Chesnara ___ Final Results Presentation 2014
Agenda 1. OVERVIEW – Strategic delivery – Markets – 2014 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 – Regulatory backdrop – further detail – Historic data - headline results – Historic data – dividend history CHESNARA | FINAL RESULTS PRESENTATION 2014 1
1. OVERVIEW CHESNARA | FINAL RESULTS PRESENTATION 2014 2
1. OVERVIEW: STRATEGIC DELIVERY A year 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 £71.1m (2013: £36.7m) of net cash Increasing new business profits in Acquisition of the Waard Group in generation including the benefits of Sweden have significantly added the Netherlands* the Protection Life Part VII transfer to its franchise value *subject to regulatory approval Chesnara culture and values Improved Group solvency of 284% (31 December 2013: 194%) stated after the impact of £34.5m of new equity raised in the year. We expect an element of the increase since last year to reverse on completion of the Waard Group acquisition in 2015. On-going sound regulatory record. Shareholder return: 2.9% full year dividend increase Total dividends for the year increased by 2.9% to 18.40p per share (6.42p interim and 11.98p proposed final). This compares with 17.88p per share in 2013 (6.25p interim and 11.63p final). CHESNARA | FINAL RESULTS PRESENTATION 2014 3
1. OVERVIEW: MARKETS UK interest rates Gilt yields moved downwards Cost of guarantees - negative effect of reduced yields partially offset by capital appreciation Long term interest rate trend likely to be upwards? Equity markets Down 3% in year (FTSE 100) Volatility persists As predicted, 2014 equity performance not as good as 2013 Increase in Swedish OMX30 index of 10% in 2014 CHESNARA | FINAL RESULTS PRESENTATION 2014 4
1. OVERVIEW: 2014 FINANCIAL HIGHLIGHTS • £28.8M IFRS PRE-TAX PROFIT (2013: £60.6M) • MOVESTIC NEW BUSINESS CONTRIBUTION OF IFRS pre-tax profit for the year remains strong, although lower than £8.9M (2013: £7.2M) the prior year due to less favourable investment market conditions. Margins and volumes drive this growth • £42.6M GROSS CASH GENERATION (2013: £49.7M) • GROUP SOLVENCY 284% (2013: 194%) This includes the benefit from an equity raise. On completion of the Waard acquisition, the Group Solvency position is expected to reduce somewhat from this peak. • £71.1M NET CASH GENERATION (2013: £36.7M) • SUBSIDIARY SOLVENCY RATIOS ALSO STRONG AND Capital efficiency benefits from the PL Part VII transfer have ABOVE TARGETS generated £27.4m cash. • EEV INCREASED TO £417.2M (2013: £376.4M) • FULL YEAR DIVIDEND INCREASED BY 2.9% Increase in EEV of £40.8m stated after dividend distributions of T otal dividends for the year increased by 2.9% to 18.40p per share £20.7m in the year. Also includes £34.5m of equity raised to fund (6.42p interim and 11.98p proposed final). This compares with the Waard acquisition. 17.88p per share in 2013 (6.25p interim and 11.63p final). • EEV EARNINGS AFTER TAX OF £44.2M (2013: £82.7M) CHESNARA | FINAL RESULTS PRESENTATION 2014 5
2. BUSINESS REVIEW CHESNARA | FINAL RESULTS PRESENTATION 2014 6
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES MAXIMISE VALUE FROM THE IN-FORCE BOOK - UK Strong cash generation despite adverse investment market conditions. Operational cash complemented by exceptional cash on Part VII transfer of Protection Life. Highlights Unit-linked funds under management (£m) • £50.9m of gross cash generation (excluding Chesnara parent company level cash) 2,331 2,300 • £27.4m exceptional cash from the PL Part VII transfer 2013 2014 EEV development (pre transfer) (£m) • Funds under management resilient to book run off • Positive EEV development 255.5 224.3 • Solid fund performance • Improved policy attrition levels 2013 2014 Fig 3: Fund performance • 10 year extension of HCL contract CA Pension Managed • Transfer of actuarial services from HCL to T owers CWA Balanced Managed Pension S&P Managed Pension Benchmark - ABI Mixed Inv 40%-85% shares Watson 8.2% 7.0% 6.9% 5.0% 2014 CHESNARA | FINAL RESULTS PRESENTATION 2014 7
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES MAXIMISE VALUE FROM THE IN-FORCE BOOK - SWEDEN Favourable investment market performance, good new business levels and net transfer inflows lead to Movestic’s funds under management increasing by 23.0% during 2014. Highlights Funds under management • Strong growth in funds under management 21.9 SEK (bn) 17.8 • Positive EEV development 14.3 • Stable policy attrition levels 2012 2013 2014 • Competitive fund performance EEV development (£m) • Transfer-in levels exceed transfer outflows 128.4 117.3 99.7 2012 2013 2014 Transfers-in to – transfers out ratio 20% 40% 52% 80% 60% 48% 2012 2013 2014 Transferred out Transferred in CHESNARA | FINAL RESULTS PRESENTATION 2014 8
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES ENHANCE VALUE THROUGH NEW BUSINESS - SWEDEN New business profits increase in 2014 due to IFA support and improved margins. Highlights New business premium income (£m) • Modest increase in new business volumes 65.0 58.4 Q4, 14.0 Q4, 17.0 Q3, 12.7 • Reduction in full year market share Q3, 13.8 Q2, 19.4 Q2, 15.0 Q1, 18.9 • Improved profit margins Q1, 12.6 • Development of innovative product concepts 2013 2014 Share of new unit-linked company-paid continues pension business o White-labelled funds (excluding ‘tick the box’ market) o SICAV launch 12.5% 13.7% o Sustainability fund launch • Continued focus on profitability not volume 2013 2014 Increase in new business 17% gross margins CHESNARA | FINAL RESULTS PRESENTATION 2014 9
2. BUSINESS REVIEW: STRATEGIC OBJECTIVES ACQUIRE LIFE AND PENSION BUSINESSES Acquisition of the Waard Group in the Netherlands scores highly on our financial assessment criteria and is expected to be cash generative. Purchase price is a healthy discount to embedded value. Significant opportunity for further deals in the Dutch market. Protection Life Outlook Waard Group acquisition • Short term challenges in • Successfully transferred CASH GENERATION EMBEDDED VALUE Note 1 UK into CA plc High solvency levels will 26% discount to embedded value enable material cash supports our growth proposition distributions • Commercial and economic • £27.4m of additional cash drivers remain positive and available to transfer to STRATEGIC OPPORTUNITY RISK CONSIDERATIONS the UK market should Chesnara Market intelligence indicates The deal has been structured become more active in that significant consolidation such that residual risks are due course potential exists. Early deemed to be low. The potential • Migration to HCL to be indications post impact on the risk profile of the complete during the first • Significant potential in the announcements are generally Group going forward is minimal. half of 2015 supportive of our Dutch market expectations. • Strong regulatory and • First full year set of Note 1: The discount to embedded value, in terms of the Group balance sheet expressed financial foundations results in line with in Sterling, will have deteriorated compared with the initial deal assessment of 26% as a expectations result of the Euro depreciation during 2015. However, it remains suitably positive and of course would recover should the Euro subsequently recover against Sterling. CHESNARA | FINAL RESULTS PRESENTATION 2014 10
2. BUSINESS REVIEW: CHESNARA CULTURE AND VALUES Good solvency levels continue Strong behavioural and cultural practice implemented in the way Chesnara continues to do business. £m 284% 200 • Revised Governance procedures Excess of Capital Resources over Target Requirement Excess of Target Capital Requirement over Minimum 194% Minimum Regulatory Capital Resources Requirement • Cultural continuity was a key aspect to the 146.0 150 CEO recruitment criteria 176% 76.8 • TCF 14.0 218% 100 36.3 29.2 • Treatment of employees 23.1 50 156% 376% 311% Relationship with Regulators • 81.9 79.3 1.4 65.8 12.6 18.0 21.0 44.1 121% 5.6 25.2 4.6 0.6 11.2 9.3 2.9 - 2014 2013 2014 2013 2014 2013 2014 2013 Group CA plc Movestic PL Ltd Conduct Business with Conduct business with due care, skill Responsible management, with professionalism and integrity and attention adequate risk management systems Maintain adequate financial resources CHESNARA | FINAL RESULTS PRESENTATION 2014 11
3. FINANCIAL REVIEW CHESNARA | FINAL RESULTS PRESENTATION 2014 12
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