Chesnara superior income too cheap

Chesnara – which operates in the UK, Sweden and the Netherlands – aims to grow profitability via three methods: maximising value from in-force business via management actions, acquiring life and pensions businesses, and writing new business. The most recent purchase of LGEN’s Dutch business – since renamed Scildon – potentially scores across all three points. Last year the business contributed £16.2m in cash following its acquisition. And management hopes to enhance the business’s contribution after initiating a two-year efficiency programme. So far, the signs are positive – management acquired Scildon expecting it to break even in the first year, but encouragingly it delivered a modest £1.9m profit.

Management reckons the purchase will also help it achieve the upper end of its target 5-10 per cent protection market share range. Combined with Swedish business Movestic, the addition of Scildon means open-book life assurance accounted for two-thirds of new business last year, which should reduce the group’s reliance on making new closed-book acquisitions to increase dividends.

Even without the cash added by Scildon post-acquisition, cash generation almost doubled to £68m. That supported record aggregate dividends paid to Chesnara from its divisions of £70m, including £22.2m from Scildon. Movestic also paid an inaugural £2.8m dividend. The latter has grown assets under management by 81 per cent over the past four years to £2.9bn and more than doubled its economic value to £252m. Admittedly, cash generation at closed-book Netherlands-based Waard was down 29 per cent on the prior year at £11.5m. However, last year’s figure benefited from an £8.5m foreign exchange gain.

The UK closed-book business was the biggest contributor to cash generation last year, remitting £34.5m – up 62 per cent on the prior year. It benefited from the release of £9m of previously trapped surplus from two ring-fenced with-profits funds. Improved equity markets also helped lift the business’s economic value by £46m to £429m. The UK-based Countrywide Assured business has been under investigation by the Financial Conduct Authority since 2016 over how it disclosed exit fees to policyholders. However, management says that, given the narrow scope of the investigation, it doesn’t think the outcome will have a material impact on the company.