Chesnara ___ Interim Results Presentation 2015
Agenda 1. OVERVIEW – Strategic delivery – Markets – 2015 half year financial highlights 2. BUSINESS REVIEW – Strategic objectives – Chesnara culture and values – Regulatory matters 3. FINANCIAL REVIEW – IFRS pre-tax profit – Cash generation – EEV 4. CONCLUSION & OUTLOOK – Regulatory backdrop – Management’s focus for 2015 5. QUESTIONS 6. APPENDICES – Historic data - headline results – Historic data – dividend history CHESNARA | INTERIM RESULTS PRESENTATION 2015 1
1. OVERVIEW CHESNARA | INTERIM RESULTS PRESENTATION 2015 2
1. OVERVIEW: STRATEGIC DELIVERY A period of solid delivery on our core strategic objectives Maximise value from the Enhance value through Acquire Life and Pension 1 2 3 in-force book new business businesses £15.3m of gross cash generation Ongoing new business profits in Completion of the Waard Group supports the dividend strategy. Sweden continue to provide EEV acquisition in the Netherlands has growth, albeit at lower levels generated an EEV uplift of £21.6m than in the prior year and just and added £39.9m of cash below our target range. distribution potential. Chesnara culture and values Group solvency of 271% (31 December 2014: 284%). The 2014 year end solvency position benefited from the impact of £34.5m of new equity raised in that year. The reduction in solvency during 2015 is as expected following the completion of the Waard Group acquisition. Robust regulatory compliance record. Shareholder return: 3.0% interim dividend increase Declared interim dividend increase by 3.0% to 6.61p per share (2014: 6.42p per share). CHESNARA | INTERIM RESULTS PRESENTATION 2015 3
1. OVERVIEW: MARKETS UK interest rates Gilt yields have increased Cost of guarantees - positive effect of increased yields partially offset by capital depreciation Equity markets Down 0.5% (FTSE 100) during the first half of 2015 Volatility continues as shown by recent events Increase in Swedish OMX All Share index of 6.5% during the period Equity market and yield movements would impact our results broadly in accordance with the sensitivities on slide19 CHESNARA | INTERIM RESULTS PRESENTATION 2015 4
1. OVERVIEW: 2015 HALF YEAR FINANCIAL HIGHLIGHTS • £30.4M IFRS PRE-TAX PROFIT (2014: £27.4M) • MOVESTIC EEV NEW BUSINESS CONTRIBUTION OF IFRS pre-tax profit for six months to 30 June 2015 of £30.4m (six £2.4M (2014: £5.8M) months to 30 June 2014: £27.4m). This stated after a gain on 10% reduction in volumes but margins remain consistent acquisition of £16.2m and a foreign currency exchange loss of £3.5m. • £15.3M GROSS CASH GENERATION (2014: £16.0M) • GROUP SOLVENCY 271% (31 DEC 2014: 284%) Strong Insurance Group Directive solvency cover of 271% (31 December 2014: 284%). • £56.7M NET CASH GENERATION (2014: £15.6M) • SUBSIDIARY SOLVENCY RATIOS ALSO STRONG AND Net cash generated for six months to 30 June 2015 of £56.7m (six ABOVE TARGETS months to 30 June 2014: £15.6m). This is stated after a one-off benefit of £39.9m arising on the acquisition of the Waard Group. • EEV INCREASE OF £24.0M TO £441.2M • DELIVERY OF GROUP WIDE SOLVENCY II “DRY - RUN” £24.0m increase in EEV from £417.2m at 31 December 2014 to As planned we have delivered our first full Group- wide “dry - run” of £441.2m at 30 June 2015, stated after dividend distributions of the Solvency II position of the Group’s insurance subsidiaries. The £15.1m. results reaffirm our previous view that we do not expect Solvency II to impact adversely our overall solvency position. • EEV EARNINGS AFTER TAX OF £44.9M (2014: £47.3M) • INTERIM DIVIDEND INCREASED BY 3.0% EEV earnings net of tax of £44.9m for six months to 30 June 2015 Proposed interim dividend increase by 3.0% to 6.61p per share. (six months to 30 June 2014: £47.3m). This is stated after a gain on acquisition of £21.6m and a foreign currency exchange loss of £3.5m. This excludes positive modelling adjustments of £5.9m CHESNARA | INTERIM RESULTS PRESENTATION 2015 5
2. BUSINESS REVIEW CHESNARA | INTERIM RESULTS PRESENTATION 2015 6
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES MAXIMISE VALUE FROM THE IN-FORCE BOOK - UK The UK books continue to generate cash in line with expectations. Despite relatively flat investment market conditions the level of cash generated is sufficient to fund the Chesnara dividend strategy. Highlights Unit-linked funds under management (£m) • £18.9m of gross cash generation. 2,300 2,305 2,182 • Funds under management resilient to book run off, despite an increase in pension policy attrition in Q2 following “Pension Freedom” changes. 30 Jun 31 Dec 30 Jun 2015 2014 2014 EEV development (pre transfer) (£m) • Positive EEV development. • In July 2015 HM Treasury issued a consultation on 289 “Pension transfers and early exit charges”. This 272 consultation includes consideration of any fees and charges that policyholders might incur when leaving Dec 2014 Jun 2015 their scheme early. Fig 3: Fund performance • We await conclusions from the FCA Legacy Review. CA Pension Managed CWA Balanced Managed Pension S&P Managed Pension Benchmark - ABI Mixed Inv 40%-85% shares 11.3% 11.2% 9.8% 9.1% 8.4% 8.6% 6.3% 6.6% 12 months to 12 months to 30 Jun 2015 30 Jun 2014 CHESNARA | INTERIM RESULTS PRESENTATION 2015 7
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES MAXIMISE VALUE FROM THE IN-FORCE BOOK - SWEDEN Continued growth in funds under management together with a general improvement in fees and rebates levels from those funds has resulted in a significant increase in value emerging from the in-force book. Funds under management Highlights 24.2 21.9 • Continued growth in funds under management; 20.3 SEK (bn) increase of 10.5% during 2015. • £3.3m of cash generation in the period. Jun 2014 Dec 2014 Jun 2015 • Positive EEV development. EEV development (£m) • Stable policy attrition levels. 134.9 128.4 117.3 • Competitive fund performance. 99.7 • Lower new business has resulted in the transfer-in to transfer-out ratio deteriorating such that it has Dec 2012 Dec 2013 Dec 2014 June 2015 reverted to being in a net outflow position, albeit Transfers-in to transfers-out ratio the level is significantly improved from levels reported in 2012 and 2013. 43% 41% 60% 57% 59% • Krona depreciation against Sterling in the period 40% Six months to 30 Six months to 31 Six months to reduces reported results. June 2014 December 2014 30 June 2015 Transferred out Transferred in CHESNARA | INTERIM RESULTS PRESENTATION 2015 8
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES MAXIMISE VALUE FROM THE IN-FORCE BOOK - NETHERLANDS The newly acquired Waard Group adds a new, albeit small, source of in-force book value. Whilst the Waard Group acquisition was primarily based upon the value of existing net worth rather than future cash generation expectations, it remains important that cash emerges in line with the cash flow projections. The Waard Group book Highlights relates primarily to simple • £1.6m of IFRS pre-tax profit has emerged during the six term assurance contracts, months to 30 June 2015. backed by relatively low yield • The total recurring profit of £3.2m on an annualised basis but non-volatile assets. As is in line with expectations within the deal valuation assessment and, subject to book run-off, provides a useful such, whilst the future cash estimate of future in-force book profit expectations. generation expectations are • The EEV of the acquired Waard business is £73.3m at 30 modest they are deemed to June 2015, of which only £10.9m relates to future profits. be relatively robust and • The Waard Group book consists of c84,000 policies, the insensitive to economic majority of which are term assurance contracts (c54,700), conditions. with the balance relating to unemployment and disability cover (c24,500) and unit-linked savings contracts (c4,300). CHESNARA | INTERIM RESULTS PRESENTATION 2015 9
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES ENHANCE VALUE THROUGH NEW BUSINESS - SWEDEN New business profit of £2.4m shows a marked decline compared with the first half of 2014 due to a 10.4% reduction in new business volumes. Highlights Trend analysis of new business premium income (£m) 33.8 30.3 • 10.4% reduction in new business volumes 23.7 Q2, 17.1 compared with the first half of 2014. Q2, 15.5 Q4, 12.4 Q1, 16.7 Q1, 14.8 Q3, 11.3 • Average profit margins have held up in increasingly competitive market conditions. H1 2014 H2 2014 H1 2015 Trend analysis of Movestic’s share of new business • The unit-linked market remains challenging compared with alternative traditional contracts 12.5% which offer significant guarantees. 9.8% 7.7% • Local management remain of the view that the 5.0% guaranteed returns being offered by competitors are not sustainable. The market share of our 2014 H1 2015 Total business Unit-linked company-paid pension business target market was 9.8% which has dipped below our target range of 10%-15%. 20% New business gross margin (2014: 21%) CHESNARA | INTERIM RESULTS PRESENTATION 2015 10
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