2021
P
7.88
14.72
23.28
22.60
2022
£000
225,008
(16,362 )
867
–
–
(22,101 )
(12,195 )
2021
£000
228,650
29,042
593
(21,446 )
(1 1,831 )
–
–
175,217
225,008
Details of dividends, approved and paid, are set out in the group section on previous page.
44 Employee benefit expense, including directors
Year ended 31 December
Wages and salaries
Social security costs
Pension costs-defined contribution plans
Pension costs-defined benefit plans
CA
£000
2,050
249
165
–
CASLP
£000
Movestic
£000
Waard
Group
£000
Other group
activities
£000
Scildon
£000
3,853
232
163
–
8,024
2,521
1,943
–
2,205
250
303
–
6,743
1,11 1
1,169
–
5,715
694
460
–
2022
£000
28,590
5,057
4,203
–
2021
£000
22,723
4,930
3,705
–
Total
2,464
4,248
12,488
2,758
9,023
6,869
37,850
31,358
Monthly average number of employees
Company
Subsidiaries
Total
52
362
414
42
280
322
Directors
The Directors’ Remuneration Report and Note 45 provides detail of compensation to directors of the company.
UK
UK-based employees are all employed by Chesnara plc.
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.
212
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 213.
Waard
The Waard business participates in a defined contribution scheme.
Scildon
Scildon operated a defined benefit pension scheme for the benefit of its present and past employees. This scheme was closed during 2019 and transferred into
a defined contribution scheme. From 1 October 2019, Scildon no longer bears any risks relating to the funding of the plan and all pension assets transferred to another
administrator in 2020. Until that point, Scildon continued to bear only the fund administration costs.
Under the company’s new defined contribution scheme, Scildon 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.
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 2021, totalled £5.2m.
During 2022 further contributions of £0.4m 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 2021.
The Annual Report states that the Scheme’s surplus is £408.2m (£250.9m as at 31 December 2020).
As at 31 December 2021, the fund had assets under management of £1.5bn (£1.4bn as at 31 December 2020). During 2021 there have been 97 (103) employer
insurance companies participating in the Scheme and 26,000 (26,000 as at 31 December 2020) 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.
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 (STI) Scheme
(b) Long-Term Incentive (LTIP) Scheme
The STI Scheme is based upon a 1 year performance period measured against cash generation, EcV earnings and strategic group objectives. In relation to 2022,
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 100% 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 LTIP 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 EcV 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 LTIP Scheme also contains a target of EcV 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’.
213
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D 45 Share-based payments (continued)
(a) 2022 award made under the Short-Term Incentive (STI) Scheme
Details of the short-term incentive awards made in the year are as follows:
2022 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
2022
£000
2021
£000
355
191
546
59
607
327
934
236
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) 2022 award made under the Long-Term Incentive (LTIP) Scheme
In April 2022, the group granted 253,000 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 Economic Value and Total Shareholder Return (TSR).
The fair value of the non-market base condition was determined to be 284.00p, which was the share price as at 28 April 2022, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2022 Long-Term Incentive Scheme
Outstanding at the beginning of the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
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
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 £37,000 related to equity-settled share-based payments transactions in 2022.
(c) 2021 award made under the Short-Term Incentive (STI) Scheme
The group has recorded an expense of £206,000 with regards to the 35% element that has been deferred over the vesting period.
2022
Weighted
average
exercise
price
£
Options
number
000
–
253
–
253
–
–
–
–
Monte Carlo
284.00
Nil
162.50
29.04
3 years
2.24%
0%
214
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) 2021 award made under the Long-Term Incentive (LTIP) Scheme
In April 2021, the group granted 260,000 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 Economic Value and Total Shareholder Return (TSR).
The fair value of the non-market base condition was determined to be 278.50p, which was the share price as at 28 April 2021, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2021 Long-Term Incentive Scheme
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
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
2022
2021
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
702
–
(99 )
–
603
–
–
2.66
–
–
–
794
–
(92 )
702
–
–
–
–
–
Monte Carlo
278.50
Nil
160.56
30.01
3 years
0.48%
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 £486,000 related to equity-settled share-based payments transactions in 2022.
(e) 2020 award made under the Short-Term Incentive (STI) Scheme
The group has recorded an expense of £59,000 with regards to the 35% element that has been deferred over the vesting period.
(f) 2020 award made under the Long-Term Incentive (LTIP) Scheme
In April 2020, the group granted 224,000 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 Economic Value and Total Shareholder Return (TSR).
The fair value of the non-market base condition was determined to be 323.50p, which was the share price as at 28 April 2020, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2020 Long-Term Incentive Scheme
2022
2021
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
Outstanding at the beginning of the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
The weighted average contractual life is 10 years.
192
–
–
192
–
–
–
–
224
–
(32 )
192
–
–
–
–
215
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
45 Share-based payments (continued)
(f) 2020 award made under the Long-Term Incentive (LTIP) Scheme (continued)
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
323.50
Nil
184.04
28.51
3 years
0.42%
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 £56,000 related to equity-settled share-based payments transactions in 2022.
(g) 2019 award made under the Short-Term Incentive (STI) Scheme
The group has recorded an expense of £57,000 with regards to the 35% element that has been deferred over the vesting period.
(h) 2019 award made under the Long-Term Incentive (LTIP) Scheme
In April 2019, the group granted 196,000 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 Economic Value and Total Shareholder Return (TSR).
The fair value of the non-market base condition was determined to be 358.50p, which was the share price as at 28 April 2019, the grant date of the options.
Details of the share options outstanding during the year are as follows:
2019 Long-Term Incentive Scheme
Outstanding at the beginning of the year
Lapsed during the year
Outstanding at the end of the year
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
2022
2021
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
196
(196 )
–
–
–
–
196
–
196
–
–
–
Monte Carlo
358.50
Nil
202.74
25.35
3 years
1.110%
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 £22,000 related to equity-settled share-based payments transactions in 2022.
(i) 2018 award made under the Short-Term Incentive (STI) Scheme
The group has recorded an expense of £4,000 with regards to the 35% element that has been deferred over the vesting period.
(j) 2018 award made under the Long-Term Incentive (LTIP) Scheme
In April 2018, the group granted 168,000 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 Economic 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.
216
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Details of the share options outstanding during the year are as follows:
2018 Long-Term Incentive Scheme
Outstanding at the beginning of the year
Lapsed during the year
Outstanding at the end of the year
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
2022
2021
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
–
–
–
–
–
–
168
(168 )
–
–
–
–
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 no expense related to equity-settled share-based payments transactions in 2022.
(k) 2017 award made under the Long-Term Incentive (LTIP) Scheme
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 Economic 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
Outstanding at the beginning of the year
Exercised during the year
Outstanding at the end of the year
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
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised no expense related to equity-settled share based payments transactions in 2022 and 2021.
2022
2021
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
26
–
26
–
–
–
41
(15 )
26
–
–
–
Monte Carlo
382.75
Nil
211.73
26.97
3 years
0.70%
0%
217
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
45 Share-based payments (continued)
(l) 2016 award made under the Long-Term Incentive (LTIP) Scheme
In April 2016, the group granted 255,000 nil priced share options with a vesting period of three years. These awards were subject to performance conditions tied
to the company’s financial performance in respect of growth in Economic 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
2022
2021
Weighted
average
exercise
price
£
Options
number
000
Weighted
average
exercise
price
£
Options
number
000
90
–
90
–
–
–
90
–
90
–
–
–
Outstanding at the beginning of the year
Exercised during the year
Outstanding at the end of the year
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%
2022
2021
(98,333 )
150,239,599
(65.45)p
(64.67)p
27,294
150,118,548
18.18p
18.00p
Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 10 years.
The group recognised no expense related to equity-settled share based payments transactions in 2022 and 2021.
46 Earnings per share
Earnings per share are based on the following:
Year ended 31 December
(Loss)/profit for the year attributable to shareholders (£000)
Weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share
The weighted average number of ordinary shares in respect of the year ended 31 December 2022 is based upon 150,369,603 shares. No shares were held
in treasury.
There were 1,815,601 share options outstanding at 31 December 2022 (2021: 1,501,566). Accordingly, there is dilution of the average number of ordinary shares in
issue in respect of 2021 and 2022.
47 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.
In CA £0.2m is held in respect of endowment mis-selling and £0.25m is held in respect of pension mis-selling. In CASLP £4.8m is held in respect of non-pension
mis-selling, of which £4.3m is expected to be recoverable under a pecuniary loss cover with Allianz, and £0.4m is held in respect of pension mis-selling, all of
which is expected to be recoverable from Allianz. A further £0.2m is held in respect of ongoing pension complaints with the Financial Ombudsman Service.
No complaints reserves are held in Movestic, Scildon or the Waard Group.
218
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
48 Capital commitments
There were no capital commitments as at 31 December 2022 or as at 31 December 2021.
49 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 (including non-executive directors) of the company;
(ii) its subsidiary companies;
(iii) other companies over which the directors have significant influence; and
(iv) 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. This is on the basis that the group’s governance map requires all strategically significant
decisions to be approved by the group board. As such, they have the authority and responsibility for planning, directing and controlling the activities of the group.
Key management compensation is as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
2022
£000
1,204
65
869
2021
£000
2,342
85
593
2,138
3,020
The share-based payments charge comprises £0.3m (2021: £0.2m) of Short-Term Incentive (STI) Scheme, and £0.2m (2021: £0.2m) related to Long-Term Incentive
(LTIP) Scheme, which is determined in accordance with IFRS 2 ‘Share-based Payment’. Further details on the share-based payment are disclosed in Note 45.
In addition, to their salaries the company also provides non-cash benefits to directors and contributes to a post-employment defined contribution pension plan on
their behalf, or where regulatory contribution limits are reached, pay an equivalent amount as an addition to base salary.
The following amounts were payable to directors in respect of bonuses and incentives:
Annual bonus scheme (included in the short-term employee benefits above)
2022
£000
2021
£000
546
934
These amounts have been included in Accrued Expenses as disclosed in Note 35. The amounts payable under the annual bonus scheme were payable within
1 year. The terms and conditions attached to the annual bonus scheme can be found in the remuneration section of these accounts on page 100.
(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 Statement of Comprehensive Income of the company for the respective periods:
Year ended 31 December
Recovery of expenses
(iii) Transactions with persons related to key management personnel
During the year, there were no transactions with persons related to key management personnel (31 December 2021: £nil).
2022
£000
2021
£000
4,762
4,771
219
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
50 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
Country of
incorporation
Ownership interest
31 December 2022
Ownership interest
31 December 2021
Functional
Currency
Countrywide Assured plc
United Kingdom
100% of all share capital (1)
100% of all share capital (1)
Sterling
Countrywide Assured Life Holdings Limited
United Kingdom
100% of all share capital
100% of all share capital
Sterling
Countrywide Assured Services Limited
United Kingdom
100% of all share capital
100% of all share capital
Sterling
Countrywide Assured Trustee Company Limited
United Kingdom
100% of all share capital
100% of all share capital
Sterling
Registered address
2nd Floor, Building 4, West Strand Business Park,
West Strand Road, Preston, Lancashire PR1 8UY
CASLP
United Kingdom
100% of all share capital (4)
–
Sterling
Registered address
Third Floor One Temple Quay, 1 Temple Back East,
Bristol, England, BS1 6DZ
Movestic Livförsäkring AB
Movestic Balanserad
Movestic Försiktig
Movestic Global ESG
Movestic Offensiv
Movestic Global
Movestic Avancera 75
Movestic Avancera 85
Movestic Fonder AB
Registered address
Box 7853, S -103 99 Stockholm, Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
100% of all share capital
100% of all share capital
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (6)
100% of all share capital (6)
Swedish krona
100% of all share capital (2)
100% of all share capital (2)
Swedish krona
Movestic Fund Management S.A.
Luxembourg
–
100% of all share capital (5)
Swedish krona
Registered address
12 Rue Gabriel Lippmann, L-5365 Munsbach,
Luxembourg
Chesnara Holdings B.V.
Netherlands
100% of all share capital (3)
100% of all share capital (3)
Euro
Waard Leven N.V.
Waard Schade N.V.
Waard Verzekering
Robein Leven N.V
Registered address
Geert Scholtenslaan II 1687 CL Wognum,
Netherlands
Netherlands
100% of all share capital (4)
100% of all share capital (4)
Euro
Netherlands
100% of all share capital (4)
100% of all share capital (4)
Euro
Netherlands
100% of all share capital (4)
100% of all share capital (4)
Euro
Netherlands
100% of all share capital (7)
–
Euro
Scildon N.V
Netherlands
100% of all share capital (4)
100% of all share capital (4)
Euro
Registered address
Laapersveld 68 Hilversum, Netherlands
(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) Company formed in March 2017. It has been put into liquidation.
(6) Investment funds held indirectly by Movestic Livförsäkring AB.
(7) Held directly by Waard Leven, from 27 December 2022.
220
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
51 Business combination and portfolio acquisition
On 13 September 2021, Chesnara had entered into an agreement with Sanlam UK Limited to acquire Sanlam Life & Pensions UK (now CASLP), a specialist provider
of insurance and long-term savings products in the UK. The acquisition was completed on 28 April 2022. CASLP is a specialist provider of insurance and long-term
savings products in the UK, with approximately £2.9bn of assets under administration and 80,000 policies. The acquisition of CASLP was initially announced in
September 2021.
The acquisition has given rise to an immediate profit of £9.6m, calculated as follows:
Assets
Intangible assets
Acquired value of in-force business
Property and equipment
Investment properties
Reinsurers’ share of insurance contract provisions
Financial assets
Other assets and receivables
Cash and cash equivalents
Total assets
Liabilities
Insurance contract provisions
Other provisions
Investment contracts at fair value through profit and loss
Deferred tax liabilities
Other payables
Total liabilities
Net assets
Net liabilities acquired
Total consideration, paid in cash
Profit arising on business combination
Fair value
Book value adjustments
£000
£000
Fair value
£000
–
46
102,974
1,014
2,612,574
15,084
93,407
59,579
–
–
–
–
–
–
59,579
46
102,974
1,014
2,612,574
15,084
93,407
2,825,099
59,579
2,884,678
209,640
9,809
2,547,789
9,787
19,690
–
–
–
40,548
–
209,640
9,809
2,547,789
50,335
19,690
2,796,715
40,548
2,837,263
28,384
19,031
47,415
47,415
(37,850 )
9,565
The assets and liabilities at the acquisition date have been amended compared with what was reported in the group’s Half Year Report for the 6 months ended
30 June 2022.
There has been a change in the profit arising on business combination in valuation of the profit arising on business combination from the reported half year position.
Under IFRS 3 Business Combination, it allows a period of 12 months from the acquisition date to refresh our estimates. At half year reporting, our valuation was
based on 31 March 2022. This was refined post half year and at the year end the valuation was based on the actual acquisition date, 28 April 2022.
The Acquired Value of In-Force Business (AVIF) has materially changed since the half year reporting. This was due to the change is discount rate used in the
calculation of the AVIF business, to take into account the weighted average cost of capital in Chesnara plc. The discount rate used was 5.75% at the half year
and 8.0% in the final AVIF calculation. The run-off profile for the AVIF is over a 30 year period.
The other material changes were related to the financial assets and cash and cash equivalents, which takes into account an additional month of transactions and
market fluctuations.
Acquired value of in-force business: The acquisition has resulted in the recognition of net of a tax intangible asset amounting to £19.0m, which represents the
present value of the future post-tax cash flows expected to arise from policies that were in force at the point of acquisition. The asset has been valued using a
discounted cash flow model that projects the future surpluses that are expected to arise from the business. The model factors in a number of variables, of which
the most influential are; the policyholders’ ages, mortality rates, expected policy lapses, expenses that are expected to be incurred to manage the policies and
future investment growth, as well as the discount rate that has been applied. This asset will be amortised over its expected useful life.
Gain on acquisition: As shown above, a gain of £9.6m has been recognised on acquisition. Under IFRS 3, a gain on acquisition is defined as being a ‘bargain
purchase’. A day one gain has arisen on business combination, as by applying the pricing model that we generally adopt, we offered a purchase price which was
at a discount to our own assessment of the value of the net assets to be acquired.
Acquisition-related costs: Chesnara concluded the deal and obtained control of CASLP as of 28 April 2022. The consideration transferred by Chesnara for the
acquisition of CASLP consisted of cash totalling £37.9m. There was also a capital contribution made by Chesnara to CASLP amounting to £25.0m immediately
following completion. The costs in respect of the transaction amounted to £1.7m which have been included within the ‘Administrative Expenses’ on the Consolidated
Statement of Comprehensive Income.
221
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D
51 Business combination and portfolio acquisition (continued)
Results of CASLP: The results of CASLP have been included in the consolidated financial statements of the group with effect from 28 April 2022. Net insurance
premium revenue for the period was £1.2m, with contribution to overall consolidated loss before tax of £11.2m, before the amortisation of the AVIF and deferred
acquisition cost intangible assets. Had CASLP been consolidated from 1 January 2022, the Consolidated Statement of Comprehensive Income would have
included net insurance premium revenue of £1.9m and would have contributed £25.7m to the overall consolidated loss before tax.
On 25 November 2021, the Waard Group agreed to acquire 100% of the shares of Robein Leven N.V. and its subsidiary, a specialist provider of traditional and linked
savings products, mortgages and annuities in the Netherlands, from Monument Re Group. The completion took place on 28 April 2022. The consideration
transferred by Waard Leven for the acquisition of Robein consisted of cash amounting to £14.5m.
The transaction has given rise to a post completion profit on acquisition of £5.8m calculated as follows:
Assets
Financial assets
Investment in subsidiaries*
Other assets and receivables
Cash and cash equivalents
Total assets
Liabilities
Insurance contract provisions
Value of business acquired
Investment contracts at fair value through income
Total liabilities
Net assets
Net assets acquired
Total consideration, paid in cash
Post completion profit on portfolio acquisition
Fair value
£000
202,908
1,461
4,784
7,301
216,454
188,279
1,645
6,244
196,168
20,286
20,286
(14,490 )
5,796
*The investment in subsidiaries relates to Robein Effecten Dienstverlening, which is a subsidiary of Robein Leven.
There has been a change in the profit arising on business combination from the reported half year position. Under, IFRS 3 Business Combination, it allows a period
of 12 months from the acquisition date to refresh our estimates. There was a material increase in financial assets reported at half year compared to year end.
The insurance portfolio and the related assets were transferred from Robein Leven into Waard Leven on 27 December 2022. Robein Leven remains a separate
legal entity within the group structure of Waard and its insurance license will be forfeited. Over the course of 2023, most of the owns funds will be paid out as a
dividend to Waard Leven.
Profit on acquisition: A profit of £5.8m has been recognised on acquisition. This profit on acquisition has been recorded as a ‘post completion gains on portfolio
acquisition’ on the face of the Statement of Comprehensive Income. A day one gain has arisen as by applying the pricing model that we generally adopt, we
offered a purchase price which was at a discount to our own assessment of the value of the net assets to be acquired.
Acquisition-related costs: Waard Leven incurred costs of around £0.2m in relation to the acquisition.
The assets and liabilities acquired are included within changes in insurance provisions and financial assets within operating cash flows on the face of the cash
flow statement.
Results of Robein Leven: The results of Robein Leven have been included in the consolidated financial statements of the group with effect from 28 April 2022,
within Waard Group. Had Robein Leven been consolidated from 1 January 2022, the Consolidated Statement of Comprehensive Income would have contributed
£0.2m to the overall consolidated profit before tax.
During the year, Waard also acquired 3,000 policies in August 2022 from SRLEV N.V. in the Netherlands. As Waard was already administering these policies as
Proxy Agent on behalf of the vendor, the integration of the policies was completed in a short time frame.
222
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022IFRS FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Post balance sheet event
On 1 January 2023, Chesnara’s Dutch closed-book subsidiary, Waard Leven N.V, complete the acquisition of the insurance portfolio of Nederlandsche Algemeene
Maatschappij van Levensverzekering Conservatrix N.V. (Conservatrix), following Court and Regulatory approvals. The cash consideration for the acquisition
was €1.
In accordance with IFRS 3 Business Combinations, certain disclosures are required should a business combination complete after the end of the reporting period
but before the financial statements are authorised for issue. At the point of authorising these financial statements, the initial accounting for this business
combination is incomplete.
A summary of the acquisition, covering the business rationale along with some of the key impacts on the Chesnara group, were disclosed in an announcement
by Chesnara on 22 July 2022, which has been summarised below.
– In December 2020, the Dutch Central Bank, De Nederlandsche Bank (DNB), filed for bankruptcy of Conservatrix following a deterioration of the Solvency II capital
position and limited feasibility of recovering this in the short term. The court declared Conservatrix bankrupt on 8 December 2020 and appointed two trustees (the
Trustees) who were authorised to administer the estate. Conservatrix customers will benefit from becoming part of a well-capitalised group, after a significant
period of uncertainty.
– Conservatrix’s savings, annuity and funeral plan products are well aligned with Chesnara’s existing life and pension liability mix in the Netherlands. The acquisition
adds approximately 70,000 additional policies and increases group Assets Under Management (AuM) by c£0.5bn.
– The acquisition has been effected through the transfer of the insurance portfolio (together with certain other assets and liabilities) into Waard. In order to support
the solvency position of the Conservatrix insurance portfolio, a capital contribution of £35m has been provided by Chesnara, consisting of a £21m contribution
from Chesnara and £14m of existing Waard resources.
– Future cash generation from the acquisition under steady state conditions is expected to be c£4m per annum, supporting Chesnara’s dividend strategy.
– The acquisition is expected to increase the group’s EcV by c£18m and provides further EcV accretion potential from future real world investment returns and the
run-off of the risk margin.
– Conservatrix’s employees are expected to remain with the business following completion of the acquisition.
A detailed assessment of the fair value of the assets and liabilities acquired is incomplete at this stage and will be included in the group’s interim financial
statements for the period ending 30 June 2023.
223
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022SECTION D SECTION E
ADDITIONAL
INFORMATION
Stockholm Royal Palace, Stockholm
224 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
226 Financial calendar
226 Key contacts
227 Notice of the Annual General Meeting
229 Explanatory notes to the notice of
the Annual General Meeting
234 Appendix to AGM Notice
238 Alternative Performance Measures
240 Reconciliation of metrics
242 Glossary
243 Note on terminology
CHESNARA ANNUAL REPORT AND ACCOUNTS 2022
225
Joint Stockbrokers and
Corporate Advisors
Panmure Gordon
40 Gracechurch Street
London
EC3V 0BT
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
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
KEY CONTACTS
Registered and head office
2nd Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
T +44 (0)1772 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
Burness Paull LLP
Exchange Plaza
50 Lothian Road
Edinburgh
EH3 9WJ
Auditor
Deloitte LLP
Statutory Auditor
3 Rivergate
Temple Quay
Bristol
BS1 6GD
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
FINANCIAL CALENDAR
30 March 2023
Results for the year ended
31 December 2022 announced
6 April 2023
Ex-dividend date
11 April 2023
Dividend record date
27 April 2023
Last date for dividend reinvestment
plan elections
16 May 2023
Annual General Meeting
26 May 2023
Dividend payment date
21 September 2023
Half year results for the 6 months
ending 30 June 2023 announced
226
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 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 advisor 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 2023 Annual General Meeting of Chesnara plc
will be held at the offices of Panmure Gordon, 40 Gracechurch Street,
London, EC3V 0BT on 16 May 2023 at 11am, for the business set out
below. Shareholders will be kept informed via the Regulatory News
System (RNS) should arrangements need to be changed for any reason.
Resolutions 1 to 18 inclusive will be proposed as ordinary resolutions and
resolutions 19 to 23 inclusive will be proposed as special resolutions.
1. To receive and adopt the audited accounts for the financial year ended
31 December 2022, together with the reports of the directors and
auditor thereon.
2. To approve the Directors’ Remuneration Report for the year ended
31 December 2022.
15. That, from the passing of this resolution 15 until the earlier of the close of
business on 30 June 2024 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.
3. To approve the Directors’ Remuneration Policy (as contained in the
16. That:
Directors’ Remuneration Report for the year ended 31 December 2022).
(a) the rules of the Chesnara 2023 Short-Term Incentive Scheme (the 2023
4. To declare a final dividend of 15.16 pence per ordinary share for the
financial year ended 31 December 2022.
5. To re-elect Steve Murray as a director.
6. To re-elect Carol Hagh as a director.
7. To re-elect Karin Bergstein as a director.
8. To re-elect David Rimmington as a director.
9. To re-elect Jane Dale as a director.
10. To re-elect Luke Savage as a director.
STI Scheme), the principal terms of which are summarised in Appendix 1
to this Notice of Annual General Meeting and a copy of which is produced
to the meeting and initialled by the Chair of the meeting for the purposes
of identification, be and are hereby approved and adopted and the directors
of the company be and are hereby authorised to do all such things in
accordance with applicable law as may be necessary or desirable to carry
the 2023 STI Scheme into effect; and
(b) the directors of the company be and are hereby also authorised to adopt
further schemes based on the 2023 STI Scheme but modified to take
account of local tax, exchange control or securities law in overseas territories,
provided that any shares made available under such further schemes are
treated as counting against any limits on individual or overall participation in
the 2023 STI Scheme.
17. That:
11. To re-elect Mark Hesketh as a director.
(a) the rules of the Chesnara 2023 Long-Term Incentive Plan (the 2023 LTIP),
12. To re-elect Eamonn Flanagan as a director.
13. 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.
14. To authorise the directors to determine the auditor’s remuneration.
the principal terms of which are summarised in Appendix 2 to this Notice
of Annual General Meeting and a copy of which is produced to the meeting
and initialled by the Chair of the meeting for the purposes of identification,
be and are hereby approved and adopted and the directors of the company
be and are hereby authorised to do all such things in accordance with
applicable law as may be necessary or desirable to carry the 2023 LTIP into
effect; and
(b) the directors of the company be and are hereby also authorised to adopt
further schemes based on the 2023 LTIP but modified to take account
of local tax, exchange control or securities law in overseas territories,
provided that any shares made available under such further schemes are
treated as counting against any limits on individual or overall participation
in the 2023 LTIP.
227
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022
NOTICE OF THE ANNUAL GENERAL MEETING (CONTINUED)
18. 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 £2,506,480 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 £2,506,480; and
(b) up to an aggregate nominal amount of £5,012,959 (such amount to be
reduced by the aggregate nominal 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
(a) limited to the allotment of equity securities up to an aggregate nominal
value of £375,972; 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 18 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.
ii) to holders of other equity securities as required by the rights of those
21. That the company be and is hereby generally and unconditionally authorised
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 2024) 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.
19. That, subject to the passing of resolution 18 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
18 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:
(a) the allotment of equity securities in connection with any rights issue or
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 £375,972,
and shall expire on the revocation or expiry (unless renewed) of the
authority conferred on the directors by resolution 18 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.
20. That, subject to the passing of resolution 18 of this notice and, in addition
to the power contained in resolution 19 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
18 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:
228
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 authorised to
be purchased is 15,038,877;
(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 2024); 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.
22. That with effect from the conclusion of the AGM, the Articles of Association
produced to the meeting and initialled by the Chair for the purpose of
identification be adopted as the Articles of Association of the company in
substitution for, and to the exclusion of, the company’s current Articles
of Association.
23. 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
Amanda Wright
Group General Counsel and Company Secretary
2nd Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
29 March 2023
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING
Arrangements for the 2023 AGM
The company is pleased to be able to invite members to attend the AGM in person in May. It is the company’s intention to give a presentation on business
progress at this year’s AGM should a physical meeting be held. A results presentation will also be recorded on 30 March 2023 and made available on the
corporate website.
The company continues to strongly encourage shareholders to vote electronically. Instructions on voting are attached to the Notice of AGM sent out to
shareholders and can also be found on the company’s website. Shareholders may also wish to submit questions in advance via e-mail to info@chesnara.co.uk.
We will endeavour to respond to questions raised directly, or by publishing responses on our website.
1. Any member who is entitled to attend and vote at this Annual General
4. Proxymity Voting – if you are an institutional investor you may also be able to
Meeting is entitled to appoint another person, or two or more persons in
respect of different shares held by the shareholder, as their proxy to
exercise all or any of their rights to attend and to speak and to vote at the
Annual General Meeting. Members who wish to appoint a proxy are
encouraged to appoint the Chair of the meeting as their proxy and give your
instructions on how you wish the Chair of the meeting to vote on the
proposed resolutions. Appointing the Chair as your proxy will not prevent
you from attending and voting in person at the AGM should we be able
to proceed with a physical meeting as intended, but will ensure that your
vote is able to be cast in accordance with your wishes should you (or any
other person who you might otherwise choose to appoint as your proxy)
be unable to attend for any reason. Members are strongly encouraged
to vote electronically.
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 may request a physical copy proxy form directly from
the registrars, Link Group, 10th Floor, Central Square, 29 Wellington Street,
Leeds, LS1 4DL (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 Group, 10th Floor, Central Square, 29 Wellington Street,
Leeds, LS1 4DL so as to be received by 11am on Friday 12 May 2023.
3. 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, but as noted above members should
appoint the Chair of the meeting as their proxy to ensure that their vote is
able to be cast in accordance with their wishes should they (or any other
persons who members might otherwise choose to appoint as their proxy)
be unable to attend for any reason. 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 12 May 2023. Members who hold
their shares in uncertificated form may also use the ‘CREST’ voting
service to appoint a proxy electronically, as explained below.
appoint a proxy electronically via the Proxymity platform, a process which has
been agreed by the company and approved by the registrar. For further
information regarding Proxymity, please go to www.proxymity.io. Your proxy
must be lodged by 11am on Friday 12 May 2023 in order to be considered
valid or, if the meeting is adjourned, by the time which is 48 hours before the
time of the adjourned meeting. Before you can appoint a proxy via this
process you will need to have agreed to Proxymity’s associated terms and
conditions. It is important that you read these carefully as you will be bound
by them and they will govern the electronic appointment of your proxy. An
electronic proxy appointment via the Proxymity platform may be revoked
completely by sending an authenticated message via the platform instructing
the removal of your proxy vote.
5. 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 Group (ID RA10), by 11am on
Friday 12 May 2023, 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.
229
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022 EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING (CONTINUED)
12. 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.
13. 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 Tuesday 4 April 2023, 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:
6. Copies of (i) directors’ service contracts and letters of appointment; and
(ii) a copy of the company’s current articles of association together with
a copy of the proposed new articles of association that are proposed to
be adopted pursuant to resolution 22, are available for inspection at the
registered office of the company during normal business hours each
business day subject to prevailing public health measures. 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.
7. The time by which a person must be entered on the register of members
in order to have the right to 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 12 May 2023. 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.
8. 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.
9. As at 24 March 2023 (being the last practicable date prior to the publication
of this document), the company’s issued share capital consisted of
150,388,770 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 24 March 2023 (being the last practicable date prior to the
publication of this document) were 150,388,770.
10. 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.
11. 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. The company encourages shareholders
to submit their questions electronically in advance of the meeting via
info@chesnara.co.uk.
230
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 Resolution 1
Resolutions 5 – 12 inclusive
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.
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.
Resolutions 2 and 3
Approval of the Directors’ Remuneration Report
In accordance with the Companies Act 2006, the company proposes ordinary
resolution 2 to approve the Directors’ Remuneration Report for the financial
year ended 31 December 2022. The Directors’ Remuneration Report can be
found on pages 98 to 118 of the 2022 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 as set out
on pages 112 to 118. 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.
Approval of the Directors’ Remuneration Policy
The Companies Act 2006 requires the Directors’ Remuneration Policy (the
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 proposing the following
changes to the Policy which was last approved at the Annual General Meeting
in 2020:
Following consultation with shareholders:
– To increase the maximum LTIP opportunity that may be granted to the Group
CEO from 100% of salary to 125% of salary;
– To provide greater flexibility to change the performance measures for the LTIP
from year to year to ensure that these remain aligned to strategy and
business priorities whilst retaining the commitment that a minimum of 50%
of the assessment would be based on financial metrics; and
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 88 and 89 of this
document. The Chair 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.
Resolutions 13 and 14
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 13, 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 14 authorises the directors to determine
the auditor’s remuneration.
Resolution 15
– To enhance malus and clawback provisions in line with the new Short-Term
Incentive Scheme and Long-Term Incentive Scheme presented for approval as
resolutions 16 and 17.
Political donations
It has always been the company’s policy that it does not make political
donations. This remains the company’s policy.
The revised Policy is therefore presented for approval as resolution 3 at the
Annual General Meeting. The Policy can be found on pages 112 to 118 of the
Annual Report and Accounts. The vote on the new Policy is a binding vote,
meaning that payments to directors may only be made if they are within the
boundaries of the approved Policy. If approved, the Policy will replace the
policy approved in 2020, becoming effective following the AGM and it is currently
intended that it will continue to apply for 3 years until the Annual General
Meeting in 2023, when further shareholder approval will be sought. Any future
changes to the Policy will require shareholder approval. Once approved, the
company will only be able to make remuneration payments to current and
prospective directors and payments for loss of office to current or past directors
within the boundaries of the new Policy, unless an amendments to the
Policy authorising the company to make such payments has been approved by
a separate shareholder resolution.
Resolution 4
Final dividend
The declaration of the final dividend requires the approval of shareholders in
general meeting. If the 2023 Annual General Meeting approves resolution 4,
the final dividend of 15.16 pence per share will be paid on 26 May 2023 to
ordinary shareholders who are on the register of members at the close of
business on 11 April 2023 in respect of each ordinary share.
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.
231
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022 EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING (CONTINUED)
Resolutions 16 and 17
Resolution 18
These resolutions seek shareholder approval to the introduction of the
Chesnara 2023 Short-Term Incentive Scheme (the 2023 STI Scheme) and the
Chesnara 2023 Long-Term Incentive Plan (the 2023 LTIP) (together, the
2023 Schemes), which are intended to replace the Chesnara 2014 Short-Term
Incentive Scheme and the Chesnara 2014 Long-Term Incentive Scheme
(together, the 2014 Schemes).
Shareholder approval is sought for the approval of the 2023 Schemes at the
AGM to ensure that the company has the appropriate share incentives and that
they operate consistently with the proposed Directors’ Remuneration Policy
(see resolution 3, the Directors’ Remuneration Policy). No new awards will be
made under the 2014 Schemes after the date of the AGM, provided shareholder
approval is obtained for the approval of the 2023 Schemes.
The principal terms of the 2023 Schemes are set out in Appendix 1 and 2 of
this document on pages 234 to 237.
A summary of the background to the 2023 STI Scheme and the 2023 LTIP and
the key terms of initial awards which are intended to be made under those
schemes shortly following the AGM (which are also described in the Directors’
Remuneration Policy, subject to the approval of the 2023 Schemes by
shareholders) is set out below:
– The Remuneration Committee of the board (the Committee) has reviewed
the current schemes and is satisfied that in terms of their core structure and
terms, these remain fit for purpose for the company. However, given the
existing schemes are due to expire in 2024, the Committee was of the view
that now was the appropriate time to renew them, given that a new Directors’
Remuneration Policy will also be presented at the 2023 AGM.
– The 2023 STI Scheme is intended to replace the 2014 STI Scheme. It will
continue to provide for the mandatory deferral of a proportion of payments into
shares which will vest after a deferral period, which will typically be 3 years.
For the initial awards under the 2023 STI Scheme, provided that the amount due
is at least £20,000, this proportion will be a minimum of 35%.
– The initial awards under the 2023 STI Scheme will be subject to a combination
of stretching performance targets which will be assessed over the 2023
financial year, being 35% cash generation, 35% EcV earnings and 30% group
strategic objectives. The Committee believes that the combination of
performance targets will provide a balanced measure of performance that
continues to be aligned to the company’s strategy. The exact performance
targets are commercially sensitive and therefore will only be disclosed, along
with the extent of vesting, in the year that the cash element of awards is
paid. These measures will be reviewed by the Committee each year to ensure
that they remain appropriate and aligned to the company’s priorities.
– The 2023 LTIP is intended to replace the 2014 LTI Plan and will provide for
awards to be made over shares in the company, which will vest subject to
performance over a performance period which will typically be 3 years.
– The individual limits for the initial awards made to executive directors under
each of the new schemes will be aligned to the maximum limit within the
Directors’ Remuneration Policy (125% of salary for the 2023 LTIP and 100%
for the 2023 STI Scheme under the Directors’ Remuneration Policy which
is being put to shareholders as Resolution 3). Awards granted to participants
below board level will be subject to a maximum award limit equal to the
maximum value that may be granted to the highest paid executive director
under the Directors’ Remuneration Policy.
– Awards under the 2023 STI Scheme and the 2023 LTIP may be subject to malus
provisions which will reduce the number of shares or cash amounts payable
on vesting in circumstances including a material misstatement of the company’s
results, regulatory breach, gross misconduct on the part of the participant,
reputational damage to the company, a material failure of risk management,
insolvency or corporate failure.
– Awards under the 2023 STI Scheme and the 2023 LTIP may be subject to
clawback provisions which will permit the recovery of amounts in substantially
the same circumstances as for malus.
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 2023 Annual General Meeting. The board is, therefore,
seeking to renew its authority over shares having an aggregate nominal amount
of £2,506,480, representing approximately one-third of the issued ordinary
share capital of the company (excluding treasury shares) as at 24 March 2023
(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 £5,012,959, representing approximately two-thirds of the issued
share capital of the company (excluding treasury shares) as at 24 March 2023
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 £5,012,959.
As at 24 March 2023, 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 2024.
Passing resolution 18 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.
Resolutions 19 and 20
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 2023 Annual General Meeting and, in accordance with the Statement of
Principles issued by the Pre-Emption Group, resolutions 19 and 20 (which
will be proposed as special resolutions) seek to renew the directors’ authority
to disapply pre-emption rights as referenced below.
Resolution 19, 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 £375,924, 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 24 March 2023 (being
the latest practicable date prior to the publication of this notice of Annual
General Meeting).
Resolution 20 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.
232
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 Resolution 21
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 24 March 2023, 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 2024.
The company has options and awards outstanding under existing share schemes
over an aggregate of 1,501,566 ordinary 5p shares, representing 1.00% of
the company’s issued ordinary share capital (excluding treasury shares) as at
24 March 2023 (the latest practicable date prior to the publication of this
document). This would represent approximately 1.11% of the company’s issued
share capital (excluding treasury shares) if the proposed authority being
sought at the Annual General Meeting to buy back 15,038,877 ordinary shares
was exercised in full (and all the repurchased ordinary shares were cancelled).
Resolution 22
Amendment to articles
The adoption of new articles of association (the New Articles) provide for the
following key amendments:
Share warrant to bearers: The New Articles remove provisions relating to
the issue of share warrants to bearers in relation to any entitlement to shares
due to abolition of bearer shares from May 2015.
Retirement of directors (Article 67): The New Articles amend the provisions
setting out the rules around the retirement of directors. Whilst directors are
currently required to retire on the year following the third anniversary of their
appointment, all directors shall now retire and be eligible for re-election at
each Annual General Meeting of the company.
Hybrid meetings (Article 46): The New Articles give the directors the power
to convene a hybrid general meeting, being a meeting, which has the facilities
for shareholders to attend both in a physical place and via electronic platforms.
The New Articles do not give the directors the power to hold a solely electronic
general meeting. The provisions in the New Articles include, for example,
the details that need to be provided to shareholders if such a meeting is to be
held and a requirement that all resolutions must be taken on a poll in the event
of a hybrid meeting. The directors consider that the company should properly
have the ability to convene hybrid meetings should the circumstances
require this.
Nomination notices (Article 131): The New Articles include provisions setting
out the form and content of nomination notices under the information rights
regime in sections 146 to 151 of the Companies Act 2006, which gives members
of traded companies who hold shares as nominees the right to allow the
underlying owners to receive information about the company. While this right
exists as a matter of law, it is usual practice to include specific provision in a
company’s articles of association to provide greater certainty regard the process.
Untraced members (Articles 29 and 30): In line with market practice, the
New Articles provide additional flexibility in relation to the sale of shares owned
by shareholders who are untraced after a period of at least 12 years. Under the
current articles of association, the company is required to give notice to untraced
shareholders of an intention to sell their shares by way of an advertisement
in a widely available daily newspaper circulating in the country in which the
shareholder’s last known postal address is. Under the New Articles, the
company must instead send a notice to the last registered or known address of
the shareholder and use reasonable steps to trace the shareholder including,
if considered appropriate, using a professional asset reunification company
or other tracing agent. Additionally, under the New Articles, the proceeds
of shares sold on behalf of an untraced member will belong to the company.
Method of voting and demand for poll (Article 51): The New Articles amend
the provisions relating to the method of voting and demand for poll to allow
for voting at hybrid meetings.
Increase in the maximum aggregate directors’ fees payable (Article 87):
To ensure sufficient flexibility for non-executive director remuneration in the
future, the New Articles contain an amendment to the maximum amount of
the aggregate remuneration of the non-executive directors, which was set at
£500,000 and will now be set at £650,000. The company’s current Articles
provide for the total aggregate fees payable to all non-executive directors to not
exceed £500,000 per annum but fees for 2023 are estimated to be very close
to this limit at £477,500 after increases since last the Articles were approved at
the 2017 AGM and with the number of non-executive directors increasing.
The board is proposing to increase the limit by special resolution to £650,000
to allow the board, as and when required, to appoint non-executive directors
to replace existing directors, with appropriate handover arrangements, and to
add additional non-executive directors or to increase the time commitment
of existing directors as required to perform the expanding regulatory duties of
the board.
The New Articles showing all the changes to the current Articles of Association
of the company are available for inspection, as noted on page 230 of the
Notice of Annual General Meeting.
Resolution 23
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 23 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.
233
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022 APPENDIX TO AGM NOTICE
Appendix 1 – Summary of the principal features of the Chesnara plc 2023
Short-Term Incentive Scheme (the 2023 STI Scheme)
Overview and administration
It is proposed that the company will adopt the 2023 STI Scheme, subject to
the approval of shareholders. For completeness, a summary of the principal
terms of the 2023 STI Scheme is set out below.
The 2023 STI Scheme comprises a discretionary annual incentive scheme
together with provisions for the mandatory deferral of a proportion of the cash
amounts payable into shares, under which awards may be made to selected
employees or directors of the company or any of its subsidiaries (the group).
The Remuneration Committee of the board (the Committee) will be responsible
for the operation of the 2023 STI Scheme. Awards to receive a cash amount,
subject to the achievement of a performance target (which may comprise a
combination of separate targets) measured over a financial year (Cash Awards)
will be made to participants. Following the determination of the extent to
which the performance target has been met, a proportion of the cash amount
due under a Cash Award is deferred into shares (a Deferred Share Award)
which will vest at the end of a deferral period (which will typically be 3 years),
subject to the participant’s continued employment.
Deferred Share Awards made under the 2023 STI Scheme will normally be
nil-cost options to acquire shares at no cost to the participant, although Deferred
Share Awards may also be made as conditional share awards.
Deferred Share Awards may be satisfied by the issue of new shares or by the
transfer of shares held in treasury or by the trustee of an employee benefit trust.
Awards under the 2023 STI Scheme are not pensionable.
Eligibility
A participant must be an employee or director of the group at the time a Cash
Award is made.
Participation in the 2023 STI Scheme will be at the discretion of the Committee.
Individual limits
As stated in the Directors’ Remuneration Policy report which is being put to
shareholders as resolution 3, the maximum cash amount which may be payable
under any Cash Award made to an executive director during 2023 may not
exceed 100% of that participant’s salary. The Committee may specify another
limit from time to time, subject (in the case of a higher limit) to the approval
of a revised Directors’ Remuneration Policy by the company’s shareholders.
A participant who is not an executive director may not be granted a Cash Award
with a maximum cash amount in excess of the maximum cash amount
which may be paid to an executive director under a Cash Award as stated in
the Directors’ Remuneration Policy from time to time.
A Cash Award may be granted under the 2023 STI Scheme with a maximum
cash amount in excess of these limits, in the event that the Cash Award is
made to a new joiner in recognition of an award or bonus which they are losing
in respect of their former employment.
Performance targets
A Cash Award will be subject to a performance target which will be set by the
Committee at the time the Cash Award is made and which must be satisfied
before the Cash Award can vest.
The Committee may vary or waive the performance target applying to a Cash
Award if an event occurs which causes the Committee to consider that the
performance target is no longer appropriate, provided that such variation or
waiver is reasonable in the circumstances and, except in the case of a waiver,
produces a fairer measure of performance and is not materially less difficult
to satisfy.
Leaving employment before a Cash Award vests
If a participant ceases to be employed within the group for any reason before
a Cash Award made to them vests then that Cash Award will lapse unless the
Committee in its discretion determines that the participant may retain a time
pro-rated proportion of the Cash Award (according to the proportion of the
performance period which has then elapsed) and it shall continue to vest, if at
all, in accordance with its original terms.
Alternatively, the Committee may determine that a time pro-rated proportion
of the Cash Award will vest immediately upon the cessation of employment,
subject to the Committee’s assessment of the extent to which the applicable
performance target shall be deemed to be met at that time.
The Committee may vary the time pro-rating applied to allow a greater
proportion of the Cash Award to vest. Where a participant’s Cash Award vests
following their cessation of employment, the whole of the amount due shall
be paid in cash, with no deferral into a Deferred Share Award.
Deferral into shares
The Committee will determine the extent to which the performance target
applicable to a Cash Award has been met following the end of the relevant
financial year, and accordingly the cash amount payable under the Cash Award.
Subject to any applicable minimum cash payment under the Cash Award, a
proportion of the cash amount shall be deferred into a Deferred Share Award,
with the number of shares subject to the Deferred Share Award being
determined by reference to the share price on the dealing day preceding the
day on which the Deferred Share Award is made. For Cash Awards made in
2023, unless the cash amount payable is £20,000 or less, a minimum of 35%
of the cash amount shall be deferred into a Deferred Share Award, as set out
in the Directors’ Remuneration Policy report.
Grant of Deferred Share Awards
Deferred Share Awards will be granted as soon as practicable following the
determination of the extent to which the performance target applicable to the
relevant Cash Award has been met, subject to the company not being
prevented from granting awards over shares by restrictions on dealings in shares
by directors or employees of the group imposed by statute, order, regulation,
Government directive or the company’s own code on dealings in its securities
by directors and employees. No payment will be required for the grant of a
Deferred Share Award and Deferred Share Awards are not transferable
(except on death).
Dilution limits
A Deferred Share Award may not be made under the 2023 STI Scheme if it
would cause the number of shares issued or issuable under any employee
share scheme operated by the company in the preceding 10 years to exceed
10% of the company’s issued ordinary share capital at that time.
In addition, a Deferred Share Award may not be made under the 2023 STI
Scheme if it would cause the number of shares issued or issuable under any
discretionary employee share scheme adopted by the company in the
preceding 10 years to exceed 5% of the company’s issued ordinary share
capital at that time.
The above limits exclude any share awards which lapse, as well as any share
awards which are satisfied by the transfer of existing shares. However, for
as long as is required by guidelines issued by the Investment Association, the
transfer of treasury shares will be treated as an issue of new shares.
Vesting of Deferred Share Awards
Deferred Share Awards will normally vest 3 years after the date on which
they are made. A Deferred Share Award which is a nil-cost option will lapse
10 years after the date on which it is granted.
234
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 Malus
At any time before a Cash Award or Deferred Share Award or an award under
the 2023 STI Scheme (a Relevant Award) has vested the Committee may
reduce the number of shares subject to the Relevant Award if any of the
following events occur:
– the discovery of a material misstatement in the accounts of the company
or another member of the group;
Variations of share capital
In the event of a variation of the share capital of the company, including by
way of a capitalisation issue, rights issue, demerger or other distribution, a
special dividend or distribution, rights offer or bonus issue or any sub-division,
consolidation, or reduction in the company’s share capital, either or both of
the number of shares and the description of the shares subject to a Deferred
Share Award may be adjusted in such manner as the Committee determines.
Rights attaching to shares
A Deferred Share Award will not confer any shareholder rights, such as the
right to vote or to receive any dividend, where the record date is prior to
the allotment or transfer of shares to the participant following the vesting of
the Deferred Share Award.
A participant will be entitled to receive a payment in cash or shares upon
his acquisition of the shares subject to his Deferred Share Award in respect of
dividends on those shares. The payment will be of an amount equal to any
dividends paid on the number of shares acquired pursuant to the Deferred Share
Award during the period from the date that the Deferred Share Award was
made to the date that the participant acquires the shares.
A further payment may also be made in respect of interest on any such
dividends from the date the dividend was paid to the date that the participant
acquires the shares, at a rate determined by the Committee.
Share ownership requirement
A participant will be required to retain the shares they acquire following the
vesting of a Deferred Share Award, subject to being permitted to sell sufficient
of those shares to meet income tax and national insurance contributions
liabilities arising on such acquisition, until they have met any share ownership
requirements which apply to them.
Amendments
The Committee may amend the rules of the 2023 STI Scheme at any time.
However, the provisions relating to eligibility requirements, individual
participation limits, dilution limits, the basis for determining a participant’s
entitlement to benefits under the 2023 STI Scheme, the adjustments that
may be made in the event of a variation of share capital and the amendment
provisions themselves may not be made to the advantage of existing or
future participants without the prior approval of shareholders of the company
in general meeting.
There are exceptions for minor amendments to benefit the administration of
the 2023 STI Scheme or to take account of a change in legislation or to
obtain or maintain favourable tax, exchange control or regulatory treatment for
participants, the company or another member of the group. Additionally, no
amendment can normally be made which would adversely affect the rights of
existing participants without their consent.
– a regulatory breach by the group resulting in material financial or
reputational harm;
– the discovery of an error in the assessment of the extent to which a
performance target applicable to a participant’s Cash Award has been satisfied;
– action or conduct of the participant amounting to fraud or gross misconduct;
– events or behaviour of the participant leading to the censure or reputational
damage to a group member;
– a material failure of risk management of the company, a group member or
a business unit of the group; or
– insolvency or corporate failure of the company or any group member or
business of the group for which the participant is wholly or partly responsible.
Clawback
Where a Cash Award or Deferred Share Award has vested (or, in the case of
a Deferred Share Award which is an option, been exercised), the Committee
may require the participant to transfer all or a proportion of the value received
under the Cash Award or Deferred Share Award in substantially the same
circumstances as apply to malus (as described above) for a period of 2 years
after the vesting of the Cash Award. Clawback may be effected, among
other means, by requiring the transfer of shares back to the company or as it
directs, or by a cash payment.
Leaving employment during the deferral period
If a participant ceases to be employed within the group during the deferral
period, a Deferred Share Award granted to them will normally lapse.
If the reason for cessation of the participant’s employment is death, injury or
disability, redundancy, retirement, the sale of their employing business or
company, or if the Committee in its discretion determines in any other particular
case, the participant may retain the Deferred Share Award and it shall
continue to vest in accordance with its original terms.
Alternatively, the Committee may determine that the Deferred Share Award will
vest immediately upon the cessation of employment. An award which is a
nil-cost option will ordinarily lapse if it has not been exercised within 6 months
of cessation of employment or, if later, when it becomes exercisable.
Takeover, etc.
In the event of a takeover, scheme of arrangement or winding up of the
company or, if the Committee determines, where the company is affected
by a demerger or similar other event, a Deferred Share Award will vest
immediately. The Deferred Share Award may be exchanged for an award over
shares in an acquiring company if an offer to exchange is made and accepted
by the participant or if the Committee, with consent of the acquiring company,
determines that Deferred Share Awards should automatically be exchanged.
If the Committee is aware that an event described above is likely to occur
and will result in Deferred Share Awards vesting in circumstances where the
company’s entitlement to a corporation tax deduction may be lost, the
Committee may determine that the time that Deferred Share Awards vest
shall be immediately before such event takes place.
235
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022 APPENDIX TO AGM NOTICE (CONTINUED)
Appendix 2 – Summary of the principal features of the Chesnara plc 2023
Long-Term Incentive Plan (2023 LTIP)
Overview and administration
It is proposed that the company will adopt the 2023 LTIP, subject to the approval
of shareholders. The 2023 LTIP will allow awards over shares in the company
(Awards) to be made to selected employees or executive directors of the group.
Grant of Awards
Awards may only be granted during the period of 42 days beginning with the
date of approval of the 2023 LTIP by the shareholders of the company, or
during the period of 42 days beginning with the day after the announcement
of the company’s results for any period, or at such other times that the
Committee considers that exceptional circumstances exist.
For completeness, a summary of the principal terms of the 2023 LTIP is set
out below.
The Committee will be responsible for the operation of the 2023 LTIP.
An Award may not be granted when prevented by restrictions on dealings in
shares by directors or employees of the group imposed by statute, order,
regulation, Government directive or the company’s own code on dealings in
its securities by directors and employees.
Awards made under the 2023 LTIP will normally be nil-cost options to acquire
shares at no cost to the participant, although Awards may also be made as
conditional share awards.
The vesting of Awards will be subject to the achievement of a performance
target (which may comprise a combination of separate targets) measured
over a specified period. Awards may be satisfied by the issue of new shares
or by the transfer of shares held in treasury or by the trustee of an employee
benefit trust.
Eligibility
A participant must be an employee or executive director of the group at the
time an Award is made.
Participation in the 2023 LTIP will be at the discretion of the Committee.
Individual limits
As stated in the Directors’ Remuneration Policy, the total market value of
shares over which Awards may be made to a participant who is an executive
director during 2023 may not exceed 125% of that participant’s salary. The
Committee may specify another limit from time to time, subject (in the case
of a higher limit) to the approval of a revised Directors’ Remuneration Policy
by the company’s shareholders.
A participant who is not an executive director may not be granted an Award
with a value in excess of the total market value of shares over which an Award
may be granted to an executive director, applying the limit above (or such
other limit as may be specified in the Directors’ Remuneration Policy from time
to time).
An Award may be granted under the 2023 LTIP over shares with a market value
in excess of these limits, in the event that the Award is made to a new joiner
in recognition of an award or bonus which they are losing in respect of their
former employment.
Dilution limits
An Award may not be made under the 2023 LTIP if it would cause the number
of shares issued or issuable under any employee share scheme operated by
the company in the preceding 10 years to exceed 10% of the company’s issued
ordinary share capital at that time.
In addition, an Award may not be made under the 2023 LTIP if it would cause
the number of shares issued or issuable under any discretionary employee
share scheme adopted by the company in the preceding 10 years to exceed
5% of the company’s issued ordinary share capital at that time.
The above limits exclude any share awards which lapse, as well as any share
awards which are satisfied by the transfer of existing shares. However, for
as long as is required by guidelines issued by the Investment Association, the
transfer of treasury shares will be treated as an issue of new shares.
An Award may not be made more than 10 years after the date of adoption of
the 2023 LTIP.
No payment will be required for the grant of an Award and Awards are not
transferable (except on death). Awards are not pensionable.
Vesting of Awards
Awards will normally vest 3 years after the date on which they are made, subject
to the satisfaction of the applicable performance target. An Award which is a
nil-cost option will lapse 10 years after the date on which it is granted.
Performance targets
An Award will be subject to a performance target which will be set by the
Committee at the time the Award is granted and which must be satisfied before
the Award can vest.
The Committee may vary or waive the performance target applying to an
Award if an event occurs which causes the Committee to consider that the
performance target is no longer appropriate, provided that such variation or
waiver is reasonable in the circumstances and, except in the case of a waiver,
produces a fairer measure of performance and is not materially less difficult
to satisfy.
Details of the performance target which is intended to apply to Awards made
in 2023 are set out in the Directors’ Remuneration Policy report.
Malus
At any time before an Award or an Award under the 2023 STI Scheme (a
Relevant Award) has vested the Committee may reduce the number of shares
subject to the Relevant Award if any of the following events occur:
– the discovery of a material misstatement in the accounts of the company or
another member of the group;
– a regulatory breach by the group resulting in material financial or
reputational harm;
– the discovery of an error in the assessment of the extent to which
a performance target applicable to any of the participant’s Awards has
been satisfied;
– action or conduct of the participant amounting to fraud or gross misconduct;
– events or behaviour of the participant leading to the censure or reputational
damage to a group member;
– a material failure of risk management of the company, a group member or
a business unit of the group; or
– insolvency or corporate failure of the company or any group member or
business of the group for which the participant is wholly or partly responsible.
236
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 Clawback
Where an Award has vested (or, in the case of an Award which is an option,
been exercised), the Committee may require the participant to transfer all or
a proportion of the value received under the Award in substantially the same
circumstances as apply to malus (as described above) for a period of 2 years
after vesting. Clawback may be effected, among other means, by requiring the
transfer of shares back to the company or as it directs, or by a cash payment.
Leaving employment
If a participant ceases to be employed within the group for any reason granted
an Award made to them vests, then that award will lapse unless the Committee
in its discretion determines that the participant may retain a time pro-rated
proportion of the Award (according to the proportion of the performance period
which has then elapsed) and it shall continue to vest, if at all, in accordance
with its original terms. Alternatively, the Committee may determine that a time
pro-rated proportion of the Award will vest immediately upon the cessation
of employment, subject to the Committee’s assessment of the extent to which
the applicable performance target shall be deemed to be met at that time.
The Committee may vary the time pro-rating applied to allow a greater
proportion of the Award to vest.
An Award which is a nil-cost option will ordinarily lapse if it has not been
exercised within 6 months of cessation of employment or, if later, when it
becomes exercisable.
Takeover, etc.
In the event of a takeover, scheme of arrangement or winding up of the
company or if the Committee determines where the company is affected
by a demerger or similar other event, a time pro-rated proportion of an Award
(according to the part of the performance period which has then elapsed)
will vest immediately, subject to the Committee’s assessment of the extent to
which the applicable performance target shall be deemed to be met at that
time. The Committee may vary the time pro-rating applied to allow a greater
proportion of the Award to vest.
The Award may be exchanged for an award over shares in an acquiring company
if an offer to exchange is made and accepted by the participant or if the
Committee, with consent of the acquiring company, determines that Awards
should automatically be exchanged.
If the Committee is aware that an event described above is likely to occur
and will result in Awards vesting in circumstances where the company’s
entitlement to a corporation tax deduction may be lost, the Committee may
determine that the time that Awards vest shall be immediately before such
event takes place.
Variations of share capital
In the event of a variation of the share capital of the company, including by
way of a capitalisation issue, rights issue, demerger or other distribution, a
special dividend or distribution, rights offer or bonus issue or any sub-division,
consolidation, or reduction in the company’s share capital, either or both of
the number of shares and the description of the shares subject to an Award may
be adjusted in such manner as the Committee determines.
Rights attaching to shares
An Award will not confer any shareholder rights, such as the right to vote
or to receive any dividend, where the record date is prior to the allotment or
transfer of shares to the participant following the vesting of the Award.
A participant will be entitled to receive a payment in cash or shares upon his
acquisition of the shares subject to their Award in respect of dividends on
those shares. The payment will be of an amount equal to any dividends paid
on the number of shares acquired pursuant to the Award during the period
from the date that the Award was made to the date that the participant
acquires the shares.
A further payment may also be made in respect of interest on any such
dividends from the date the dividend was paid to the date that the participant
acquires the shares, at a rate determined by the Committee.
Share ownership requirements
A participant will be required to retain the shares he acquires following the
vesting of an Award, subject to being permitted to sell sufficient of those shares
to meet income tax and national insurance contributions liabilities arising on
such acquisition, until they have met any share ownership requirements which
apply to them.
Amendments
The Committee may amend the rules of the 2023 LTIP at any time. However,
the provisions relating to eligibility requirements, individual participation limits,
dilution limits, the basis for determining a participant’s entitlement to benefits
under the 2023 LTIP, the adjustments that may be made in the event of a
variation of share capital and the amendment provisions themselves may not
be made to the advantage of existing or future participants without the prior
approval of shareholders of the company in general meeting.
There are exceptions for minor amendments to benefit the administration of
the 2023 LTIP or to take account of a change in legislation or to obtain or
maintain favourable tax, exchange control or regulatory treatment for participants,
the company or another member of the group. Additionally, no amendment
can normally be made which would adversely affect the rights of existing
participants without their consent.
The draft rules of the Chesnara 2023 Short-Term Incentive Scheme
and the Chesnara 2023 Long-Term Incentive Plan (the Schemes) will be
available for inspection on the National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism from the date
of sending this document. The draft rules of the Schemes will also be on
display at the place of the Annual General Meeting for at least 15 minutes
prior to and during the Annual General Meeting.
237
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022 ALTERNATIVE PERFORMANCE MEASURES
Throughout our Report and Accounts we use Alternative Performance Measures (APMs) to supplement the assessment
and reporting of the performance of the group. These measures are those that are not defined by statutory reporting
frameworks, such as IFRS or Solvency II.
The APMs aim to assess performance from the perspective of all stakeholders, providing additional insight into the
financial position and performance of the group and should be considered in conjunction with the statutory reporting
measures such as IFRS and Solvency II.
The following table identifies the key APMs used in this report, how each is defined and why we use them. Further
information can be found throughout the Overview (Section A), with detailed reference within the Financial Review
(Section B) on pages 48 to 54.
APM
Group cash
generation
WHAT IS IT?
WHY DO WE USE IT?
REF
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.
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 existing business’.
See cash generation
on page 50 and
reconciliation on
page 241
Divisional cash
generation
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.
It is an important indicator of the operating
performance of the business before
the impact of group level operations and
consolidation adjustments.
See cash generation
on page 50
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.
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.
Commercial cash generation excludes the
impact of technical adjustments, modelling
changes and corporate acquisition activity;
representing the inherent commercial cash
generated by the business.
EcV is a financial metric that is derived from
Solvency II Own Funds. 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.
We define EcV as being the Own Funds
adjusted for contract boundaries, risk margin
and restricted with-profit surpluses. As such,
EcV and Own Funds have many common
characteristics and tend to be impacted by the
same factors.
Commercial cash generation aims to provide
stakeholders with enhanced insight into
cash generation, drawing out components of
the result relating to technical complexities
or exceptional items. The result is deemed to
better reflect the group’s view of commercial
performance, showing key drivers within that.
See cash generation
on page 51
See EcV analysis on
page 53
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.
Commercial
cash generation
Economic Value
(EcV)
238
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 APM
WHAT IS IT?
WHY DO WE USE IT?
REF
Economic Value
(EcV) earnings
EcV operating
earnings
EcV economic
earnings
Commercial
new business
profit
The principal underlying components of the
EcV earnings are:
– The expected return from existing business
(being the effect of the unwind of the
rates used to discount the value in-force);
– Value added by the writing of new business;
– Variations in actual experience from that
assumed in the opening valuation;
– The impact of restating assumptions
underlying the determination of expected
cash flows; and
– The impact of acquisitions.
This is the element of EcV earnings (see above)
that are generated from the company’s ongoing
core business operations, excluding any profit
earned from investment market conditions in the
period and any economic assumption changes
in the future.
This is the element of EcV earnings (see above) that
are derived from investment market conditions in
the period and any economic assumption changes
in the future.
A more commercially relevant measure of
new business profit than that recognised directly
under the Solvency II regime, allowing for a
modest level of return, over and above risk-free,
and exclusion of the incremental risk margin
Solvency II assigns to new business.
See EcV earnings
analysis on page 52
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.
EcV 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.
EcV operating earnings are important as they
provide an indication of the underlying value
generated by the business. It can help identify
profitable activities and also inefficient
processes and potential management actions.
See EcV earnings
analysis on page 52
EcV economic earnings are important in order
to measure the additional value generated from
investment market factors.
See EcV earnings
analysis on page 52
This provides a fair commercial reflection
of the value added by new business operations
and is more comparable with how new
business is reported by our peers, improving
market consistency.
See business review
section on pages 38
to 43
Funds Under
Management
(FuM)
FuM reflects the value of the financial assets
that the business manages, as reported in the
IFRS Consolidated Balance Sheet.
FuM is important as it provides an indication
of the scale of the business, and the potential
future returns that can be generated from the
assets that are being managed.
See Consolidated
Balance Sheet on
page 141
Operating profit,
excluding AVIF
impairment
Economic profit,
excluding AVIF
impairment
Acquisition
value gain
(incremental
value)
Leverage/
gearing
A measure of the pre-tax profit earned from the
company’s ongoing business operations,
excluding any profit earned from investment
market conditions in the period and any
economic assumption changes in the future.
This also excludes any intangible asset
adjustments that are not practicable to ascribe
to either operating or economic conditions.
A measure of pre-tax profit earned from
investment market conditions in the period and
any economic assumption changes. This also
excludes any intangible asset adjustments that
are not practicable to ascribe to either
operating or economic conditions.
Operating earnings are important as they
provide an indication of the underlying
profitability of the business. It can help identify
profitable activities and also inefficient
processes and potential management actions.
Reconciliation to
pre-tax profit can be
found on page 54
Economic earnings are important in order to
measure the surplus generated from investment
market factors.
Reconciliation to
pre-tax profit can be
found on page 54
Acquisition value gains reflect the incremental
Economic Value added by a transaction, exclusive
of any additional risk margin associated with
absorbing the additional business.
The EcV gain from acquisition will be net of any
associated increase in risk margin. The risk
margin is a temporary Solvency II dynamic which
will run off over time.
See EcV analysis
on page 53
A financial measure that demonstrates the
degree to which the company is funded by debt
financing versus equity capital, presented as
a ratio. It is defined as debt divided by debt plus
equity, as measured under IFRS.
It is an important measure as it indicates the
overall level of indebtedness of Chesnara, and it
is also a key component of the bank covenant
arrangements held by Chesnara.
See Financial
Management on
page 55
239
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022 RECONCILIATION OF METRICS
The diagram below shows the interaction between the IFRS metrics and the Alternative Performance Measures
used by the group.
FINANCIAL STATEMENTS
ADDITIONAL METRICS
IFRS net assets
(£333.1m)
Solvency II valuation
(Own Funds)
(£605.1m)
I
R
See below for
reconciliation of
IFRS to SII.
Capital requirements
Solvency Capital
Requirement
SCR plus
management
buffer
IFRS profits
Stakeholder focus:
P Policyholders
I
Investors
R Regulators
B Business partners
Key performance indicators
I
I
Economic Value
P
I
R
B
Solvency
Balance sheet
Earnings
Percentage
Absolute
New business
I
B
Cash generation
EcV
Commercial
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
2022
31 Dec
2021
Rationale
Group IFRS net assets
333.1
458.2
Removal of intangible assets; AVIF, DAC and DIL
(166.3)
(119.9)
Intangible assets that cannot be sold separately have no intrinsic value under
Solvency II rules.
Removal of IFRS reserves, net of reinsurance
10,316.0
8,643.9
Inclusion of SII technical provisions, net of reinsurance
(10,020.3)
(8,394.6)
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
Deferred tax valuation differences
2.2
9.9
1.4
Other immaterial valuation differences.
(1.5)
These are the deferred tax impacts as a result of the adjustments above.
Foreseeable dividends
Tier 2 debt
Tier 2 restrictions
Ring-fenced surpluses
(22.8)
(22.1)
Under Solvency II rules, future ‘foreseeable dividends’ are required to be recognised
within Own Funds. Under IFRS rules, dividends are recognised when paid.
200.0
(46.7)
–
–
–
(7.9)
Tier 2 capital plus the restriction placed on the subordinated debt within Own Funds
under Solvency II requirements.
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.
Group SII Own Funds
605.1
557.5
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.
240
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022 Solvency II position
Solvency II is the solvency regime that applies to the group. Over and above IFRS, Solvency II imposes a capital requirement on the group.
A summary of the solvency position of the group at 31 December 2022 and 31 December 2021 is as follows:
£m
Group SII Own Funds (OF)
Solvency Capital Requirement (SCR)
Solvency surplus
Solvency ratio
31 Dec 2022
31 Dec 2021
605.1
306.7
298.4
197%
557.5
366.8
190.7
152%
Cash generation
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. For further information on cash generation please refer to page 238 and
the financial review section.
Cash generation can be derived from the opening and closing solvency positions as follows:
Opening Solvency II surplus:
Own Funds – 31 Dec 2021
SCR – 31 Dec 2021
Additional capital to meet normal internal operating range (40% of SCR)
Surplus available for distribution – 31 Dec 2021
Closing Solvency II surplus:
Own Funds – 31 Dec 2022
Remove Tier 2 impact on Own Funds
SCR – 31 Dec 2022
Remove Tier 2 impact on SCR
Additional capital to meet normal internal operating range (40% of SCR)
Surplus available for distribution – 31 Dec 2022
£m
557.5
(366.8 )
(146.7 )
44.0
605.1
(153.3 )
(306.7 )
8.6
(119.2 )
34.5
The closing Solvency II position at 31 December 2022 reflects the payment of an interim dividend of £12.2m paid during the year and reflects a foreseeable
dividend of £22.8m due to be paid in 2023. As these are distributions to shareholders, akin to IFRS profit reporting, these do not form part of the cash generation
metric and should be excluded. Consequently, group cash generation can be derived as follows:
Closing surplus available for distribution less opening available surplus for distribution
Add back: Interim dividend paid
Add back: Foreseeable year end dividend
Add back: acquisition impact
Group cash generation
£m
(9.5 )
12.2
22.8
57.2
82.7
241
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022
GLOSSARY
AGM
ALM
APE
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.
BAU cash
generation
This represents divisional cash generation plus the impact of
non-exceptional group activity.
Leverage
(gearing)
London Stock
Exchange
LTIP
A financial measure that demonstrates the degree to which the
company is funded by debt financing versus equity capital,
usually presented as a ratio, defined as debt divided by debt plus
equity, as measured under IFRS.
London Stock Exchange plc.
Long-Term Incentive Plan – A reward system designed to
incentivise executive directors’ long-term performance.
BLAGAB
Basic life assurance and general annuity business.
CA
CALH
Countrywide Assured plc.
Countrywide Assured Life Holdings Limited and its
subsidiary companies.
CASLP
Sanlam Life & Pensions UK Limited
Cash
generation
This represents the operational cash that has been generated in
the period. The cash generating capacity of the group is largely a
function of the movement in the solvency position of the insurance
subsidiaries within the group and takes account of the buffers
that management has set to hold over and above the solvency
requirements imposed by our regulators. 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.
Commercial
cash generation modelling changes and exceptional corporate activity;
Cash generation excluding the impact of technical adjustments,
the inherent commercial cash generated by the business.
Divisional cash This represents the cash generated by the three operating divisions
generation
of Chesnara (UK, Sweden and the Netherlands), 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.,
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 measure – 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
HCL Insurance BPO Services Limited.
International Financial Reporting Standards.
Independent Financial Advisor.
Key Performance Indicator.
LACDT
Loss Absorbing Capacity of Deferred Tax.
Movestic
Movestic Livförsäkring AB.
Modernac
Modernac SA, a previously associated company 49% owned
by Movestic.
New business
The present value of the expected future cash inflows arising
from business written in the reporting period.
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 period and any economic
assumption changes in the future (alternative performance
metric – APM).
Ordinary shares Ordinary shares of 5 pence each in the capital of the company.
ORSA
Own Risk and Solvency Assessment.
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.
PRA
QRT
RCF
Prudential Regulation Authority.
Quantitative Reporting Template.
3 year Revolving Credit Facility of £100m (currently unutilised) put
in place in July 2021.
Resolution
The resolution set out in the notice of General Meeting set out
in this document.
RMF
Risk Management Framework.
Robein Leven
Robein Leven N.V.
Scildon
Scildon N.V.
Shareholder(s) Holder(s) of ordinary shares.
Solvency II
A fundamental review of the capital adequacy regime for the
European insurance industry. Solvency II aims to establish
a set of EU-wide capital requirements and risk management
standards and has replaced the Solvency I requirements.
Standard
Formula
The set of prescribed rules used to calculate the regulatory
SCR where an internal model is not being used.
STI
SCR
Swedish
business
S&P
TCF
Tier 2
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.
Term debt capital (Tier 2 Subordinated Notes) issued in February
2022 with a 10.5 year maturity and 4.75% coupon rate.
Transfer ratio
The proportion of new policies transferred into the business in
relation to those transferred out.
TSR
Total Shareholder Return, measured with reference to both
dividends and capital growth.
UK or
United Kingdom
The United Kingdom of Great Britain and Northern Ireland.
UK business
CA and S&P.
UNSDG
United Nations Sustainable Development Group.
VA
The Volatility Adjustment is a measure to ensure the appropriate
treatment of insurance products with long-term guarantees
under Solvency II. It represents an adjustment to the rate used to
discount liabilities to mitigate the effect of short-term volatility
bond returns.
Waard
The Waard Group.
242
ADDITIONAL INFORMATIONCHESNARA ANNUAL REPORT AND ACCOUNTS 2022
NOTE ON TERMINOLOGY
As explained in Note 7 to the IFRS financial statements, the principal reporting segments of the group are:
CA
CASLP – ‘SLP’
Movestic
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;
Sanlam Life & Pensions UK Limited which was acquired 28 April 2022 and includes subsidiaries CASFS Limited and
CASLPTS Limited;
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 two insurance companies; Waard Leven N.V. and Waard Schade N.V.;
and a service company, Waard Verzekeringen; and Robein Leven NV acquired on 28 April 2022;
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.
243
SECTION ECHESNARA ANNUAL REPORT AND ACCOUNTS 2022
Registered and head office
2nd Floor, Building 4
West Strand Business Park
West Strand Road
Preston
Lancashire
PR1 8UY
T +44 (0)1772 972050
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.
244 CHESNARA ANNUAL REPORT AND ACCOUNTS 2022