Chesnara PLC (LSE:CSN) CEO, Steve Murray, talks Proactive through the financial highlights of its latest half-year, prospects for M&A deals and medium-term opportunities.
Steve Murray: It’s been strong cash generation in the period, up from last year. We're sitting at £29 million, which provides lots of cover for the progressive dividend. That’s something we’re pretty well known for at Chesnara, supported by a robust balance sheet.
Our solvency ratio has remained very strong at over 200%, which not only supports the dividend but also provides significant headroom for M&A.
We've also seen underlying economic value growth of around £20 million before the impact of foreign exchange movements and the payment of the dividend.
We've announced a 3% increase in the dividend, which makes this the 20th consecutive year we've increased it.
That's unrivalled in our sector.
Proactive: As you mentioned, £29 million in cash generation is up from £22 million last year. Is the economic backdrop helping to propel that, and can you maintain that momentum?
Steve Murray: We’ve certainly seen some help from economics. The market overall has been much more stable than in 2022, with less extreme volatility.
A lot of our books are unit-linked, where we take asset management charges on policyholder assets.
When you see positive equity markets, we get some growth in both economic value and cash.
All our divisions have contributed positively to commercial cash generation, which speaks to the underlying health of the company.
Looking at the second half, if the positive economic backdrop continues, we hope to see continued strong cash generation.
We haven’t undertaken any management actions yet, but we have a range of things we can do to add value or accelerate cash generation in the second half.
At £29 million, there's no benefit from management actions so far, so we’re confident in Chesnara’s ability to deliver strong cash over time.
Proactive: You’ve been working on operational programs specific to the UK, especially the introduction of consumer duty for your closed books. Could you explain that?
Steve Murray: Yes, it's a large regulatory change here in the UK, and there’s been a lot of press about it as firms across financial services adapt.
We’ve done a lot of work historically in this area, with a longstanding customer review from ten years ago that put in place processes and procedures that have helped us align with this new regulation.
But we’ve still had to run a major program of activity to get ready.
The requirement was to have a fully funded plan to address any areas we needed to tidy up.
This morning, we communicated to the market that there’s no material commercial impact at the group level.
We’ve had provisions in the UK balance sheet to fund things like the removal of a few remaining exit charges in the book.
It’s been a big workload for the UK team and has had a large impact across the industry this year.
Proactive: Some broker notes suggest that your balance sheet supports your M&A ambitions and that there are compelling consolidation opportunities in closed books.
Are you seeing any of these opportunities, and are you considering further geographic expansion beyond the Netherlands and Sweden?
Steve Murray: Yes, it’s been a busy first half of the year for us on the M&A front.
While we haven’t announced any transactions yet, the teams have been busy, which reflects the growing opportunities in the market.
Historically, people have thought of the closed book opportunity as relating to policies written 40 or 50 years ago, but what we’re seeing now is large insurance companies deciding which books are strategic.
We’re seeing books written in the last 5 or 10 years coming to market.
The acquisition we made last year is a good example of that. So, there’s an even bigger market opportunity now than there was three years ago.
Fortunately, we’ve got a strong balance sheet with solvency headroom, giving us the capacity to fund M&A up to £200 million immediately off our own balance sheet, and we can supplement that through other financing sources.
The pipeline looks good for the medium term, so we’ll continue to work hard in the second half of the year and see what happens.