Annual Report & Accounts 2016 - Chesnara plc

1 Annual Report & Accounts 2016 WELCOME TO THE Chesnara ANNUALREPORT & ACCOUNTSFOR statementThis 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.

2 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 A | OVERVIEW04 An introduction06 Delivering our strategy 08 2016 highlights10 Chairman s statementSECTION B | STRATEGIC REPORT16 Overview of strategy, culture & values and business model18 Culture & values20 Our strategy22 Business review28 Capital management30 Financial review36 Financial management38 Risk management42 Corporate and social responsibilitySECTION C | CORPORATE GOVERNANCE46 Board profile and Board of directors48 Governance overview from the Chairman49 Corporate Governance report54 Nomination & Governance Committee report56 Remuneration Committee Chairman s Annual statement58 Directors remuneration report76 Audit & Risk Committee report80 Directors report83 Directors responsibilities statementSECTION D | IFRS FINANCIAL STATEMENTS86 Independent Auditor s Report to the Members of Chesnara plc91 Consolidated statement of comprehensive income92 Consolidated balance sheet93 Company balance sheet94 Consolidated statement of cash flows95 Company statement of cash

3 Flows96 Consolidated statement of changes in equity96 Company statement of changes in equity97 Notes to the consolidated financial statementsSECTION E | ADDITIONAL INFORMATION162 Financial calendar162 Key contacts163 Notice of Annual General Meeting165 Explanatory notes to the notice of Annual General Meeting170 GlossarySECTION A:OVERVIEW03 OVERVIEW SECTION A04 An introduction06 Delivering our strategy 08 2016 highlights10 Chairman s statement04 OVERVIEW SECTION ACHESNARA | Annual Report & Accounts 2016AN INTRODUCTION TO CHESNARAWho we are We are a responsible and profitable company engaged in the management of life and pension policies in the UK, Sweden and the Netherlands. Chesnara plc was formed in 2004 and is listed on the London Stock Exchange. The group initially consisted of Countrywide Assured, a closed life and pensions book demerged from Countrywide plc, a large estate agency group.

4 Since incorporation the group has grown through the acquisition of three predominantly closed UK businesses, an open life and pensions business in Sweden and a closed-book group in the plc is a life assurance and pensions consolidator. It has operations in the UK, Sweden and the primary focus is the efficient management of life assurance and pension policies to give good and fair outcomes to our customers, generating profits to provide attractive dividends and value growth to our investors. Periodically we seek to create further value and sustain our dividend policy by acquiring new companies or books of business. Our acquisition strategy looks beyond the UK and we will consider opportunities across other European countries where there is sufficient value and strategic and cultural primarily a closed book business, we do write new business where we are confident that conditions will ensure the sales are value adding.

5 The new business operations will always be based on realistic market share expectations and hence the writing of new business will not detract from our core objective of managing in-force books to provide good returns to policyholders and s long established culture and values underpin the delivery of our core strategic objectives. Risk and solvency management are at the heart of our robust governance framework and the group is well capitalised. Throughout its history Chesnara has delivered good and consistent returns to policyholders and CHESNARAWhat we doOVER880,000 POLICIESUKSWEDENNETHERLANDSMAXIMISE VALUE FROM EXISTING BUSINESSENHANCE VALUE THROUGH PROFITABLE NEW BUSINESSACQUIRE LIFE & PENSION BUSINESSESRISK BASED MANAGEMENTMANAGE BILLIONFUNDS05 OVERVIEW SECTION ACHESNARA | Annual Report & Accounts 2016 How we operate Chesnara devolves management to the three divisions but the divisions operate within a centrally defined governance and risk management framework.

6 A central UK team has significant experience and a proven track record in governing, acquiring and successfully integrating life and pension businesses. In the UK we adopt an outsourced operating model to the fullest extent possible whereas our overseas divisions use outsourced services on a more limited basis. Acquisitions are assessed against stringent financial criteria adopting a robust risk-based due diligence process. We maintain strong solvency we create valuePolicyholder Providing security through strong solvency. Effective customer service operations together with competitive fund performance, whilst giving full regard to all regulatory matters, support our aim to ensure policyholders receive good returns and service in line with policy Because of efficient management of the policy base and good capital management practices, surpluses emerge from the in-force books of business.

7 These surpluses enable dividends to be made from the subsidiaries to Chesnara , which fund the attractive dividend strategy and support our wish to be a share held for the long-term by our shareholders. Growth from both the proven acquisition model and from writing profitable new business in Sweden has had a positive impact on the Economic Value of the AIM TO PROVIDE VALUE FOR MONEY TO OUR CUSTOMERS AND INVESTORS IN A COMPLIANT OVERVIEW SECTION ACHESNARA | Annual Report & Accounts 2016 DELIVERING OUR STRATEGYCOMPANY HISTORY 6 successful acquisitions, including LGN, across 3 territories. Our deals demonstrate flexibility and creativity where appropriate: Tactical bolt-on deals to more transformative deals Open minded regarding deal size Willingness to find value beyond the UK Flexible and efficient deal funding solutions Capability to find expedient solutions to de-risk where required.

8 We are not willing to compromise on quality, value or risk. All deals have: been at a competitive discount to value satisfied our dual financial requirements of generating medium-term cash and enhancing long-term value been within Chesnara s risk appetite been subject to appropriate due diligence been either neutral or positive in terms of customer outcomes supported Chesnara s position as an income WE VE DONEOur company history has helped shape our business, which in turn enables us to deliver against our is born Countrywide estate agency group divests its life insurance business and this becomes the inaugural portfolio of Chesnara plc with an opening Embedded Value of makes its first acquisition City of Westminster Assurance, adding of Embedded becomes established as an attractive dividend stock after three years of attractive dividend plc moves into Europe with the acquisition of a Swedish business now called Movestic.

9 The group s Embedded Value reaches 263m. Unlike the UK operation, Movestic is open to new business which adds a further source of Embedded Value acquisition of Save and Prosper takes the group s assets under management to over 4 Line s life assurance business is acquired and by the end of 2014 total group Embedded Value rises above into a new territory with the acquisition of the Waard Group in the upon our entry to the Dutch market we announce the acquisition of Legal & General Nederland at a 33% discount to its Economic Value of SECTION ACHESNARA | Annual Report & Accounts 2016 Business as usual cash generation mEmbedded/Economic Value growth m200410. 22005 13 .1200613. 72007 . 0200916 . 2201018 .1201119. 4201219.. successive years of dividend growth. We recognise the importance of providing stable and attractive dividends to our shareholders.

10 A full year 2016 dividend of per share represents an increase of on the prior year, and is Chesnara s twelfth successive year of dividend Customers can be confident that they have policies with a well capitalised group where financial stability is central to our culture and values. Our investment returns remain competitive across the group. We have delivered good customer service levels across the primary responsibilities remain to our HISTORYD ividend payment history mVALUE GROWTH2013200920102011201220042006200720 082014201520162005 Economic Value of over growth is achieved through a combination of efficient management of the existing policies, acquisitions and writing profitable new business. The growth includes c 148m of new equity throughout the 12 year period but is net of c 218m of cumulative dividend GENERATIONCash generation continues to support the group needs to generate cash to service its dividends.