FINANCIAL HIGHLIGHTS
· GROUP CASH GENERATION OF £47.8M (2017: £28.6M) Note 1
The 2018 result benefits from a £26.8m release of surplus from the UK with-profits funds. The 2017 comparative includes a one-off £55.3m negative arising on the acquisition of Legal & General Nederland.
· DIVISIONAL CASH GENERATION OF £63.9M (2017: £86.7M)
This includes the benefit of a £26.8m release of surplus from the UK's with-profits funds.
· GROUP SOLVENCY RATIO OF 158% (31 DECEMBER 2017: 146%)
We are well capitalised after allowing for the final dividend, at both a group and subsidiary level, and have not used any elements of the long term guarantee package, including transitional arrangements.
· 3.00% INCREASE IN FINAL DIVIDEND COMPARED WITH 2017
The results support the continued growth of the final dividend to 13.46p per share (2017 final: 13.07p per share), the fourteenth annual consecutive increase.
· ECONOMIC VALUE (ECV) OF £626.1M (31 DECEMBER 2017: £723.1M) Note 2
The movement includes the earnings for the year, and is stated after recognising £30.4m of dividend payments and a foreign exchange loss of £5.8m during the year.
· ECV EARNINGS NET OF TAX OF £(60.9)M (2017: £139.5M)
The loss includes £49.7m relating directly to economic market conditions. The 2017 result included a non-
recurring £65.4m gain arising on the acquisition of Legal & General Nederland.
· ECV NEW BUSINESS CONTRIBUTION OF £10.6M (2017: £12.4M)
Solid new business profits have emerged from Movestic. Scildon's new business operation saw positive volume trends, while we continue to work on initiatives to further enhance margins.
· IFRS PROFIT BEFORE TAX OF £27.0M (2017: £89.6M)
The underlying core operating profit improved to £42.5m (2017: £38.4m). Economic losses of £15.5m compare to a corresponding profit of £30.9m in 2017. The 2017 result included a £20.3m gain arising on the acquisition of Legal & General Nederland.
· IFRS TOTAL COMPREHENSIVE INCOME OF £23.7M (2017: £86.9M)
The 2018 result includes a foreign exchange loss of £0.8m (2017: gain of £8.3m). The 2017 result included a £20.3m gain on acquisition of Legal & General Nederland.
STRATEGIC DELIVERY HIGHLIGHTS
· FULL YEAR DIVIDEND INCREASE
Total dividends for the year increased by 3% to 20.67p per share (7.21p interim and 13.46p proposed final). This compares with 20.07p in 2017 (7.00p interim and 13.07p final).
· GROUP-WIDE IFRS 17 PROGRAMME IS PROGRESSING TO PLAN
The group's IFRS 17 programme has progressed well during the year. The initial impact assessment phase has been completed and an implementation plan has been drawn up which is now being progressed.
· FCA INVESTIGATION CLOSURE
The FCA investigation into the fair treatment of long standing customers in the UK was closed without further action.
John Deane, Chief Executive said:
“It is pleasing to report that in 2018 we continued to generate cash in excess of our dividend costs and we ended the year with a strong solvency ratio of 158% (2017: 146%). This was achieved against a backdrop of adverse economic conditions, especially during the last quarter of the year. Economic Value has been impacted by the market conditions in line with our sensitivities.
The adverse economic conditions, primarily reduced equity and bond values and the strengthening of sterling against the Swedish krona, contributed to a reduction in total Economic Value from £723.1m at the start of the year to a closing value of £626.1m. The closing value recognises the payment of £30.4m of dividends during the year.
Good progress on operational performance developments during the year has resulted in improvements in business resilience and higher new business volumes compared to 2017.
The FCA investigation into the fair treatment of longstanding customers in the UK was closed without further action.
In the early part of 2019, markets have recovered somewhat but uncertainty remains as a result of political, economic and business conditions. For Chesnara, with our structure of separate subsidiary companies in each European territory, debt capacity and management capability, we remain open to the opportunities this uncertainty could bring to us as a disciplined buyer with a focus on cash generation and long term value.”
Note 1 Cash generation is used by the group as a measure of assessing how much dividend potential has been generated, subject to ensuring other constraints are managed.
Group cash generation is calculated as the movement in the group's surplus own funds above the group's internally required capital, as determined by applying the group's capital management policy, which has Solvency II rules at its heart.
Divisional cash generation represents the movement in surplus own funds above local capital management policies within the three operating divisions of Chesnara. Divisional cash generation is used as a measure of how much dividend potential a division has generated, subject to ensuring other constraints are managed.
Note 2 Economic Value is based on the Solvency II “Own funds” valuation with adjustments for contract boundaries, risk margin and adding back the impact of restrictions placed on the value of certain ring-fenced with-profit funds. We consider the Solvency II rules understate the commercial value of these items. Contract boundary rules require Solvency II Own Funds to assume no future regular premiums on certain contracts and the Solvency II risk margin rules, in our view, overstate the cost of capital.
The Board approved this statement on 28 March 2019.