Life insurance group reports healthy annual performance

John Deane

Chesnara, the Preston-based international life insurance firm, reported substantially better annual figures for the year to December 31, 2019 today, including a three per cent increase in its final dividend for shareholders.

The business reported total comprehensive income of £60.6m compared with £23.7m.

Its economic value (ECV) of £670m was up from £626m.1m the year previously, giving it ECV earnings net of tax of £104m, against £60.9m a year ago. This figure includes £121.1m of earnings resulting from investment market movements, compared with an investment market loss of £49.7m a year ago.

Pre-tax profits for the year were £96.1m compared with £27m in 2018.

A final dividend of 13.87p per share will be paid to shareholders, up from 13.46p per share the previous year.

Two weeks ago the group made an announcement that it was well capitalised and able to pay a dividend to shareholders, despite the effects of the coronavirus pandemic.

It reiterated those views today, saying that, based on the closing market position on March 31, 2020, its solvency cover ratio was estimated at approximately 163%, compared with 155% on December 31, 2019, after allowing for the payment of the proposed dividend of £20.8m.

It said today’s announcement shows that it is foreseeing dividend income from its divisions during 2020 of £50.1m.

Based on divisional solvency and liquidity estimates as at March 31, 2020, this amount is still expected to be paid during the second quarter, although the group said it will await the results from its full quarter one valuation prior to making the payments.

It added: “There is a degree of risk that following the deferral period and on reassessment a proportion of the total expected divisional dividends is not paid. Even assuming a realistic worst-case outcome regarding divisional dividends Chesnara retains a healthy post dividend cash balance.”

And it said: “As expected, and in line with our reported sensitivities, market movements up to March 31, 2020, have had an adverse impact on our Economic Value. We estimate the impact of market movements to that date to be a reduction of approximately £90m from the December 31, 2019, position of £670m.”

Despite the challenging circumstances during this pandemic, the group said operations at both its head office and divisions continue to function effectively.

“Our business continuity plans have been implemented and continue to be adapted as the COVID-19 situation evolves, with new working arrangements in place and with the vast majority of our colleagues and outsource partners now working from home. Our risk management and control framework continues to be effective.

“New business activity in the Netherlands and Sweden for Q1 has seen some small impact from the current environment. The impact is expected to be greater in the rest of the year, with a corresponding reduction, consequently, in the capital required to support new business.”

Chief executive John Deane said: “Historical investment decisions have given us a balanced risk profile as a business.

“Prudent, yet progressive, historical dividend payments, a low gearing ratio (11%) and a keen focus on operational resilience have resulted in the business being able to cope well with the challenges of COVID-19 and provide our customers, investors and other stakeholders with a strongly capitalised business that provides stability and security in these uncertain times.

“Colleagues are able to work from home whilst still providing good levels of customer service.

“The solvency of the group has held up well, which has enabled us to continue our dividend strategy without compromising the financial stability of the business.”

Looking ahead chairman Luke Savage said: “It remains too early to quantify the potential long-term impact on our financial performance arising from COVID-19, although we continue to have a strong and viable business.

“At this point, we remain focused on supporting our customers and colleagues while maintaining our financial and operational resilience.

“To date, our operations in all divisions and at group have undertaken a fairly smooth transition to remote working conditions, with no significant or prolonged disruption to key business services anticipated.

“Beyond the COVID-19 situation, Chesnara has a clear strategic direction and the ability to deliver against its objectives, which in turn fund our well-established dividend strategy.

“In particular, value and cash are expected to continue to emerge from our existing books of business, both in the UK and our overseas divisions.

“We have sufficient scale and presence in both the UK and the Netherlands to continue our focus on acquisition activity in those territories. We also remain open-minded about new territories, but the benefits would need to outweigh the inherent challenge of adding another regulatory environment into our business model.

“And we remain committed to writing new business in both Sweden and the Netherlands with a view to replacing a meaningful proportion of the dividend strain through our new business operations.”