Chesnara : Annual Report and Accounts 2023

ANNUAL REPORT & ACCOUNTS 2023

OVERVIEW

WELCOME TO THE

CHESNARA ANNUAL

REPORT & ACCOUNTS

FOR YEAR ENDED

31 DECEMBER 2023

CHESNARA ANNUAL REPORT AND ACCOUNTS 2023 1

2023 FINANCIAL HIGHLIGHTS

COMMERCIAL CASH	EcV
GENERATION†	EARNINGS†
EXCLUDING THE IMPACT	EXCLUDING THE IMPACT OF FX MOVEMENTS
OF ACQUISITIONS	AND DIVIDEND PAYMENTS
£53.0M	£59.1M
2022: £46.6M	2022: £84.7M LOSS
GROUP	FUNDS UNDER
SOLVENCY†	MANAGEMENT†
205%	£11.5BN
2022: 197%	2022: £10.6BN
DIVIDEND GROWTH	IFRS PROFIT BEFORE TAXΔ
3%	£1.8M
INCREASE IN PROPOSED	2022: £62.1M LOSS
FULL YEAR DIVIDEND FOR
19TH CONSECUTIVE YEAR
M&A DELIVERY
2
ACQUISITIONS
IN THE YEAR

• 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.

• This is the first reporting year under IFRS 17 and all prior comparatives have been restated in line with the requirements of the new standard.

CONTENTS

OVERVIEW

1. An introduction to Chesnara

1. Delivering our strategy

1. 2023 highlights

1. Measuring our performance

1. Chair's Statement

1. Chief Executive Officer's Report

STRATEGIC REPORT

24 Our strategy, business model, and culture & values

26 Our strategy

1. Our culture & values

1. Section 172 reporting

1. Business review

1. Capital management

1. Financial review

1. Financial management

1. Risk management

1. Corporate and social responsibility

CORPORATE GOVERNANCE

1. Board profile and board of directors

1. Governance overview by the Chair

1. Corporate Governance Report

103 Nomination & Governance Committee Report

1. Directors' Remuneration Report

1. Audit & Risk Committee Report

1. Directors' Report

1. Directors' Responsibilities Statement

OVERVIEW

IFRS FINANCIAL STATEMENTS

134 Independent Auditor's Report to the members of Chesnara plc

1. Consolidated Statement of Comprehensive Income
2. Consolidated Balance Sheet
3. Consolidated Statement of Cash Flows
4. Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements

146 Section A - General information and accounting policies and judgements

1. Section B - Risk and capital management

1. Section C - Segmental information

1. Section D - Performance in the year

1. Section E - Balance sheet assets

206 Section F - Insurance and reinsurance contracts

1. Section G - Balance sheet liabilities

1. Section H - Shareholder equity

1. Section I - Additional disclosures

Company Financial Statements

1. Company Balance Sheet
2. Company Statement of Cash Flows
3. Company Statement of Changes in Equity

Notes to the Company Financial Statements

257 Section J - Notes to the financial statements

ADDITIONAL INFORMATION

1. Financial calendar

1. Key contacts
2. Notice of the Annual General Meeting

267 Explanatory notes to the Notice of the Annual General Meeting

271 Appendix to AGM Notice

1. Alternative Performance Measures

1. Reconciliation of metrics

1. Glossary
2. Note on terminology
3. Cautionary and forward looking statements

OVERVIEW

View towards Tower Bridge, London

1. An introduction to Chesnara

1. Delivering our strategy

1. 2023 highlights

1. Measuring our performance

1. Chair's Statement

1. Chief Executive Officer's Report

4 CHESNARA ANNUAL REPORT AND ACCOUNTS 2023

Photography, Nirmal Rajendharjumar

CHESNARA ANNUAL REPORT AND ACCOUNTS 2023 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 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 19 years. And we look forward with confidence in our ability to continue this delivery in the future.

Who we are and where we 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 acquisitions of predominantly closed UK businesses (into Countrywide Assured)
• the purchase of an open life and pensions business in Sweden, now known as Movestic; and
• acquisitions of both a closed-book acquisitive group (Waard Group) and an open life and pensions business in the Netherlands (Scildon).
  See pages 7 to 9 for further detail on our history and businesses.
  Looking forward, we are committed to transitioning to be a sustainable and net zero group across our operational and financed emissions and this commitment is a key factor in our corporate decision making.

What we do

We help protect customers and their dependants through the provision of life, health and disability cover and by providing savings and pensions products to enable policyholders to meet their financial needs in the future.

OUR STRATEGIC OBJECTIVES

01

MAXIMISE VALUE

FROM EXISTING BUSINESS

02

ACQUIRE LIFE AND

PENSIONS BUSINESSES

03

ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS

OUR CULTURE & VALUES -

RESPONSIBLE RISK

BASED MANAGEMENT

6 CHESNARA ANNUAL REPORT AND ACCOUNTS 2023

How we create value

OVERVIEW

Customer

• We deliver effective customer service operations with good standards of service, clear communication and competitive fund performance.
• Product reviews across the group help ensure good customer outcomes and, in the UK, have been updated to be aligned to the new Consumer Duty requirements.
• Customers can also be confident in the security of their policies through the robust solvency levels we operate our businesses to.

Shareholder

• Surpluses emerge from the existing 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 in turn fund the attractive shareholder dividend and support our desire to be a share held for the long term by our shareholders. The diagram below illustrates the primary sources of growth that then ultimately contribute towards surplus emergence.

• Growth from both our proven acquisition model and from writing profitable new business 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.

Future acquisitions

New business

Synergies

Real world returns

Risk margin

The categories of potential upside (which are not shown to scale) will emerge over time

Economic Value		Total potential
(illustrative)		Commercial Value (illustrative)

How we operate

• Chesnara has a centrally defined governance and Risk Management Framework operating across the group and all its divisions.
• This framework is designed to deliver long-term peace of mind to our customers, shareholders, employees, regulators, outsourcing partners and local communities.
• 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 a key factor in our corporate 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.
• 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.

UK

FUNDS UNDER MANAGEMENT† £4.2bn

POLICIES† : c291,000

SWEDEN

FUNDS UNDER MANAGEMENT† £4.4bn

POLICIES† : c284,000

NETHERLANDS

FUNDS UNDER MANAGEMENT† £2.8bn

POLICIES† : c395,000

CHESNARA GROUP

FUNDS UNDER MANAGEMENT† £11.5bn

POLICIES† : c970,000

• 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 2023 7

OVERVIEW

DELIVERING OUR STRATEGY • WHAT WE'VE DONE

13 SUCCESSFUL ACQUISITIONS ACROSS 3 TERRITORIES

Our deals demonstrate flexibility and creativity where appropriate:

• From value enhancing 'bolt-on' deals to more transformative acquisitions
• 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:
• Enhances cash generation in the medium term
• Delivers positive impact on the Economic Value per share in the medium term
• Is within Chesnara's risk appetite
• Has been subject to appropriate due diligence
• Delivers positive customer outcomes

• 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.

8 CHESNARA ANNUAL REPORT AND ACCOUNTS 2023

DIVIDEND HISTORY

19 successive years of dividend growth

We recognise the importance of providing stable and attractive dividends to our shareholders. A proposed full year 2023 dividend of 23.97p per share represents an increase of 3% on the prior year. This is our nineteenth successive year

of dividend growth; an unbroken track record since entry to the FTSE in May 2004, and we have paid cumulative dividends of £465m.

Dividend per share history												24.0
Pence per share														23.3
		15.1	15.6	16.0	16.4	16.9	17.4	17.9	18.4	18.9	19.5	20.1	20.7	21.3	21.9	22.6
11.9	12.5	13.1
2004																		2023

OVERVIEW

CASH GENERATION†

Cumulative commercial cash generation† of £256m has exceeded dividends paid to shareholders by over 52% over the last five years

The group generates cash to service its dividends and debts, 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 152% of the total dividends over the same period.

FOCUSING ON OUR THREE STRATEGIC OBJECTIVES HAS ENABLED US TO DELIVER SUSTAINABLE GROWTH IN CASH GENERATION OVER THE LONG TERM. WE ARE CONFIDENT WE CAN CONTINUE TO DELIVER THIS IN THE FUTURE.

Economic Value history £m					396
		267	298	329	362	430	465
	EcV

Cumulative dividend

												237
											209
										185
									163
						103	123	142
					85
	23	37	53	69
10
126	176	189	187	183	263	355	295	311	376	417	455	603	723	626	670	637	624	512	525
2004																			2023

ECONOMIC VALUE† GROWTH

Over 315% of value growth since listing in 2004

Long-term Economic Value (EcV)† growth is achieved through a combination of efficient management of the existing policies, investment returns above risk free rates of return, acquisitions and writing profitable new business. The growth since listing 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

• We look after c1 million policies for customers that have their pensions, 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 also deliver good customer outcomes across our businesses.

• 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.

CHESNARA ANNUAL REPORT AND ACCOUNTS 2023 9