Chesnara PLC (LSE:CSN) chief executive Steve Murray talked with Proactive about the company’s £260 million agreement to acquire HSBC Life UK’s insurance business.
The deal, set to complete in early 2026, will see over 450,000 policyholders join Chesnara and bring approximately £4 billion of assets under administration.
The company told investors that the acquisition will also accelerate its dividend growth by one year, resulting in a 6% increase applicable to full-year 2025 and interim 2026 dividends. Financing will include a fully underwritten rights issue of £140 million gross and the drawdown of £65 million from an existing revolving credit facility.
Murray highlighted that this transaction more than doubles the scale of Chesnara’s UK business and demonstrates its ability to be a reliable consolidator in the life insurance sector. He said the company continues to see a strong M&A pipeline, with further opportunities under review.
Proactive: Steve, very good to speak with you and you were out with big news last week for Chesnara. You're buying HSBC Life UK business for £260 million. Tell us more about what you're acquiring there?
Steve Murray: So, from our perspective when we were looking at the opportunity, this is a business that had a good reputation in the market as being a high-quality business. We've been able to verify that through due diligence, so we're very happy to have announced the opportunity.
If we look at some of the key numbers, the loan funds of this business are around £314 million, so that was a material increase in scale. There are around £4 billion of assets under administration that come with the book, and over 450,000 policyholders will ultimately transition and join the Chesnara group as well.
The product sets are split into two key parts. It writes a lot of protection business in the UK market. That's a product that we know well naturally. Recent acquisitions, particularly from Canada Life that we made, were in this space. They also have an onshore investment bond. We acquired some of that business when we bought the Sanlam Life and Pensions book a few years ago. These are products well known to us and that we like, based here in the UK. Overall, we saw that as an attractive business to be acquiring.
Proactive: You also say it's a highly accretive acquisition when it goes ahead. Take us through some of those numbers then, Steve.
Steve Murray: Yes, so there's a number of things that flow into that statement. There's a healthy discount to the own funds when you look at the price paid. The own funds multiple here is about 0.83, which we think is attractive. We see multiple value levers that are available, both in terms of efficiency, some of the capital synergies we can generate, and some of the wider management actions that we can take as an insurance company.
When we look at the cash flows, there are over £800 million of incremental cash flows expected over the lifetime of the book, with about £140 million over the next five years. About 80% of that cash flow comes from year five onwards. The liabilities and assets are longer-term, which plays to the longer-term sustainability of Chesnara cash flows and how that supports the dividend policy. As you know, we have the best dividend track record in UK and European listed insurance, having increased the dividend consecutively for the last 20 years.
Proactive: What sort of dividend uplift will you get from this acquisition?
Steve Murray: That was one of the other things we announced. We're giving a one-year acceleration to shareholders of the dividend. There will be an increase of 6% that will apply to the full year 2025 and the interim 2026 dividend. Investors that participate in the rights issue will be able to subscribe and benefit from that as well.
We've been able to do that because of the strength of the financials and the cash generation that I've outlined. When we look at the attractive multiple, the cash generation profile, the value levers available, and the overall financial strength of the deal, that has allowed us to give that one-year acceleration of the dividend, which we think investors will appreciate.
Proactive: You mentioned the rights issue. Can you take us through how you’re financing the deal?
Steve Murray: One of the things we've talked about before is how we think about the financial framework we apply to acquisitions. We’ve been looking at ensuring that this acquisition meets that framework. That means maintaining material levels of solvency. We’ve talked about running a normal operating range of about 140% to 160%. Post-acquisition, we will be above that range, which gives people a lot of comfort in the strength of the group.
We continue to have material levels of liquidity: about a year’s worth of dividend, a year’s worth of debt coupon, and a year’s worth of working capital. The investment-grade rating from Fitch is important. We maintain the leverage ratio at 31% and below.
We've also looked at our future pipeline to make sure we retain financial resources. In the round, we are raising around £140 million gross from shareholders through a fully underwritten rights issue. We're also using the revolving credit facility and drawing down around £65 million of that. The rest of the consideration comes from excess capital and cash that we have in the group. That combination fits well with our framework and means post-acquisition you will continue to see a strong balance sheet.
Proactive: How does this add to your existing portfolio and position you as a leading life and pensions consolidator?
Steve Murray: We’re really proud to have been selected by HSBC Group to look after over 450,000 of their policyholders, and we look forward to welcoming them to the group. We expect the deal to complete in early 2026.
It is a big scaling up in the UK business. Today our Countrywide Assured business has just over 300,000 policyholders, so this more than doubles the size of that business. We think it shows we can be a great partner when people are looking at books of business and portfolios. We’ve shown that over the last three and a bit years, where this is the sixth acquisition we’ve announced. It is the 15th since we started.
We think we can be a great partner in this space. We continue to see a strong M&A pipeline. So, whilst this deal is a great one to have announced, the work doesn’t stop there. We’re continuing to look at other opportunities going forward.
Proactive: Steve, I hope you will keep us posted on those opportunities. Thank you very much for speaking with us.