Chesnara H1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 25, 2026

Key Takeaways

  • Positive Sentiment: H1 2026 operating capital generation rose 79% to £96 million, while cash remittances increased 31% to £73 million. The performance supported a 6% increase in the interim dividend to 8.16 pence per share.
  • Positive Sentiment: Chesnara Life UK, acquired from HSBC in January, contributed £51 million of operating capital generation and £20 million of cash remittances in its first five months. Integration is progressing, with data migration from HSBC remaining on track for completion by the end of 2026.
  • Positive Sentiment: The balance sheet remains strong, with the Solvency II coverage ratio at 185%, above the 180% pro forma estimate and the company’s 140%-160% target range. This leaves capacity for further acquisitions, with management estimating roughly £130 million of immediate transaction headroom plus additional debt capacity.
  • Positive Sentiment: Future value increased materially, with assets under administration reaching £21 billion and the Contractual Service Margin rising from £131 million to £327 million following the Chesnara Life acquisition. Management expects 2026 new-business value to be approximately double the prior year, although M&A is expected to remain the primary growth driver.
  • Negative Sentiment: Sweden experienced adverse persistency and lapse trends, as outflows from higher-margin existing business exceeded inflows despite strong net client cash flows, a new Norway partnership and approximately £700 million of additional assets under administration. Dutch mortality was also adverse in Q1, though management characterized it as seasonal and said experience reverted toward its long-term average in Q2.
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Earnings Conference Call
Chesnara H1 2026
00:00 / 00:00

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Steve Murray
Steve Murray
Group CEO at Chesnara

Welcome to the Chesnara Half-Year 2026 Results Presentation. I am Steve Murray, Group chief executive, and with me is Tom Howard, our Group CFO. What will we cover today? I will begin with a short overview of what has been delivered in the period. Tom will then step through the financials in more detail, which now include Chesnara Life, formerly known as HSBC Life UK, for the first time under our ownership. I will then finish with some further detail of what has been delivered so far in 2026 and what to expect going forward. We will have plenty of time for questions at the end of our presentation, starting with the people here with us in RBC's London offices. For those joining online, you can type your questions into the Q&A function via your browsers.

Steve Murray
Steve Murray
Group CEO at Chesnara

The Group has delivered another very strong set of financial results over the first half of 2026, including a substantial increase in the Group's operating capital generation. Tom will run through these financial results in more detail shortly, including an overview of where our H1 position is relative to the full year 2025 pro forma estimates that we shared in March. Our focused three-pillar strategy, set out on this slide, has continued to serve the Group well. We completed the acquisition of HSBC Life UK in January, which is now rebranded as Chesnara Life UK. We have been delighted with the early performance of the business under our ownership, with GBP 51 million of operating capital generation and GBP 20 million of cash remittances already delivered.

Steve Murray
Steve Murray
Group CEO at Chesnara

The next phase of integration and migration activity has been continuing at pace, with the migration of data from HSBC on track for delivery by the end of 2026. The UK business has also completed the migration and associated Part VII of the second Canada Life portfolio we acquired, with these policies now running on our new UK platform. This is the fifth successfully completed migration in recent years. We announced the proposed acquisition of Scottish Widows Europe in February this year and have completed a significant amount of the preparation required for the expected change of control around the end of 2026. We have continued to proactively evaluate and execute management actions in the period. We have also taken further steps to integrate teams and processes across our Dutch business, following the merger of our Dutch entities last year. This has helped support Scildon's largest-ever cash remittance.

Steve Murray
Steve Murray
Group CEO at Chesnara

The addition of Chesnara Life UK to the Group has materially increased the contribution from new business in the first half of the year. Movestic has also added around GBP 700 million of assets under administration and expanded its distribution reach, including a new partnership in Norway. The best track record of continuous dividend growth in UK and European insurance continues. As previously highlighted to investors, we are announcing a 6% increase in the interim 2026 dividend, up to 8.16 pence per share. This represents a one-off acceleration of the Group's historic dividend growth trajectory and follows the 6% increase to the full-year 2025 dividend that we announced in March. Let me hand over to Tom, who will take us through the financial results in more detail.

Tom Howard
Tom Howard
Group CFO at Chesnara

Thanks, Steve, and good morning, everyone. I am delighted to be reporting a set of very strong results for the first half of 2026. Today's results, for the first time, incorporate Chesnara Life, following completion of the acquisition in January. Operating capital generation increased significantly by 79% to GBP 96 million, and cash remittances increased by 31% to GBP 73 million. The results reflect a robust operating performance from each of our business units, incremental value from Chesnara Life, and a contribution from capital optimization actions. Own Funds increased by 14% to GBP 976 million, and the Solvency II coverage ratio of 185% is comfortably above the upper end of our operating range. This is also above the pro forma guidance of 180% that we provided to you at the full year. Our sources of future value continue to go from strength to strength.

Tom Howard
Tom Howard
Group CFO at Chesnara

Assets under Administration increased to GBP 21 billion, and adjusted operating profits grew by 46% to GBP 31 million. The IFRS balance sheet also grew, with the Contractual Service Margin increasing significantly from GBP 131 million to GBP 327 million, reflecting the integration of the Chesnara Life book. This significantly increases the stock of future insurance profits available to the Group. This very strong performance underpins today's announcement of a 6% increase in the interim dividend to 8.16 pence per share. As I mentioned a moment ago, we are reporting a significant increase in the Group's OCG results today. OCG of GBP 33 million arose from robust operating performance across our business units, broadly in line with the prior year result of GBP 32 million.

Tom Howard
Tom Howard
Group CFO at Chesnara

Performance benefited from stronger new business results and our ongoing focus on cost control, with partial offsets from adverse mortality experience in the Netherlands in Q1 and adverse persistency experience in Sweden. Our ongoing program of capital optimization actions delivered a further GBP 12 million in benefits through the extension of existing foreign exchange hedging arrangements at Group Center. As I flagged at our full-year results, we expect that ongoing capital optimization actions will be a recurring source of OCG for the Group. They will on average comprise around 30% of the annual OCG result. Finally, the acquisition of the Chesnara Life book generated significant additional capital benefits for the Group. These benefits arose as we embedded the Chesnara Life risk profile into our existing U.K. reinsurance arrangements and into the Group's solvency capital framework.

Tom Howard
Tom Howard
Group CFO at Chesnara

These impacts are non-recurring in nature and increase the Group's OCG by a further GBP 51 million. We continue to have a strong pipeline of capital management actions to support the five-year and the lifetime cash flow guidance we provided to you at the time of the acquisition. Turning to the balance sheet. Over the half year, OCG contributed 73 percentage points to the Group's Solvency Coverage Ratio. Non-operating capital items provided a further 5 percentage point benefit, with positive investment variances from favorable markets more than offsetting the impact of integration and restructuring costs over the period. After allowing for the completion of the Chesnara Life acquisition, the Group's Solvency Coverage Ratio of 185% is higher than the pro forma guidance of 180% that we provided to you at our full year 2025 results.

Tom Howard
Tom Howard
Group CFO at Chesnara

It also remains significantly above the upper end of our operating range of 140%-160%. As a result, we retain headroom to support M&A and other growth opportunities. We also expect the Solvency Coverage Ratio to remain above the upper end of this range after allowing for the impact of the Scottish Widows Europe acquisition, subject of course to market conditions and any other significant developments through the second half of this year. The Group's Own Funds increased by 14% to GBP 976 million. As I referenced earlier, operating performance was robust and broadly in line with the prior year. Favorable market conditions supported growth in the value of the Group's Assets under Administration, positively contributing to the non-operating result. The most significant component of the Own Funds growth arose from the Chesnara Life acquisition, with Group Own Funds increasing by GBP 79 million on day one.

Tom Howard
Tom Howard
Group CFO at Chesnara

We expect Own Funds growth to emerge from further synergies as the integration and migration activities continue, and we will provide further details on our progress at our year-end results. Group central liquidity stands at GBP 271 million after allowing for the funding of the Chesnara Life acquisition earlier this year. Over the half, Group center balances benefited from higher levels of cash remittances from the business units to center. Total remittances increased by 31% to GBP 73 million, including GBP 30 million from the Netherlands, driven in part by merger synergies, and GBP 20 million from Chesnara Life. Moving next to IFRS. The IFRS capital base grew significantly by 22% to GBP 850 million. Adjusted operating profits increased by 41% to GBP 31 million, reflecting robust operating performance across our business units.

Tom Howard
Tom Howard
Group CFO at Chesnara

Favorable market conditions also supported the investment result, further improving the IFRS profit before tax after allowing for the impact of integration and restructuring costs. Tax charges were higher in the period, but this increase was driven solely by higher policyholder tax relating to investment gains on U.K. bond policies. These charges are deducted by Chesnara at source on behalf of our customers, so the net impact to our P&L is broadly nil. Finally, and importantly, the Group's Contractual Service Margin increased significantly from GBP 131 million at full year 2025 to GBP 327 million at the half year. This increase was primarily driven by the inclusion of the Chesnara Life book, where the CSM recognized on acquisition was higher than that assumed in our pro forma estimates. This represents a significant increase to the stock of future profits we expect to emerge from the Group's insurance business.

Tom Howard
Tom Howard
Group CFO at Chesnara

In summary, this has been a period of very strong financial performance for Chesnara. Today's results show growth across all areas of our financial framework and exceed the pro forma guidance that we provided at full year 2025. Our sources of future value go from strength to strength, and we have multiple levers at our disposal to further optimize the capital base and to deliver strongly against the guidance that we provided to you at the time of the Chesnara Life acquisition. Finally, the balance sheet remains strong and resilient, and we retain capacity to invest for further growth. This all bodes well for strong, sustained financial performance into the longer term. Thank you all. With that, I will pass back to Steve.

Steve Murray
Steve Murray
Group CEO at Chesnara

Thanks, Tom. The strategic focus we have had over the last few years has continued into 2026. At our full-year 2025 results presentation, I underlined the importance of ensuring we deliver the migration and integration of Chesnara Life UK well, alongside the work required to support the anticipated change of control of Scottish Widows Europe. I am pleased to report that we continue to make great progress on both fronts, which I will cover in slightly more detail shortly. Together, Chesnara Life UK and Scottish Widows Europe are expected to contribute around GBP 1 billion of future lifetime cash flows to the Group. Tom highlighted earlier a number of the actions we have already taken this year to optimize the Group's balance sheet further, including in Chesnara Life. Across the Group, we continue to have a very full pipeline of actions at our disposal through into the medium term.

Steve Murray
Steve Murray
Group CEO at Chesnara

We have also been progressing the next phase of restructuring of our Dutch business, where run rate synergies delivered are above our initial estimates. We expect the remaining anticipated cost savings to come through in the second half of the year. We continue to see a positive M&A pipeline and have already had a number of interesting opportunities to assess and evaluate so far this year. The addition of Chesnara Life has materially increased the contribution from new business to GBP 12 million. Movestic have continued to see positive net client cash flows into their unit-linked and risk offerings, and Scildon has also delivered robust term life sales.

Steve Murray
Steve Murray
Group CEO at Chesnara

Whilst we continue to anticipate the vast majority of our growth will come from M&A, we expect the value from new business for the full year 2026 to be around double that of the previous year, a useful additional value generator for the Group. Finally, the work we are doing to become a more sustainable Chesnara has also been progressing well. We have continued to reduce emissions from our investment portfolios, along with more proactive investment in more sustainable solutions. I wanted to give a further update on where we are in the integration of Chesnara Life UK and the change of control process for Scottish Widows Europe. On Chesnara Life, assets under administration and Own Funds remain ahead of the estimated pro forma year 2025 numbers that we shared with investors in March.

Steve Murray
Steve Murray
Group CEO at Chesnara

We were able to take certain planned balance sheet actions in H1, which helped support GBP 51 million of OCG and GBP 20 million of cash remittances from the business. We remain firmly on track to deliver the GBP 140 million of cash generation we guided investors to expect in the first five years of our ownership. Whilst we only completed the acquisition five months ago, we are really pleased with the performance delivered so far. Jackie Ronson, our UK CEO, and her team have continued to make great progress on our Chesnara Life integration and migration program of activity. We have completed the staff consultation required in order for us to take the next steps towards implementing our new UK target operating model.

Steve Murray
Steve Murray
Group CEO at Chesnara

We have confirmed who the role holders will be in our combined UK leadership team and also completed the first planned TUPE transfer of staff to SS&C.

Steve Murray
Steve Murray
Group CEO at Chesnara

We remain firmly on track to complete the required data migration from HSBC by the end of 2026. Tom and the separate team working on Scottish Widows Europe have continued to push ahead with the work to deliver change of control and deal completion, as well as the planning required for the business' separation from Lloyds Banking Group. The change of control application has been submitted, and we're progressing through regulatory review with the Central Bank of Ireland. Legal completion readiness testing with Lloyds has also been successfully completed, with a large number of completion planning activities also substantially progressed. We continue to anticipate change control approval around the end of 2026. The financial framework on the left-hand side of this slide will be familiar to a large number of our investors. It has served us well and continues to form a core part of our deal assessment criteria.

Steve Murray
Steve Murray
Group CEO at Chesnara

As Tom has highlighted in his presentation, we have material solvency headroom above our target operating range. Our leverage is substantially below the long-term target of 30%, and we have material liquid resources at plc, and we retain significant, readily available firepower with a successful track record of financing more material transactions. We continue to see a positive M&A market and pipeline that provides great opportunities to build on our track record of strong deal execution. In the period, we've already had the chance to work actively on a number of opportunities, both in Europe and the U.K. The eight deals executed over the last five years has provided additional confidence to potential sellers that Chesnara is a company they can trust to get deals done. We've delivered a very strong set of financial results, supporting a 6% increase in the interim 2026 dividend.

Steve Murray
Steve Murray
Group CEO at Chesnara

We completed the largest acquisition in our history in January, with the migration of data from HSBC remaining on track for delivery by the end of 2026. We've continued to proactively seek out and execute management actions to optimize the Group's balance sheet and resources, which have contributed materially to the Group's operating capital generation. We continue to anticipate change of control for Scottish Widows Europe around the end of 2026. Our M&A pipeline has remained positive, and we're continuing to actively assess acquisition opportunities. I want to thank colleagues across the Group for their continued drive and commitment, which has delivered a very strong financial performance. The Group is in a strong position with further opportunities to grow, and I continue to believe there's a lot to look forward to here at Chesnara. That ends our presentation.

Steve Murray
Steve Murray
Group CEO at Chesnara

We'll turn now to questions, and we'll start in the room in London. I know there's a number of people with new roles here, which we might congratulate them on shortly. Al Loney will find a microphone to pick somebody. Who put their hand up first, Tom? Who do you want to start?

Tom Howard
Tom Howard
Group CFO at Chesnara

It is always Abid.

Steve Murray
Steve Murray
Group CEO at Chesnara

Always Abid. Congratulations on your promotion, Abid, if we have not said that publicly before.

Analyst

Thank you. You can always congratulate me next time as well. I have three questions, if I can. The first one is on OCG. The OCG was very strong. What elements do you think are repeatable, and how should we think about that for the full year 2026 and full year 2027? If I can ask a subpart to that, the OCG delivery from the HSBC deal was very strong. I do not know if that is optically, if it was very strong. If you could just talk to how you are tracking against the GBP 140 million that you were looking to deliver over the first five years, because I think there is a number out there, sort of 51. I just want to get a sense of how those two compare.

Analyst

The second question is on people. I think you have a new Group CRO joining the business next month. I might be reading too much into this, but does that investment into people signal some intent and ambition to be a larger FTSE business going forward? Finally, on the firepower, can you update us on the level of available resources that you have to self-finance another deal before you come back to the markets for additional capital?

Steve Murray
Steve Murray
Group CEO at Chesnara

Yeah. I think that was four questions technically, Abid, but as always, we'll allow it. Absolutely. Yeah, an actuarial three. Shall I start with people, and then do you want to pick up firepower and OCG, including the HSBC part?

Steve Murray
Steve Murray
Group CEO at Chesnara

Yeah. It was a good spot. So we went into the market earlier on in the year for a new Group CRO. The previous role holder held both the CRO function and part of what normally is called the chief actuarial responsibilities. So we took the decision to split that role, beef up a first-line chief actuary role that's become more commercial. We've also invested in another person that's going to join Tom's team to support M&A and broader development alongside, as you say, the new CRO, Sue-Ann, who's coming in. She's got an extensive CV, tons of relevant experience. She's been working previously in a business that was also trying to do M&A cross-jurisdictionally. That business was doing it across 20 territories. So Chesnara looks pretty simple, I think, in comparison to what she was covering before.

Steve Murray
Steve Murray
Group CEO at Chesnara

I think what you've seen from us over the last five years is make a significant investment in the top team. Jackie came in almost three years ago now and is driving that U.K. business forward, and we've got new leadership right the way across the Group, and we're doing a terrific job driving the performance. So I think it's a good spot, and certainly our ambition is to become a much larger FTSE 250 company, Abid. I think that's very safe to say. Tom.

Tom Howard
Tom Howard
Group CFO at Chesnara

OCG. Yeah, if we deconstruct the OCG a little bit, which I think we certainly attempted to do in the presentation. Of the 96, 51 is one-off in nature. That is the day one acquisition impact of bringing Chesnara Life in. That arises from things like diversification benefits, and I think, as I mentioned, by moving the Chesnara Life solvency framework onto the Chesnara solvency framework. So it's very much a structural benefit we get from bringing that on. It's material, and it's one-off, and I'll come back to that in the context of the 140, which is your second question. If you move that to one side, the other components are what we call the recurring OCG of 33 and then management action. The recurring OCG of 33 is very much as the name suggests.

Tom Howard
Tom Howard
Group CFO at Chesnara

We expect that to be a very reliable indicator going forward. So 33 in the first half, I think, not to tell you what to factor into your models, but I think you can take from that something of that nature would be reasonable for the second half. If I draw you back to a comment I made at full year 2025 about how to think about recurring management actions. What I said at the time, and this still holds, is that in any given year, we would expect that the recurring management actions will make up about 30% of the total OCG result. I will not do the math for you, but I am sure you can work out with a recurring +30%, sort of gets you to what we would call a recurring sustainable level of OCG before any of these acquisition one-offs.

Tom Howard
Tom Howard
Group CFO at Chesnara

Turning to how we think about the 140. We have made a great start against that. So GBP 51 million, on what I call day one alone. I am sure my team will not thank me for saying this, but we have not had to do a huge amount to get there because a lot of this was by virtue of bringing the portfolio into our business. We automatically generate quite a bit of that benefit. It has not yet given us pause for thought around the 140. What we will do is we will come back at full year 2026 and issue an update on how we are thinking about the 140 and the 800.

Tom Howard
Tom Howard
Group CFO at Chesnara

Not least because we have, and Jackie will attest to this, we have a little bit of work to do between here and the end of the year to finish the migration program and so on. We will have a much clearer line of sight around the timing of some of the further synergies we expect to get. I think what we had been saying as well, actually at the time of acquisition, was for that 140 and 800, we were not expecting that to emerge linearly over the five years in the lifetime. It would be a little bit uneven. The reason for that is, frankly, we like to be a little bit judicious about when we exercise some of those capital management actions, so timing can be better sometimes if we delay from a commercial perspective. But we will come back full year 2026 with some more color.

Tom Howard
Tom Howard
Group CFO at Chesnara

Firepower. The way we have been running the balance sheet, again, when we talked about the Chesnara Life acquisition was we expected that post the acquisition, we would still retain enough firepower to do another Scottish Widows Europe-type transaction. That triangulated back to about a GBP 100 million, roughly, sterling level of headroom, before thinking about alternative options like debt and equity financing. That position is unchanged. In fact, it has increased, I would say, a bit over the first half. So that 100 you could factor up to maybe something like 130. That is because the solvency ratio has, as we said in our presentations, the 185% is a little bit of ahead of where we expect it to be, at 180, because we have had favorable trading and decent markets over that half year. So that is positively bled into solvency headroom.

Tom Howard
Tom Howard
Group CFO at Chesnara

As you've seen from the liquidity presentation, we've got ample liquidity as well. Yeah, we're slightly higher than we were at full year, but in and of that sort of ticket size around that kind of SWE type size is still roughly where we are.

Steve Murray
Steve Murray
Group CEO at Chesnara

Michael.

Analyst

A lot to follow on, but one which is the only criticism that I could find is Sweden. I know we discussed it, and you were saying there's some good stuff as well, but every time, not every time, but a lot of the time, Sweden kind of is the one number which is a bit lower. So the questions on why isn't the regulator doing what is expected there? Or what could you do to kind of prompt them a little bit? On the cash, just to push you a little bit harder, my number's bigger than yours, so I was hoping you would say GBP 200 million rather than GBP +100 million. But that's because clearly you need some cash to run the business. You can't run the business without cash. So I'd be interested to know how much you actually need as a base number.

Analyst

Then the management actions. But here, you obviously said you'd tell us more, and you've told us a little bit. Just two side questions. One, the 30%, is it of the total, or is it 30% on top? It makes a small difference on the big one. But also, what kind of management actions? Thank you.

Steve Murray
Steve Murray
Group CEO at Chesnara

Yeah. Shall we maybe take those in order? I'll start with Sweden, and we can talk about. Maybe, Michael, we can talk about both the cash capacity, but also where some of the debt capacity also is in the balance sheet, because I think it's useful to understand that, and then management action point as well. So when we look at the performance of Sweden the first half of the year, so we've seen very strong net client cash flows sort of come in. So within the overall economic result, we've seen a sort of negative because the strong levels of business coming in haven't offset some of those sort of outflows going out.

Steve Murray
Steve Murray
Group CEO at Chesnara

But I think what we always look at there is what can we control. I think the fact that the team have expanded distribution, brought in more business, we have this new sort of partnership, which has just started up in Norway. All of those things I would take as sort of positive signs of outflow coming in. That GBP 700 million of assets under administration increase in the first half of the year as well is quite a material addition to the size of the business. It has continued, as you've pointed to be a market where we've seen a lot of this sort of transfer and activity going on. We know lots are looking at that and sort of saying it doesn't feel like that's sustainable longer term, and we certainly share that view.

Steve Murray
Steve Murray
Group CEO at Chesnara

All we can do is make sure the team's focusing and controlling what they can, making sure the cost management remains strong, which it has in the first half of the year. The team are actively working on expanding that sort of distribution opportunity further and seeing if they can drive some further efficiency from the business. Do you want to cover cash and management actions?

Tom Howard
Tom Howard
Group CFO at Chesnara

You're right, Michael. We do hold back a buffer within sort of our treasury management policy. That's broadly to cover 12 months' worth of expected debt outflows, potential shareholder dividends, working capital, et cetera. That's why you will see a difference, and that's why your number will be higher than my number, for example, because I like to manage that on quite a prudent basis. In terms of the management actions, 30% of total, so that's probably a slightly higher number than the alternative. Then on the management actions, the types of things that will feed into that recurring management action. So we have a program of management actions that we look at over the longer term, so sort of five years plus. The types of things that we're looking at are an extension of things we already do.

Tom Howard
Tom Howard
Group CFO at Chesnara

You've heard us talk a lot about foreign exchange. There's still a bit more I think we can do on that. You've heard us talk about things like mass lapse reinsurance, where we can reinsure very extreme tail risk events. Again, there's more we can do on that. Other areas that we have been less developed on, I would say historically, that we're looking very seriously at are actually more focused on the investment side of the balance sheet, so we can up-risk elements of our portfolio. Our portfolio is now bigger. It's more diverse because we've brought new books into the Group. We have another book coming into the Group later this year as well, assuming we are successful on regulatory approval. So that increases the scope and the opportunity around that investment up-risking piece in particular. So expect to hear and see more on that going forwards.

Tom Howard
Tom Howard
Group CFO at Chesnara

That is the kind of thing that lends itself very much to a recurring management action as well, just given the nature of the sort of thinking behind some of the levers we have at our disposal there.

Steve Murray
Steve Murray
Group CEO at Chesnara

I think, Michael, just on sort of M&A more broadly in that capacity, I think Tom's spoken very well about that cash piece. We do clearly now have more capacity in the balance sheet to look at debt. That is probably in the order of sort of circa GBP 150 million, that sort of number. It is never quite exact. It depends on the business coming in. Certainly, our appetite is not capped by the available firepower in that capacity. I think we have gone at the market, had great support from investors, so we are looking at a very broad range of deal sizes.

Steve Murray
Steve Murray
Group CEO at Chesnara

Just to give you a sense, I suppose, of how we sort of see that building up and when Tom is looking at sort of the financial framework and the available firepower, we are not just looking at sort of cash at bank. We are looking at these other sources as well.

Tom Howard
Tom Howard
Group CFO at Chesnara

Ben.

Ben Cohen
Ben Cohen
Analyst at RBC

Hi.

Steve Murray
Steve Murray
Group CEO at Chesnara

Congratulations on your new role. It feels like a little bit of a step back into the past, does not it? Back to the future.

Ben Cohen
Ben Cohen
Analyst at RBC

Backwards to go forwards. Yes, thank you. Ben Cohen, RBC. I just wanted to ask a couple of things. The first really may be more of a clarification. I think in your prepared remarks, Steve, you said that you have got multiple levers to further strengthen the capital base. Is that a reference to the sort of the bigger debt raise? Presumably, it is debt; it is reinsurance. Is there anything that is kind of almost kind of coming out of the book itself that gives you kind of more confidence there? The second question was just in terms of the M&A environment. Could you maybe talk a bit more about the different markets in continental Europe versus the U.K. in terms of size of deals, level of competition, the sorts of things that are interesting at the moment, kind of what has changed maybe since the full year? Thanks.

Steve Murray
Steve Murray
Group CEO at Chesnara

Sure. Shall I pick up M&A? Do you want to talk about some of the actions available, which might be a little bit of what we've just said with Michael. I think the M&A environment we like is an active one. Because what we tend to find is when more deals are happening, it encourages people to come forward with their portfolios. A deal being done here sometimes has a knock-on impact over here. The fact that we've still been seeing, in the first half, plenty of M&A happening. We've seen a very large deal in the U.K. with the Aegon UK and Standard Life transaction, which was very well received by the market. We've seen transactions in continental Europe, including in Germany, being announced as well.

Steve Murray
Steve Murray
Group CEO at Chesnara

I think across the broader jurisdictions, both in U.K. and Europe, we think there's still plenty of activity. If I cover our territories, and I'll include Luxembourg, and then maybe just give a little bit of territories outside of where Chesnara currently operates. U.K. continues to be active, certainly in our part of the market. We still see large international firms, large financial institutions looking to optimize their book. We're still seeing this huge trend of large insurers going after the bulk purchase annuity space. Some interesting transactions that have happened there recently, but people seeing if they can deploy more capital. We believe they'll continue to look at portfolios that they believe maybe don't make a return, maybe they don't fit with some of the new operating platforms that are coming in.

Steve Murray
Steve Murray
Group CEO at Chesnara

When we map that pipeline out over a three-year period, we think there's going to be plenty for us to look at. The fact that Jackie and the team have made positive progress on that integration and migration activity means we're looking at opportunities now. We believe that given the lag time that you tend to have, as I talked about full year 2025, we're absolutely in a position that we can be assessing opportunities now with a view to those completing somewhere in 2027, in all likelihood. In Europe, in Sweden, we talked at the full year about there potentially being a couple of opportunities in that market. I think that position remains the same. We haven't seen material transactions. We've seen one or two small ones where you've seen some risk book moving around in the market.

Steve Murray
Steve Murray
Group CEO at Chesnara

We're seeing a little bit more then outside of Sweden as well. But it continues to be less active than the U.K. But there's a couple of things there that we'll have a choice around whether we want to participate in. The Netherlands, having seen a very active market, I'd say at the moment is just less active in the short term. Medium term, I still think the middle part of that market will ultimately consolidate, and we do have options with the Netherlands of some surrounding territories that we could use the operating platform as well. Then Luxembourg, I think we'll just repeat what we said at the time of the Widows acquisition. We do believe there's a significant tail of businesses in that market, and we expect to have the opportunity to look at assets there. We do also keep an eye on other jurisdictions.

Steve Murray
Steve Murray
Group CEO at Chesnara

We have talked about other offshore territories before. Germany is a market that is very large in Europe that is impossible to ignore, particularly you have the sort of growth ambition that we do. Belgium has been a territory that we have also looked at as well. Our challenge remains being candid, given that positive M&A environment, to ensure that we are focusing on a small number of things. It would be quite easy for us to be spending a huge amount of time on a very large number of opportunities. Part of Tom and I's job is to make sure that we remain focused on the things that are higher probability, and we think will move the dial for the Group. On balance sheet, I suppose, levers that you might want to

Tom Howard
Tom Howard
Group CFO at Chesnara

Yeah, we have covered some of them when we have covered capital optimization actions. We have been quite focused up to this point in looking at opportunities to optimize the Solvency Capital Requirements in some areas, so like FX hedges, like mass lapse and so on. I think on the Own Fund side of the balance sheet, there are probably two levers that are most interesting for us. I talked about investment up-risking. There is general efficiency initiatives across the Group that we are embarking on as well, which will be accretive to Own Funds over time. But actually, in many ways, one of the best ways to strengthen the balance sheet is via scale and sensible scale. If you look at what happened post the Chesnara Life acquisition, actually, the sensitivities, the resilience of the balance sheet has actually improved post the acquisition.

Tom Howard
Tom Howard
Group CFO at Chesnara

We are now a bigger Group, but with a more resilient balance sheet. Actually, some of the scale benefits that we got from the Chesnara Life acquisition allowed us to recognize more Own Funds that previously we were not able to recognize because, frankly, our SCR, our Solvency Capital Requirement, was too small, so we were running up against some of those restrictions. As we build more scale, and I would call sensible scale that diversifies really efficiently into the Group, that will be a source of further capital strength as well. When you have that successful M&A strategy alongside a range of capital optimization actions as well to boost SCR, you end up really broadening the jaws between that Own Funds growth and SCR optimization.

Steve Murray
Steve Murray
Group CEO at Chesnara

I will just check if there is any more questions. Follow up, Michael? Yeah. We will go to the phones.

Analyst

It's just a very little one. The GBP 140 or the GBP 800, do the management actions come on top of that, or are they already included in that? Also, really small, in the number, the GBP 140 and GBP 800, does one include the GBP 20 million cash actually remitted or the GBP 51 operating capital generation? Those would be my two questions.

Tom Howard
Tom Howard
Group CFO at Chesnara

Yeah. On management actions, the GBP 14,800 had a limited amount of management actions in there. As I said earlier, we will come back at full year 2026 when we've got a much better line of sight on what we can deploy and when. The GBP 50 million is in terms of what's emerging compares to that GBP 140, OCG is the best proxy to look at. The cash remittance is almost a consequence of the OCG because with cash remittances, basically you have to generate the OCG to generate the space to remit the cash. Sometimes we will choose not to remit the cash or maybe not all of the cash because we will decide to leave some of those resources within the business unit, at least temporarily, to fund growth.

Tom Howard
Tom Howard
Group CFO at Chesnara

The GBP 20 is a very early proof point, but I would see it as a consequence of the GBP 50 million as opposed to it being the key driver itself.

Steve Murray
Steve Murray
Group CEO at Chesnara

Yeah. Of course.

Analyst

Just one more. I am always interested in mortality because obviously I am getting there. You mentioned Netherlands was not quite as positive.

Tom Howard
Tom Howard
Group CFO at Chesnara

Yeah. We had some seasonality in the Netherlands, and look, we see that across the book. The way we and our actuary set the assumptions is on the basis of a long-term expectation, and you will have periods, and it is often the winter periods, where you see these little spikes in short-term activity relative to those long-term assumptions. What we did was we recorded that negative variance in the first quarter. What we saw in the second quarter actually was the experience pretty much reverted to that longer-term mean. You will tend to see those bumps, and sometimes it is actually positive. You will have periods where the sort of emerging mortality is actually better than your long-term assumptions. But we thought it was appropriate to call that out because it is a feature of the experience in the first half.

Tom Howard
Tom Howard
Group CFO at Chesnara

I think the pleasing thing from our perspective is that it did confirm our view that that was likely to be seasonal rather than symptomatic of a longer-term deterioration in the Dutch mortality rates.

Steve Murray
Steve Murray
Group CEO at Chesnara

Okay. Shall we go to questions online?

Company Representative at Chesnara

Yeah. We have got some questions on the webcast. First question is from Brian at Hardman & Co. Can you expand on the mortality experience in Scildon? Are the H2 cost savings from the Netherlands merger already accounted for in OCG capital?

Steve Murray
Steve Murray
Group CEO at Chesnara

Do you want to pick up both? I think we have probably just dealt with mortality. Brian, I am conscious you probably typed that before Tom's last answer, but do you want to pick up sort of the cost savings?

Tom Howard
Tom Howard
Group CFO at Chesnara

Yeah. The short answer is yes. It really feeds through in two ways. It feeds through in the OCG numbers that we are recording for Scildon, which is our Dutch business. We saw those come through last year actually more significantly than this year because that is when the bulk of those savings were delivered. But where you also see it, and I talked a moment ago about the fact that cash, there is a little bit of a lag effect on cash remittance, so you have to generate the OCG, and then you decide to remit it.

Tom Howard
Tom Howard
Group CFO at Chesnara

One of the reasons why we have had a remittance of GBP 30 million from Scildon, which is actually the highest remittance in its history, is that that additional OCG, which was generated over the last two years as the management team went through that process, is now available for distribution as cash. That has been a really helpful contribution to this first half year's result as well.

Steve Murray
Steve Murray
Group CEO at Chesnara

The second half, the remaining synergies are lower than what we have delivered, so there will be a little bit more to come through, but not at the same level that Tom has alluded to over the last 18 months. Thank you, Brian.

Company Representative at Chesnara

Thank you. Next question comes from Ming at Times Capital. Could you please provide some color on Sweden's adverse lapse experience? This seems to be more frequent. I recall 2021 benefited from a reinsure of mass lapse experience, but since then, it is adverse lapse experience in most years. Was this reinsurance a one-off or could you do more like you do in the U.K.?

Steve Murray
Steve Murray
Group CEO at Chesnara

You are absolutely right, Ming. That sort of mass lapse reinsurance that we deployed is very similar to the mass lapse that we have been using in the U.K. as well. What that allows us to do is reinsure particularly some of the tail risk that you can have to hold a lot of capital around. So there will be some things that we can do in Sweden to sort of optimize that, particularly if we can continue to grow policy numbers. But ultimately, we have already put that treaty in place there. So there is not a sort of significant amount more that we can do there.

Steve Murray
Steve Murray
Group CEO at Chesnara

In terms of what is driving some of these trends in the market, there is a lot of business sort of being transferred around by some of the large brokerage firms into sort of newer solutions, and we have seen that sort of spiking up and down a little bit. We strengthened, you might remember, our long-term assumption around transfer rates a couple of years ago. We have seen periods where actually that transfer activity has been sort of very close to back in line with that longer-term assumption, and this period has been a little bit higher again, but certainly not as significant as we saw a couple of years ago. So that is really the activity that we are seeing on some of the longer-standing parts of the unit-linked book. What we look at is sort of the in and the out around that.

Steve Murray
Steve Murray
Group CEO at Chesnara

As I said earlier, we have seen very good sort of flows into the business. So we are winning more than our fair share of the market. Historically, our market share has been around sort of 4%-5% of that particular part of the market. I would say at the moment, based on our intel, that we are doing a little bit better than that in terms of transfers in. It is the net economic impact, though, has remained slightly more negative in the period because what is leaving the business is at a higher margin than what is coming in. The team are very focused on continuing that sort of successful expansion of distribution, managing their costs well, and I think those are the two key actions that we need to ensure we keep taking with Movestic.

Company Representative at Chesnara

Thank you. Next question comes from Visu at TCS Diligenta. How does Chesnara Group view its strategic priorities for new business growth and open-book product propositions, particularly in areas such as onshore investment bonds?

Steve Murray
Steve Murray
Group CEO at Chesnara

Yeah. So on the onshore investment bond particularly, I think we've been very clear with the market that remains and will continue to be a priority for us in the U.K. We've been really pleased with the performance, both of the Countrywide bond and the Chesnara Life bond in the first half of the year. That 7 million GBP new business contribution that you'll see in the results is a strong result. Not least given that we changed the brand on that Chesnara Life business in the early part of the year. So, the sales and business development teams have had to be out there talking about that, making sure people understand who Chesnara Life are. So I think that result is a good one. And look, that is adding some additional value to the Group that we didn't have access to before.

Steve Murray
Steve Murray
Group CEO at Chesnara

One of the things that Jackie and the team will evaluate in the medium term is whether there might be some adjacencies off the back of that onshore bond. But that's been a nice add-on, and that capability that came from the Chesnara Life deal has been very helpful in the first half. More broadly, we've seen a good performance from Sweden and the Netherlands in the first half of the year. And provided that we can demonstrate to ourselves that there's a sustainable level of return that meets our hurdles, we're very happy to keep writing that new business. I did say in my prepared remarks, however, that we did feel still that acquisitions are going to drive a very large part of the growth in this business, given the positive M&A pipeline that we're seeing.

Steve Murray
Steve Murray
Group CEO at Chesnara

But it remains an important part of the strategy as that third strategic pillar that we have.

Company Representative at Chesnara

Thank you. There are no further questions from webcast, so hand over to you for any closing remarks.

Steve Murray
Steve Murray
Group CEO at Chesnara

Okay. We'll go back to Michael for one more.

Analyst

Just one because I'm trying to think in terms of operating leverage. So you have a deal with SS&C that effectively you share in the economics. So the more cost saves they drive, the more you can share in as well. Is there a kind of discontinuity upwards? In other words, where you suddenly jump up and say, Ooh, we've suddenly got an extra 50." I mean, I'm making numbers up. How far are you away from that point?

Steve Murray
Steve Murray
Group CEO at Chesnara

Yeah. Post the, and I'll be slightly careful of what I say because obviously there's commercial agreements in place and Jackie, our U.K. CEO, is in the room, so she can throw something at me if I go too far on this. But the way that we've set that arrangement up is, you're absolutely right. We wanted to make sure that if we grew the business further, we'd get a benefit from scale, but also that SS&C would make more money as well. I think we've certainly been party to arrangements in the past where if you don't have that win-win scenario, you don't get the investment, the support from your partner in this space. I think that arrangement feels like it's been working quite well. We will see with that HSBC Life UK book.

Steve Murray
Steve Murray
Group CEO at Chesnara

Now Chesnara Life coming on, we get into the sort of next tier of sort of efficiency in rate cards and things like that. That will sort of open up that operational leverage that you talk about. Look, obviously if we then bring other books in as well, we'll get that sort of compounding benefit. One of the benefits that we continue to get is working alongside SS&C on acquisitions. So the more work that they can be doing with us up front, it gives us more confidence both in terms of the pricing of the deal, but also the timelines for migration, and integration. We've got a sort of busy pipeline obviously, particularly with that very large migration happening this year. But there are still further books to pull onto the platform. So we're pleased with that relationship.

Steve Murray
Steve Murray
Group CEO at Chesnara

They would really like to support us elsewhere across the Group. Jackie and I are continuing to say to them, show us that there is going to be great delivery this year and we will be very happy then to have those follow-on conversations. I am sure they will continue to provide us strong support through the second half of the year. Well, I think that is all for just now. Thank you everybody for joining our half year results presentation. We appreciate you attending and thanks for the questions in the room. We hope you have a great rest of the day and we will see you, if not before, at the full year results presentation in March 2027. Thanks very much.

Executives
    • Steve Murray
      Steve Murray
      Group CEO
    • Tom Howard
      Tom Howard
      Group CFO
    • Company Representative
Analysts
    • Analyst
    • Analyst
    • Ben Cohen
      Analyst at RBC
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