Annual Report • Apr 25, 2025
Annual Report
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WE ADMINISTER JUST UNDER ONE MILLION POLICIES ACROSS THE GROUP WHICH OPERATES AS COUNTRYWIDE ASSURED IN THE UK, AS THE WAARD GROUP AND SCILDON IN THE NETHERLANDS AND AS MOVESTIC IN SWEDEN. At Chesnara, with customers at the forefront of all we do, we focus on three things: OUR STRATEGIC OBJECTIVES MAXIMISE VALUE ACQUIRE LIFE ENHANCE VALUE FROM EXISTING AND PENSIONS THROUGH PROFITABLE BUSINESS BUSINESSES NEW BUSINESS The efficient management Creating value through Writing new business where of life assurance and acquiring new companies we are confident that conditions pension policies. or books of business. will ensure the products are value adding, meet our required hurdle rates and ultimately support longer-term cash generation. 1 2 3 This focus has enabled us to deliver strong levels of cash generation, a growing dividend and a robust and stable solvency position over the last 20 years. And we look forward with confidence in our ability to continue this delivery in the future. 6CHESNARAANNUALREPORTANDACCOUNTS2024 OVERVIEW Who we are and where we came from How we create value The Group initially consisted of Countrywide Assured (CA), For customers For shareholders a closed life and pensions book demerged from Countrywide – We deliver an effective customer experience with good – Surpluses emerge from the existing books of business through plc, a large estate agency group, over 20 years ago. standards of service operations, clear communication and efficient management of the policy base and good capital competitive fund performance. We also offer customers management practices. This enables dividends to be paid from The Group today comprises both open-book and closed- the ability to invest in sustainable funds. the subsidiaries to Chesnara, which in turn can fund M&A and book operations having grown through: an attractive shareholder dividend which has grown each year – Product reviews across the Group help to ensure good – the acquisitions of predominantly closed UK businesses since our listing in 2004. customer outcomes and, in the UK, have been updated (into CA); to be aligned to the new Consumer Duty requirements. – Growth from both our proven acquisition model and from – the purchase of an open life and pensions business in writing profitable new business has a positive impact on the – Customers can also be confident in the security of their Sweden, now known as Movestic; † Own Funds of the business and supports longer-term cash policies through the robust solvency levels we operate our † – acquisitions of both a closed-book acquisitive group generation . Market returns above a risk-free rate of return are businesses to. (Waard Group) and an open life and pensions business a further potential area of positive value growth. The diagram in the Netherlands (Scildon); and below illustrates the primary sources of growth that then ultimately contribute towards surplus emergence. – writing new business in Movestic (mainly pensions and custody accounts), Scildon (mainly term insurance) and more recently in CA (mainly onshore bonds). See pages 7 to 11 for further detail on our history Future acquisitions and businesses. Looking forward, we are committed to transitioning to be New business a sustainable and net zero group across our operational and Synergies financed emissions (by 2050) and this commitment is a key factor in our corporate decision making. Real-world returns Risk margin What we do We help protect customers and their dependants through the provision of life, health and disability cover and enable policyholders to meet their financial needs in the future by providing savings and pensions products. Own Funds Total potential Commercial The categories of potential upside (which are not shown to scale) will emerge over time Value (illustrative) † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARAANNUALREPORTANDACCOUNTS20247 OVERVIEW AN INTRODUCTION TO CHESNARA How we operate – Chesnara has a centrally defined governance and Risk – Our team has significant experience and a proven track record Management Framework operating across the Group and in governing, acquiring and successfully integrating life and all its divisions. pension businesses. – This framework aligns to our strategy and enables us to – Acquisitions form a key part of our strategy and are assessed grow the business and deliver strong financial results while against stringent financial criteria, adopting a robust risk-based remaining within the Board’s stated risk appetite. due diligence process. – Our management teams have clear responsibilities and – We write new business where we are confident that conditions are accountable for the delivery of set objectives and the will ensure the products are both value adding and will support identification and management of risks and opportunities, the Group’s cash generation in the long term. including those arising from climate change. – We maintain robust solvency and liquidity levels as part of – We are committed to transitioning to be a sustainable our wider Capital Management Framework. and net zero group (across our operational and financed – In the UK, we adopt a largely outsourced operating model, emissions) and this commitment is a key factor in our whereas our overseas divisions use outsourced services corporate decision making. on a more selective basis. CHESNARA UK SWEDEN NETHERLANDS GROUP ASSETS UNDER Δ £6bn £5bn £3bn £14bn † ADMINISTRATION OWN FUNDS £177m £186m £222m £643m IFRS CAPITAL £151m £99m £280m £449m BASE † Δ Δ POLICIES c290k c280k c370k c940k † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. Δ Includes impact of Canada Life portfolio acquisition, expected to Part VII and migrate during 2025. 8 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 OVERVIEW DELIVERING OUR STRATEGY Focusing on our three strategic objectives has enabled us to deliver sustainable growth in cash generation over the long term supported by: 14 successful acquisitions across 3 territories since 2004, 5 of which have taken place since 2022. We have a range of deal structures with flexible financing options including: – Value-enhancing ‘bolt-on’ deals to more 14 SUCCESSFUL transformative acquisitions – Capability to find value in the UK, Netherlands and beyond – Flexible and efficient deal funding solutions ACQUISITIONS – Ability to find expedient solutions to de-risk where required. A well-established and robust Capital- ACROSS 3 Allocation Framework to assess M&A, ensuring that deals: – Enhance cash generation in the medium term TERRITORIES – Deliver positive impact on the Group’s Own Funds per share in the medium term – Are within the Group’s risk appetite – Have been subject to appropriate due diligence SINCE 2004 – Deliver positive customer outcomes. In the last three years, we have deployed c£100m of capital resources and delivered c£60m of incremental Economic Value, including our most recently announced deal with Canada Life UK in December 2024. And we are confident we can continue to deliver further value upside from acquisitions in the future. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 9 OVERVIEW DELIVERING STRONG CUSTOMER OUTCOMES IS CENTRAL TO OUR PURPOSE – Close to one million customers trust us to manage their pensions, life assurance or other – We carry out regular reviews across the Group to ensure that our customers’ investment savings and investments policies. returns remain competitive. – Customers and their advisors can be confident that they hold policies with a well-capitalised – Our overriding philosophy of ‘putting the customer first’ and breadth of product offering Group where financial stability is central to our culture and values. ensures a rewarding financial future for our customers and supports the delivery of a service that meets their needs. 20 SUCCESSIVE YEARS OF FULL YEAR DIVIDEND GROWTH We recognise the importance of providing stable and attractive dividends to our shareholders. A proposed full year 2024 dividend of 24.69p per share represents an increase of 3% on the prior year. This is our twentieth successive year of dividend growth; an unbroken track record since entry to the FTSE in May 2004, with growth consistently above underlying medium-term UK inflation rates. During our 20-year history, we have paid cumulative dividends of £502m. A proposed full year dividend of 24.69p 24.69p per share Dividend per share history Pence per share represents an increase of 3% on the prior year. 11.85p 2024 2004 TOTAL DIVIDEND PER SHARE MORE THAN DOUBLED 10 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 OVERVIEW Year-on-year Commercial Over 655% of † Cash Generation growth pre-dividend † of 14% to £60m with Economic Value continued strong dividend growth since coverage of 160% listing in 2004 † 1 Commercial Cash Generation is defined as the movement The Group generates long-term Economic Value (EcV) growth in the Group’s Solvency II surplus above its Board-approved from the efficient management of existing policies and, to a internal capital requirements, excluding the impact of certain more material extent, by growing the portfolio through M&A cyclical items such as the symmetric adjustment. It is the activity and new business profits. EcV growth also arises over surplus available to service dividends and debt costs and time as investment returns exceed risk-free returns. Since to reinvest in the business, including through acquisitions. listing, the Group has generated incremental EcV, pre-dividends In 2024, the Group’s Commercial Cash Generation of of £502m, of £906m, supporting its strong cash generation £60m represents 1.60x coverage of the 2024 dividend and profile. This includes a contribution of £69m delivered in 2024 cumulative Commercial Cash Generation of £240m has (pre-dividend and FX impact). provided 1.37x coverage of the dividend over 2020 to 2024. † Our new performance measure, IFRS Capital Base , grew by 10% to £528m during 2024, before allowance for FX and dividends, while Group IFRS Pre-Tax Profit also increased year on year, rising to £21m (2023: £2m). This growth means that we have an increased store of future value available from our insurance business. IFRS Capital Base is deemed a better measure of the value of our business than IFRS Net Equity, as it takes into account the store of deferred profits held in the balance sheet, including those as yet unrecognised profits from writing new business and acquisitions. * Further information on the Group’s shareholder dividend policy can be found in the Directors’ Report on page 136. 1 EcV growth is shown net of new equity in relation to prior corporate acquisitions (£148m) and excluding cumulative dividends paid (£502m). † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 11 OVERVIEW 1 COMMERCIAL CASH GENERATION £60M 2023: £52M Financial review p49 2024 3 ECONOMIC VALUE FINANCIAL £531M HIGHLIGHTS 31 DECEMBER 2023: £525M Financial review p50 Notes: 4. Economic Value Earnings are a measure of the value generated in the period, recognising the longer-term nature Items 1 to 5 below are Alternative Performance Measures (APMs) used by the Group to supplement of the Group’s insurance and investment contracts. the required statutory disclosures under IFRS and Solvency II, providing additional information to 5. New Business Contribution represents the best estimate of cash flows expected to emerge from new business written in the period. It is deemed to be a more commercially relevant and market consistent measurement of enhance the understanding of financial performance. Further information on these APMs can be the value generated through the writing of new business, in comparison to the restrictions imposed under the found throughout the Financial Review and in the APM appendix on pages 260 to 261. Solvency II regime. Note – This measure was previously referred to as ‘commercial new business’. There has been no change to the basis of calculation. 1. 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 prudent Capital Management Policy, 6. Solvency is a fundamental financial measure which is of paramount importance to investors and policyholders. which has Solvency II rules at its heart. Commercial Cash Generation is used as a measure of assessing It represents the relationship between the value of the business as measured on a Solvency II basis and the how much dividend potential has been generated, subject to ensuring other constraints are managed. capital the business is required to hold – the Solvency Capital Requirement (SCR). Solvency can be reported as It excludes the impact of technical adjustments and modelling changes; representing the Group’s view an absolute surplus value or as a ratio. of the Commercial Cash generated by the business. The 2023 comparator is shown as inclusive of day one acquisition impacts. Δ Includes impact of Canada Life portfolio acquisition, expected to Part VII and migrate during 2025. * On 31 December 2024 the PRA’s restatement of Solvency II assimilated law came into force. Throughout the 2 Assets Under Administration (AuA) represents the sum of all financial assets on the IFRS balance sheet. document we refer to the new regime as Solvency II, in line with the name of the prudential regime in PRA Note – This measure was previously referred to as ‘Funds under Management’ (FuM). There has been no policy material. change to the basis of calculation. ** The IFRS prior year comparatives have been restated following a change in the accounting methodology 3. Economic Value (EcV) is a financial metric derived from Solvency II. It provides a market consistent assessment applied to the portfolio transfer into the UK from Canada Life Ltd. Further details are set out in the Note A2 of the value of existing insurance businesses, plus adjusted net asset value of the non-insurance business in the ‘IFRS Financial Statements’. within the Group. 12 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 6 2 SOLVENCY COVERAGE RATIO * ASSETS UNDER ADMINISTRATION AuA 203% £14BN 31 DECEMBER 2023: 205% 31 DECEMBER 2023: £11BN Capital management p46 Financial statements p149 4 5 ECONOMIC VALUE EARNINGS NEW BUSINESS CONTRIBUTION £69M £9M 2023: £59M 2023: £10M Financial review p51 Business review pages 40 to 45 IFRS PRETAX PROFIT IFRS CAPITAL BASE £21M £449M 2023: £2M 2023: £479M Financial review p53 Financial review p53 CHESNARAANNUALREPORTANDACCOUNTS202413 The Group has delivered strong Commercial Cash Generation and value growth, including through a further UK acquisition, supporting a proposed 3% increase in our full year dividend, our 20th year of consecutive dividend increases. LUKE SAVAGE, CHAIR CHAIR’S STATEMENT 14 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 OVERVIEW Increase in the full year dividend by 3% sales momentum remains strong, benefitting from ongoing Sustainability is a key part of the strategy of the Group and we enhancements to our product offerings and the digitisation are progressing well against our objectives. Sustainability is a key I am pleased to report that we are proposing that our of our service offerings. input into decision making across the Group and all of our people shareholders will receive a total dividend of 24.69p per share, completed mandatory sustainability training in 2024. Ongoing an increase of 3% on the prior year, and the 20th consecutive It has been another year of significant delivery across the delivery of this training is now a key part of our people’s broader year that we have increased the full year dividend. Group and, as ever, I want to thank staff for their continued learning journeys and professional development. efforts and dedication. Cash generation and financial strength A key pillar of our commitments is to deliver a just transition to Our people become a net zero group. During 2024, we announced our initial Our proposed dividend is underpinned by strong levels of interim 2030 emission reduction target. By 2030, our target is cash generation and financial stability again in 2024, despite Over 2024, we maintained our focus on ensuring that the Group to reduce the scope 1 and 2 emissions of the in-scope assets by a continued backdrop of volatile geopolitical and macro- benefits from a broad range of skills and expertise on our Boards. 50% from a baseline of 2023. In-scope assets are corporate economic factors. In April, we appointed Tom Howard as our Group CFO and bonds and listed equity, which we can control or influence. All Each of our operating divisions contributed to the Group’s Executive Director on the Chesnara Board and, at the same time, assets, alongside our operational activities, remain in scope of our Commercial Cash Generation of £60m, an increase of 14% we announced that Mark Hesketh was stepping off the Chesnara 2050 net zero target. During 2024, we have seen a reduction of compared to the same period in 2023 and against a total Board to allow his appointment as Chair of our UK life company, 13% in the calculated normalised emissions for our full portfolio dividend cost of £37m. Countrywide Assured plc. against our 2023 baseline, together with a 25% reduction in our operational emissions, meaning we are on track to achieve our Our Solvency II Coverage Ratio of 203% remained stable We also confirmed that as Jane Dale will have served her third target. Absolute scope 3 emissions from our investments have throughout 2024 and remains significantly above our normal successive three-year term, she will not be seeking re-election increased during the year though and so we also continued to operating range of 140%-160%. The Group’s diversified business at our Annual General Meeting in May 2025, in line with UK engage with our key asset managers and partners in our value model and our risk-based approach to financial management is Corporate Governance Code for listed companies. Jane, who chain to be able to understand their own net zero journeys and fundamental to providing financial security to our customers. has also been Chair of the Audit & Risk Committee, will have identify areas of focus. Our strong and resilient balance sheet continues to provide us served nine years as a non-executive director of the Group and with considerable strategic flexibility to invest in our businesses has made an immense contribution to Chesnara’s success over As a recent signatory to the Principles for Responsible and pursue further M&A opportunities as they arise. this period. On behalf of the Board, I want to thank Jane for her Investment, and as a member of bodies such as the United dedication to Chesnara and she leaves with our best wishes for Nations Global Compact, UK Sustainable Investment and Finance Operational delivery the future. Association and the Institutional Investors Group on Climate Change, we continue to engage on initiatives that create solid Across the Group, our operating divisions continue to perform At the same time, I am delighted to announce that we have foundations for longer-term change together with shorter-term strongly in support of the Group’s key strategic priorities. appointed Gail Tucker to the Chesnara Board. Gail brings a wealth actions that will begin to make a real-world positive impact. of experience to Chesnara, particularly in the UK and European In the UK, we announced our second portfolio acquisition from listed life insurance sector and I want to welcome her to Chesnara Our Annual Sustainability Report (available on the Chesnara plc Canada Life UK – a closed portfolio of onshore bond and pensions and very much look forward to working with her. Gail will chair website) provides further details of our sustainability products. We are pleased to continue our relationship with the Chesnara Audit & Risk Committee and, subject to regulatory commitments, long-term targets and the activities underpinning Canada Life following our acquisition of their UK life insurance approval, will also join the CA Board where she will also chair our sustainability strategy. policies and this latest transaction illustrates our ability to add their Audit & Risk Committee. scale and provide attractive returns to our UK business. Outlook Purpose The transfer of the earlier Canada Life UK Life insurance portfolio Our financial results in 2024 demonstrate that our diversified acquisition to our new outsource partner, SS&C, completed At Chesnara, we help to protect customers and their dependants business model continues to deliver strong levels of cash successfully in February 2025, marking a significant milestone by providing life, health, and disability cover or savings and generation, value growth and positive shareholder returns. for this programme. pensions solutions to meet future financial needs. These are very Our outlook for M&A remains positive and we have a strong often customers that have come to us through acquisition, and The operational activities to transfer existing UK insurance capital base and ambition to support further acquisitions. we are committed to ensuring that they remain positively portfolios to SS&C are also progressing, with plans to migrate supported by us. the remaining in-scope books within its portfolio over the next 18 to 24 months, including the recently announced deal with We have always managed our business in a responsible way and Canada Life. have a strong sense of acting in a fair manner, giving full regard to the relative interests of all stakeholders. In the Netherlands, we announced our intention to merge our Scildon and Waard businesses (subject to approval by De Maintaining our strong capital position and delivering strong and Nederlandsche Bank). The proposed legal merger is expected to sustainable financial returns will always remain of key importance. take place in mid-2025 with further integration significantly It underpins our desire to offer compelling returns to our simplifying our operating model in the Netherlands, alongside shareholders, to meet our debt investor coupon payments and Luke Savage ongoing initiatives to upgrade the IT estate and improve customer importantly, to ensure our customers can be confident in the Chair and broker experiences. ongoing financial strength of our business. 26 March 2025 In Sweden, we have seen strong growth in our custodian As a purpose-driven organisation, we continue to balance our business as we continue to build new partnerships and responsibilities across the 3Ps – Profit, People and Planet. further diversify our distribution model. Overall new business CHESNARAANNUALREPORTANDACCOUNTS202415 Our strong financial performance and additional UK acquisition in 2024 underpin our positive outlook for 2025 and beyond. STEVE MURRAY, CEO CHIEF EXECUTIVE OFFICER’S REPORT 16CHESNARAANNUALREPORTANDACCOUNTS2024 OVERVIEW We have again remained disciplined in driving delivery against Operational delivery has continued Our targets and key aspects of progress are: our three areas of strategic focus, namely: – Net zero emissions by 2050 – in 2024, we published our initial We have continued to make positive progress delivering the 1. Running our in-force insurance and pensions books interim 2030 decarbonisation target for a 50% intensity reduction ambitious change agenda we set ourselves and that will help efficiently and effectively; from our 2023 baseline figures in the scope 1 and 2 emissions ensure we have modern and sustainable operating platforms for our listed equity and corporate fixed income investments 2. Seeking out and delivering value-enhancing M&A right across the Group. which we are able to influence or control. During 2024, we saw opportunities; and In the UK, work on our transition and transformation (T&T) a 13% reduction in the calculated normalised scope 1 and 2 3. Writing focused, profitable new business where we are programme, which will lead to the transfer of our various UK emissions from our investments and a 25% reduction in our satisfied an appropriate return can be made. books of business to SS&C’s more modern policy administration absolute operational emissions, which are very positive We have just under 1 million policies across the Group and our system, continues to progress well. Our first migration was movements. Absolute emissions from our investments did people take pride in the responsibility that comes with delivering successfully completed in February 2025. And we successfully increase, however, driven by an increase in scope 3 emissions, for our policyholders every single day. met the UK Consumer Duty deadline for closed books in July which is partly due to increased Assets Under Administration 2024 and are making positive progress implementing our fully (AuA). Visibility of the causes of these movements is still limited This focus helped us deliver a strong financial result for the year funded plan. As part of this activity, we have made further but we are taking positive actions to reduce emissions and further with Commercial Cash Generation of £60m, continued strong positive changes for a number of our UK customers and there detail on these is provided in our Annual Sustainability Report. solvency of 203% and incremental EcV of £69m. And as Luke has been no material financial impact on the Group from any of – Investments in nature and social impact solutions – during the highlighted, this has supported us proposing an increase in the the changes we are making here. It was also pleasing to secure year, we increased our investments in positive solutions and full year dividend of 3% to 24.69 pence per share. our second transaction with Canada Life UK in December 2024. held £135m at the end of 2024, representing an increase of The Part VII transfer of policies from our first deal with Canada approximately 65% compared to 2023. Life completed in Q1 2025. – A business where everyone feels welcome – we have continued In the Netherlands, our teams have been working hard on the to commit time and resource to ensuring the Group is an inclusive new DORA (Digital Operational Resilience Act) regulation and organisation. Activities including volunteering, internships, associated work required to meet this new standard. We have enhancing customer care, and focusing on employee wellbeing also begun the preparation work to bring our two Dutch have been supplemented by delivering sustainability-related businesses together to create bigger scale and more sustainable training to all employees in the Group. business. This merger, which is planned for July 2025 and remains subject to local regulatory approvals, should also enable M&A continues alongside other us to drive further synergies above and beyond some of the management actions local restructuring work that was completed in December 2024. We have proactively and diligently assessed a number of M&A Regulatory submissions have now been completed and we have opportunities across 2024. This has included our participation consolidated our teams based in Hilversum into one single in multiple due diligence processes, primarily on a bilateral basis, location in December 2024. as well as work on legal documentation. We announced another And in Sweden, our team’s also worked hard on implementing the UK acquisition on 23 December and our second portfolio deal new DORA regulations, in advance of the January 2025 deadline. with Canada Life. Our latest deal involves the acquisition of a Further work has been completed to enable us to more effectively portfolio of c17k onshore bond and personal pensions. We expect promote and sell our risk product offerings as well as enabling an uplift in Economic Value of around £11m from the deal against better integration with broker firms. The leadership team has also the £2m of consideration paid. The first step of the deal has been been strengthened in the year with joiners in our custodian Continued executed by way of a reinsurance agreement between both business, operations and IT. parties. strategic delivery Creating a more sustainable Chesnara We retain significant fire power for future acquisitions and can immediately deploy around £200m in support of deals. We have We continue to make progress against our three sustainability additional financing options available as well, should we have the driving growth in commitments on our journey to transition to become a opportunity to execute a larger value-enhancing opportunity. sustainable Chesnara. We strongly believe we have a cash generation, responsibility to consider the needs of all our stakeholders, Alongside the extensive activity this year on M&A, we have balancing people, planet and profit over the long term. continued to seek out other management actions to enhance We actively review our sustainability strategy and priorities cash generation and/or value. We extended the Group’s FX hedge future value to ensure that we are working to address the needs of our during the year and also extended the mass lapse reinsurance stakeholders and managing the risks and opportunities arrangements we have in the UK, both of which have reduced and dividends. presented by a changing world. SCR and enhanced cash generation. CHESNARAANNUALREPORTANDACCOUNTS202417 OVERVIEW CHIEF EXECUTIVE OFFICER’S REPORT Positive sales momentum in Sweden Outlook and the UK, with discipline maintained It has been pleasing to see continued strong cash and economic in the Netherlands earnings generation in 2025. Whilst the volatile geopolitical and macro-economic backdrop persists, and will continue to be a Overall, New Business Contribution remained broadly flat this material factor in all our markets, we remain confident that the year at £9m vs £10m in 2023. Chesnara business model will continue to generate cash across Movestic has continued to see strong sales in both our Group a wide variety of market conditions, as it has done this year and pension and custodian business where total sales are at their over its history. highest level for five years. We have continued to see transfers We also remain positive on the outlook for further M&A, where out at a higher level than our longer-term assumption (albeit in line we remain very active and continue to see a positive pipeline of with the short-term provision we made in the balance sheet in opportunities. We believe we are well placed to execute further 2024). Overall, it has been a stronger year than 2023, being the value accretive deals for shareholders. first full year under Sara Lindberg’s leadership, and we see further opportunities to expand our partnerships in 2025. Our people have continued to deliver across a number of material operational programmes and for our customers in the It was a tougher market in the Netherlands for our main term life period. I thank them again for their efforts. product with overall new business materially lower compared to the same period in 2023. However, it has been pleasing to see As I highlighted in the interim results, we celebrated our 20th the team maintain their disciplined approach to pricing against this anniversary as a listed Company in May 2024. Chesnara has more challenging market backdrop. delivered 20 years of positive returns for shareholders and I look forward to continuing to deliver for our investors going In the UK, we have continued to see positive flows into our forward. And the excellent work of our teams again this year intermediated onshore bond proposition and we have been further supports my belief that there is a lot to look forward engaging positively with other platforms in the market with to here at Chesnara. a view to potentially expanding our distribution of this product. Continued work to strengthen our team Luke highlighted the additional talent that has joined the Chesnara Board, including Tom Howard who joined us from Aviva in April. As a reminder, Tom has held a variety of senior roles within Aviva plc, including Director of Mergers & Acquisitions for Aviva Group and CFO for Aviva’s Life and General Insurance business in Ireland. Tom brings with him an extensive European actuarial and Steve Murray financial reporting background. He has made a positive start to life Chief Executive Officer at Chesnara and is focused on improving our capital allocation 26 March 2025 discipline as well as helping to drive further M&A momentum. We also announced Edwin Bekkering’s appointment to the position of CFRO (Chief Financial & Risk Officer) in Scildon, following the appointment of Pauline Derkman as our new CEO 18 months ago. Edwin has extensive experience in senior finance roles in major financial institutions including at Athora, Vivat, SNS Reaal and ABN AMRO. Pauline and Edwin are also proposed as the CEO and CFRO of the planned merged business in the Netherlands. 18 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 OVERVIEW CHIEF FINANCIAL OFFICER’S REPORT 2024 has been another year of growth for Chesnara. Our diversified business model continues to deliver strong and resilient financial performance, supporting increased returns to our shareholders. TOM HOWARD, CFO CHESNARAANNUALREPORTANDACCOUNTS202419 OVERVIEW CHIEF FINANCIAL OFFICER’S REPORT Overview I am delighted to have joined Chesnara at this exciting stage of The Solvency Coverage Ratio of 203% remains comfortably The Economic Value of the Group grew from £525m to £531m the Company’s development. I have been incredibly impressed above our operating range of 140%-160% and continues to with positive contributions from operating activities, acquisitions by the drive and commitment of the team and want to express be resilient to a wide range of financial scenarios and provides and market conditions, partially offset by stronger expense and my thanks to colleagues for the warm welcome they have given the Group with significant scope to pursue M&A and other demographic assumptions. me since joining the Group in April 2024. investment opportunities as they arise. This strong set of financial results underpins the Board’s I am pleased to say that 2024 was another year of strong The Group continues to grow, with AuA increasing to £14bn recommendation to increase the full year dividend by 3% and resilient cash generation for the Group, with £60m of (2023: £11bn), benefitting from positive investment returns to 24.69p per share. Commercial Cash generated, an increase of 14% compared on existing business, the addition of the Canada Life portfolio to 2023. Each of our operating divisions contributed positively acquisition and value generated from new business written. to this result, supporting strong coverage of the dividend and our debt servicing costs. CASH RESULT CAPITAL POSITION FUTURE VALUE GENERATION Commercial Cash Generation Solvency II Ratio EcV AuA £60m 203% £531m £14bn FY 23: £52m FY 23: 205% FY 23: £525m FY 23: £11bn Dividend cover IFRS leverage IFRS Capital Base 1.60x 31% £449m FY 23: 1.45x FY 23: 30% FY 23: £479m Full year dividend 24.69p per share, up 3% YoY Business performance UNITED KINGDOM SWEDEN NETHERLANDS Own Funds increased by £29m (2023: £51m) and SCR reduced Solvency surplus generation of £10m arose from an increase in Solvency surplus generation of £3m arose from a reduction in by £5m (2023: increase of £2m), resulting in a pre-dividend Own Funds of £15m (2023: £10m) offsetting an increase in SCR Own Funds of £4m (2023: £32m) and a reduction in SCR of £7m Solvency Coverage Ratio of 182% (2023: 179%). The growth in of £5m (2023: £13m), with a closing Solvency Coverage Ratio (2023: £19m), with a closing Solvency Coverage Ratio (before Own Funds arose primarily from the impact of positive economic (before foreseeable dividends) of 153% (2023: 153%). The foreseeable dividends) of 237% (2023: 230%), noting the 2023 conditions on the in-force book, the second acquisition from increase in Own Funds and SCR were both largely driven by comparators included the day one impact of the Conservatrix Canada Life and the writing of profitable new business over positive market movements, alongside an adverse consolidation acquisition. Own Funds benefitted from the impact of cost the period. The extension of existing mass-lapse reinsurance impact on surplus due to depreciation of SEK against the pound management actions in Scildon, but were more than offset by arrangements, alongside existing book run-off, supported the and elevated levels of short-term persistency experience. The the impact of foreign exchange movements on consolidation. reduction in SCR. The UK division held a Solvency II surplus business unit held a pre-dividend Solvency II surplus of £40m The reduction in SCR was driven primarily by lower expense risk (before foreseeable dividends) of £60m above its Board’s risk above its Board’s risk appetite level (2023: £39m) and made with partial offset from higher market risk due to a lower interest appetite level (2023: £60m) and made remittances of £35m to remittances of £3m to Group Centre. IFRS Pre-Tax Profit of rate environment. The Group’s Dutch entities held a Solvency II Group Centre over 2024. IFRS Pre-Tax Profits of £28m (2023: £10m (2023: £5m) arose from higher AuA generating higher surplus of £68m above its Board’s risk appetite levels and made £3m) arose from strong investment returns, albeit lower than prior fee income and fund rebates. A positive contribution from the remittances of £7m to Group Centre (2023: £4m). IFRS Pre-Tax year, and a much-improved positive insurance result in the year, risk business also meant that the insurance result was much Profit of £5m (2023: £23m) with the reduction primarily being with the combined effect of these broadly netting off. The prior improved compared to the prior year. driven by a positive but less favourable investment return in the year pre-tax profits were suppressed by a £21m impairment of year compared to 2023, whilst the 2023 result also included AVIF (Acquired Value of In Force) related to the CASLP book. a £7m day one gain from the Conservatrix acquisition. 20 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 OVERVIEW Capital & cash management Solvency II capital position Cash generation 4% Commercial Cash Generation 16% of £60m (2023: £52m) (3%) £16.2m comprised contributions (7%) of £66m from the operating 205% divisions, partially offset by 203% net surplus usage at Group (12%) Centre to fund M&A activities, Our normal operating solvency range: 140%-160% £39.6m debt financing costs and £10.6m central overheads. UK SII ratio Capital Management Acquisitions SII Dividend SII ratio Sweden FY 2023 generation actions adjustments payments FY 2024 Netherlands At 31 December 2024, Group Solvency II surplus was £327m and the Group’s Solvency II Coverage The contribution from the operating divisions of £66m (2023: £73m) benefitted from Ratio was 203% (2022: £351m and 205% respectively). favourable market conditions across our operating territories, robust new business performance and stronger operating performance relative to 2023. Group Centre The change in surplus since 31 December 2023 is driven by the positive impacts of capital generation surplus usage reflected Group Centre and debt servicing costs, partially offset by from the Group’s operating activities and market conditions, in addition to management actions taken capital benefits from Group diversification and foreign exchange hedging facilities. in the year offset by dividend payments, the application of Tier 2/3 valuation restrictions and foreign exchange impacts. The Solvency Capital Requirement of £316m includes a £93m benefit from Group Commercial Cash Generation represents 1.60x coverage of the total 2024 dividend, diversification and the benefits of the Group’s foreign exchange hedging arrangements. demonstrating that the Group has ample resources to finance ongoing debt and dividend commitments whist maintaining a strong Solvency Coverage Ratio. Centre liquidity Group Centre held liquid resources of £109m at FY 2024, and this is expected to increase to £130m by half year 2025 following the receipt of planned Dividend Remittances from our operating divisions, net of Group Centre costs over the same period. This illustrates that we are continuing to generate sufficient cash from our operating divisions to fund our dividends, debt and Group Centre costs without impacting the Solvency Coverage Ratio. Sensitivities SOLVENCY SOLVENCY The Group regularly assesses the resilience of the Solvency II Coverage Ratio against a range RATIO SURPLUS of scenarios as part of its internal risk management processes. Impact range £m (80) (60) (40) (20) - 20 40 60 80 Market risks largely arise from foreign exchange rate movements, changes in equity valuations 20% sterling appreciation 33.6% and movements in interest rates and inflation. Solvency surplus is most sensitive to the effect 20% sterling depreciation (12.3)% of equity movements on the value of the Group’s AuA and the consequent impact on future 25% equity fall 6.4% earnings from charges levied on these AuA. 25% equity rise (4.6)% The Group reviews the matching profile of its liabilities relative to their matching assets on an 10% equity fall 2.6% ongoing basis. As a result, the impact on solvency surplus of interest rate movements is not 10% equity rise (1.9)% significant. The inflation stress measures a permanent increase in inflation in all future years. This significantly increases the Group’s exposure to future costs and reduces solvency surplus 1% interest rate rise 6.1% accordingly. It is worth noting that the sensitivities make no allowance for recovery management 1% interest rate fall (8.4)% actions that the Group would apply in case of a prolonged stress event. These potential actions 50 bps credit spread rise (3.6)% are regularly reviewed as part of the Group’s ongoing risk management processes. 25 bps swap rate fall (4.7)% Demographic risks mainly comprise lapse risk from early surrenders and mortality risk on our 10% mass lapse (0.2)% protection and investment books. The Group manages lapse risk through a combination of 1% inflation (9.9)% active customer engagement, high levels of customer service and mass-lapse reinsurance 5% mortality increase (3.6)% arrangements. The Group manages mortality and longevity risk through its reinsurance arrangements and reviews the overall reinsurance programme on a regular basis. Each individual bar in the diagram illustrates the estimated impact range (£m) of the respective sensitivities and whether that impact is positive (green) or negative (red). CHESNARAANNUALREPORTANDACCOUNTS202421 OVERVIEW CHIEF FINANCIAL OFFICER’S REPORT Leverage Capital management actions Leverage of 31% remained broadly unchanged as the impact of Management actions are an important component of our strategy reinsurance arrangements were extended to provide the Group the increased CSM largely offset the decrease in IFRS equity. to maximise value from existing business. In 2024, we renewed with further capital relief against the risk of extreme lapse events. Our leverage ratio remains in line with our long-term preference the Group’s foreign exchange derivative instrument, further Taken in aggregate, these actions increased the Group’s Solvency of 30% or less and we continue to see opportunities to manage reducing capital requirements relating to the risk of extreme Ratio by 5%. leverage in line with or below our preferred level into the longer term. foreign exchange movements. In our UK division, mass-lapse IFRS IFRS Pre-Tax Profit 21 2528 Group IFRS Pre-Tax Profit of £20.8m is £19.1m higher than 2023 (£1.7m) with an improved 26 insurance service result, a positive but lower (22) 479 investment result and an improvement in fee (21) income net of expenses. Insurance service result 9 449 Net investment result 53 (37) Other income and expenses (40) Pre-Tax Profit 21 FY23 Capital CSM Pre-Tax Other FY24 FX Tax Shareholder FY24 Base movement Profit adjustments Capital Base dividends Capital Base Pre-Tax, FX & dividends IFRS insurance result Fees, commission and other operating income IFRS Capital Base The insurance service result comprises the revenue and expenses Fee, commission and other operating income mainly comprises Before allowing for the 2024 dividend, the IFRS Capital Base from providing insurance services to policyholders and excludes the fee income generated in the UK and Sweden from unit-linked of £449.1m increased by £6.2m over 2024 as a result of the economic impacts. Assumption changes only apply to the contracts measured under IFRS 9. positive IFRS profit after tax of £3.9m, the increase in CSM insurance service result to the extent that they relate to groups net of tax of £15.2m and negative impacts going through The income generated in the year after removing the effects of onerous contracts in a ‘loss component’ position. ‘other comprehensive income’ or directly to shareholder of Swedish policyholder yield tax, which has an equal and equity of (£12.8m), these being mainly in respect of foreign The insurance service result of £8.6m (2023: loss of £5.2m) opposite offset within ‘Other Operating Expenses’, was £73.4m exchange impacts. comprises a relatively stable and positive contribution from (2023: £71.5m) with equity market returns in the UK and Sweden the release of the CSM and the Risk Adjustment of £22.2m being the largest contributory factors to the result. In December 2024, the Group announced that agreement had (2023: £23.0m). This is offset by some adverse experience been reached with Canada Life to transfer an in-force portfolio Other operating expenses and financing costs primarily in the Netherlands and assumption changes on lines to Chesnara’s UK division. This acquisition contributed £0.7m Other operating expenses comprises those costs incurred by the of onerous contracts also in the Netherlands, with these impacts to the increase in CSM gross of tax, however this amount Group that are not incurred from servicing insurance contracts, being much more significant in the prior year, resulting in the reflects the profits to be earned in the reinsurance phase only, with such costs being reported within the insurance result. overall loss. during which it will be accounted for at the reinsurance contract After stripping out the impact of the policyholder yield tax noted level under IFRS 17. Following the legal transfer of the underlying IFRS investment result above, the total other operating expenses and finance costs policies, IFRS 9 will then apply, as the policies are investment The investment result comprises the economic result from in the year was £113.9m (2023: £143.0m), with the prior year contracts and profits will therefore be recognised as the fee all the Group’s assets together with the impacts to its insurance amount also being impacted by an impairment of AVIF in the income is earned. and investment contract liabilities. UK segment of £21.0m. A further £6.8m of CSM gross of tax arose from new business The positive investment result of £52.7m (2023: £71.7m) reflects in Scildon, offset by £18.9m released to the income statement. the strong market performance in the year, although the The closing CSM on the balance sheet will be earned over investment returns from equities and fixed income securities the coverage period of the policies to which it relates, and the did not reach the levels seen in 2023. expected earnings pattern is such that after 10 years more than 40% will remain to be earned. 22 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 OVERVIEW Economic Value Earnings The Economic Value of the Group represents the present value of future 11 594 profits from existing business, plus the 5 5 (2) adjusted net asset value of non-insurance 50 business within the Group. Group EcV (26) Earnings of £69m increased by £10m (2023: £59m) with economic earnings 531 being the largest component of Economic 525 (37) Value Earnings, reflecting favourable market conditions throughout 2024. EcV at Economic Operating New Acquisitions Other EcV at FX Paid EcV at FY 2023 earnings: earnings business central and FY 2024 dividends FY 2024 real-world one off pre FX & returns items dividends EcV Economic Earnings Other EcV Earnings Dividend Positive global equity market movements contributed strongly to The acquisition of the Canada Life portfolio results in an up-front Our continued strong performance along with our strong and † the growth in the value of AuA over 2024, increasing the store of EcV gain of c£11m. Other non-operating items include the resilient solvency position has supported the directors’ decision future value available from investment-linked portfolios. This was positive impact or risk margin releases (£23m), offsetting central to recommend a 3% increase in the total dividend to 24.69p per partially offset by the impact of foreign exchange movements, financing costs (including Tier 2 coupon payments) of £11m. share (2023: 23.97p). primarily from the strengthening of Sterling against the Euro and Economic Value as at 31 December 2024 the Swedish Krona. Outlook Before allowing for dividends of £37m, the Economic Value Chesnara has now delivered 20 years of consecutive dividend EcV Operating Earnings of the Group grew to £568m (2023: £525m). increases to our shareholders. Looking forward, we continue EcV Operating Earnings of £10m (2023: £6m) were supported by to have a strong line of sight to future cash generation over strong contributions from the Group’s Dutch businesses, and a the medium and longer term. We have opportunities to further small year-on-year increase in contribution from new business. optimise future value generation from our existing portfolio The contribution from the in-force portfolio and new business through continued capital and investment management actions. was partially offset by a strengthening of short-term lapse Our capital and liquidity resources remain strong and resilient to assumptions in the Group’s Swedish division, mortality market movements and position us strongly to generate further assumptions in the Netherlands and expense assumptions sources of future value through acquisitions and investment in in the UK. Whilst these effects had the impact of reducing our operating divisions. EcV Operating Earnings by £8m, this is less marked than the prior year (2023: (£15m)), reflecting cost-containment and risk-management actions taken throughout 2024. Tom Howard Chief Financial Officer † 26 March 2025 Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARAANNUALREPORTANDACCOUNTS202423 STRATEGIC REPORT 24CHESNARAANNUALREPORTANDACCOUNTS2024 26 Our strategy, business model and culture & values 28 Our strategy 30 Our culture & values 32 Section 172 reporting 40 Business review 46 Capital management 49 Financial review 55 Financial management 57 Risk management 68 Corporate and social responsibility CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 25 STRATEGIC REPORT OUR STRATEGY, BUSINESS MODEL AND CULTURE & VALUES Our strategy focuses on delivering value to customers and shareholders, mindful of the interests of other stakeholders, through our three strategic objectives, executed across our three territories. OUR STRATEGY STRATEGIC OBJECTIVES Read more on p28 MAXIMISE VALUE FROM ACQUIRE LIFE AND ENHANCE VALUE THROUGH EXISTING BUSINESS PENSIONS BUSINESSES PROFITABLE NEW BUSINESS Managing our existing customers efficiently, Acquiring and integrating companies into Writing profitable new business supports whilst delivering good outcomes, is core to our business model is key to continuing the growth of our Group and helps mitigate delivering our overall strategic aims. our growth journey. the natural run-off of our book. KPIs KPIs KPIs Cash generation Cash generation EcV growth EcV Earnings EcV growth Customer outcomes Customer outcomes Customer outcomes IFRS Pre-Tax Profit IFRS Pre-Tax Profit Risk appetite IFRS Capital Base IFRS Capital Base IFRS Pre-Tax Profit 1 IFRS Capital Base 2 3 BECOMING A SUSTAINABLE CHESNARA HOW WE ORGANISE OURSELVES UK NETHERLANDS SWEDEN DIVISION OPERATING COUNTRYWIDE WAARD SCILDON MOVESTIC COMPANY ASSURED GROUP Read more on p40 Read more on p44 Read more on p44 Read more on p42 Linked pension business; Mainly term life policies, Protection, individual Predominantly unit-linked pensions KEY life insurance, covering both with some unit-linked and savings and group and savings. Also provides life PRODUCTS index-linked and unit-linked; non-life policies. pensions contracts. and health product offerings endowments; whole of life; as well as custodian business. annuities and some with profit business. NUMBER OF c290k c128k c240k c280k POLICIES Largely through a network of DISTRIBUTION Onshore bond sold through Sold through n/a brokers and partners, although METHOD Investment platforms. a broker network. some is directly to customers. UNDERPINNED BY A ROBUST RISK MANAGEMENT AND GOVERNANCE FRAMEWORK 26 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STAKEHOLDERSOBJECTIVESKPIs STRATEGIC REPORT OUR BUSINESS MODEL INVESTORS CUSTOMERS REGULATORS STAFF SUPPLIERS AND THE PLANET PARTNERS & NATURAL ENVIRONMENT Competitive returns through Good outcomes Financial stability and Attract, promote and Long-term reliable Progress to being attractive dividends and regulatory compliance retain quality staff relationships a sustainable group share price growth for Job satisfaction shareholders and a and motivation dependable coupon payment for debtholders † Cash generation Good outcomes Good outcomes Staff survey results Quality of service Operational emissions † EcV growth Investment return Solvency Coverage Ratio Staff retention rates Tracking expenditure Financed emissions Solvency Coverage Openness of relationship Energy usage Ratio Investment in positive solutions OUR CULTURE AND VALUES Responsible risk-based Fair treatment Maintain adequate Provide a competitive Robust regulatory A just transition to management for the of customers financial resources return to our investors compliance a sustainable group benefit of all our stakeholders STAKEHOLDERS – Shareholders – Customers – Customers – Shareholders – Shareholders – All stakeholders including the planet – Debtholders – Regulators – Debtholders – Debtholders – Staff – Staff – Customers – Suppliers and partners – Regulators – Natural environment – Natural environment – Customers † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARAANNUALREPORTANDACCOUNTS202427 STRATEGIC REPORT OUR STRATEGY Our strategy focuses on three areas: the efficient management of our existing business, the creation of value through acquisitions and writing profitable new business. STRATEGIC WHY THIS MATTERS HOW WE DELIVER OBJECTIVE OUR BUSINESS MODEL Delivering on the commitments we A centralised governance oversight and corporate management team ensures robust and consistent have made to customers is fundamental governance across the Group. Operational execution is devolved to our divisions to ensure the to the success of the Group. Existing Group benefits from strong divisional management teams and reflects the need to ensure 1 books of policies are the principal source that processes are fit for purpose locally. The core operations of our UK division follow a largely † of the Group’s cash generation and outsourced business model. The core operating activities of our businesses in Sweden and the MAXIMISE VALUE FROM † Economic Value and are at the heart of Netherlands are predominately managed internally. EXISTING BUSINESS the investment case for our shareholders We create value and generate cash through: and debtholders. If we do not do a good – running our in-force books of business efficiently and effectively; job for our customers then we will not have the right to execute against our – executing management actions that create long-term value and/or generate cash; other two strategic objectives. – optimising the risk/reward balance in how we invest our assets and generate future returns; – accessing broader Group diversification synergies; and – ensuring our customer processes deliver good outcomes (recognising Consumer Duty requirements for UK customers) and remain robust and in line with customer expectations, which in turn supports stronger persistency. Bringing value enhancing acquisitions – Identify potential deals through an effective network of our own relationships, supplemented by into the Group maintains and potentially advisors and industry associates. enhances the efficiency of the operating – Assess deals by applying well established criteria which consider the impact on cash generation, 2 model, creates a source of ongoing Economic Value and solvency under the best estimate and stressed scenarios and the impact of the value enhancement and sustains the deal on the enlarged Group’s risk profile. ACQUIRE LIFE AND longer-term cash generation potential – Minimise transaction risk through stringent risk-based due diligence procedures and the senior PENSIONS BUSINESSES of the Group. management team’s acquisition experience and positive track record. – Finance deals with debt, equity and/or cash depending on the size and cash flows of each opportunity. – Work cooperatively with regulators. The Group financial model supports – In the UK, new business is primarily sold via advisors who provide new customers with access incremental value generation through to our onshore bond product via a selection of investment platforms. writing profitable new business. – In Sweden, we primarily focus on unit-linked pensions and savings business, distributed largely 3 New business activity supplements through brokers, and custodian business distributed by partners, albeit with an ambition to grow the growth delivered from the our risk protection business. ENHANCE VALUE management of our in-force portfolio – In the Netherlands, we sell protection products and, individual savings contracts via a broker-led THROUGH PROFITABLE and periodic acquisitions. distribution model. NEW BUSINESS – New business terms are regularly reviewed to ensure that they remain competitive in their respective markets whilst maintaining profitable returns to the Group. 28 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT RISKS: FOR FURTHER INFORMATION ON PRINCIPAL RISKS LISTED PLEASE SEE THE RELEVANT CODES ON PAGES 6167 RISKS: WHAT CAN STOP US MEETING RISKS: WHAT CAN WE DO HOW WE MEASURE DELIVERY UPDATE THIS OBJECTIVE? ABOUT THIS? Customer outcomes – PR1 Adverse investment market conditions can result – Active investment management to deliver competitive investment UK This is measured through monitoring: in lower assets under management and hence lower returns for policyholders, within agreed risk appetite levels. Pages 40 - 41 – customer service metrics; fee income from unit-linked business. For products – Outsourcer service level arrangements that ensure strong – policyholder fund performance against industry with guarantees, this can increase the cost of fulfilling customer service standards. and market expectations; the guarantees. – Strong expense management to ensure that the cost base is – PR4 Increased lapses on cash generative/value – customer complaint levels; and efficient, well controlled, predictable and within direct enhancing products. SWEDEN management influence. – our compliance with regards to regulatory – PR4 PR6 Loss of key brokers, or aggressive Pages 42-43 conduct matters. – Close monitoring of persistency levels and strong customer competitor pricing, can result in increases in the level service standards help manage lapse rates and ensure customers Financial outcomes of customers moving to competitors. do not unknowingly exit when it is not in their interest to do so. Cash generation is the surplus generated by – PR2 Regulatory change can potentially impact the – Implementation of efficient reinsurance and hedging strategies. the Group over its capital requirements, as set cash flows arising from the existing business. – Strong model controls including do/check/review and adherence NETHERLANDS by the Board. – PR5 Expenditure levels could exceed those assumed. to Technical Actuarial Standards, plus independent internal and Pages 44-45 – PR1 Foreign currency fluctuations can impact the Economic Value is a prudent estimate of the external review and sign off. sterling value emerging from overseas operations. potential future store of cash generation available – PR10 Weakness in modelling results may lead to – Strengthening controls and documentation around financial to the Group from the efficient management of the poor decisions regarding strategic, operational reporting and decision making models, and improving the in-force portfolio and so is an important measure or investment matters. independent testing of those controls through the operational of the long-term performance of the Group. resilience programmes and in preparation for the new Corporate Governance code. Financial outcomes – PR3 A lack of value adding acquisition opportunities – Operating in three territories increases our options thereby UK Acquisitions must meet the hurdle-rate financial come to market, the investment case for the Group reducing the risk that no further value adding deals are done. Pages 40 - 41 returns required by our capital allocation policies and diminishes over time. – Additional investment has been made in resources that must be attractive relative to alternative uses of the – PR3 PR9 There is the risk that we make an support our M&A efforts. Group’s capital resources. inappropriate acquisition that adversely impacts the – A broader target market also increases the potential for deals SWEDEN financial strength of the Group. that meet our strategic objectives. Pages 42-43 Customer outcomes – PR10 Inaccurate model outputs during due diligence Acquisitions must ensure we protect, or ideally – Each acquisition is supported by a financial deal assessment stage could potentially lead to overestimating the enhance, customer interests. model which includes high quality financial analysis. This is value of acquisitions, resulting in over payment. reviewed and challenged by management and the Board. NETHERLANDS Risk appetite Pages 44-45 Acquisitions should normally align with the Group’s documented risk appetite. If a deal is deemed to sit outside our risk appetite, the financial returns must be suitably compelling. Financial outcomes – PR8 The attractiveness of products can be influenced – In the UK, looking to expand the platforms that we work with. UK New business activity must meet the hurdle-rate by economic conditions, politics and the media. – In Sweden, continuing to extend the breadth of broker Pages 40 - 41 financial returns and deliver an acceptable level – PR6 PR8 PR9 New business volumes are sensitive support and develop more digital and automation capabilities. of New Business Contribution to the Group. to the quality of service to intermediaries and the – Ensuring good quality of service to existing network end customer. of intermediaries. SWEDEN Customer outcomes – PR8 In Sweden, new business remains relatively Pages 42-43 New business activity must ensure we protect, – Focusing on other margin drivers beyond product pricing, concentrated towards several large brokers and or ideally enhance, customer interests. such as the fund management operation. private banks. – Enhancing business processes and product offering to be † – PR8 A competitive market puts pressure on new Alternative Performance Measure (APM) used to enhance attractive to brokers and consumers. NETHERLANDS understanding of financial performance. Further information sales margins. Pages 44-45 on APMs can be found in the additional information section – PR10 Inaccurate assumptions modelling resulting of this Annual Report and Accounts. in writing unprofitable new business. CHESNARAANNUALREPORTANDACCOUNTS202429 STRATEGIC REPORT OUR CULTURE & VALUES Our values and culture are strongly influenced by our responsibility to a range of key stakeholders including customers, regulators, wider society and our investors. They underpin the delivery of our core strategic objectives. WHY IS IT IMPORTANT? WHAT WE HAVE DONE FAIR TREATMENT OF CUSTOMERS – UK: Continued to deliver good levels of service to our customers, meeting the high standards expected by The fair treatment of customers across the Group is our primary responsibility. our regulators, including work to deliver the ongoing operational resilience programme (which is on track for It is also important to our business strategy as it promotes stronger relationships the 31 March 2025 deadline) and formation of a fully-funded plan in compliance with the Consumer Duty with our customers, distributors and regulators. When applying the terms of our rules for the closed-book business (completed in line with the regulatory deadline of 31 July 2024). The UK customer contracts, coupled with guidance and requirements set out by our local division has also continued to proactively maintain contact with long-standing customers and to reunite regulators, we place a high priority on ensuring good outcomes for our customers. customers with unclaimed assets. – Sweden: Continued to enhance our digital offering to customers, having updated the division’s digital service to allow both those nearing retirement and those customers with a longer time-horizon, to simulate retirement and plan their decumulation strategy. The division has also focused on broader ways it can support our customers, including individually adapted pension plans and sustainable investments. The offering within the life and health insurance business segment has been further developed and re-launched during the year. RESPONSIBLE RISKBASED MANAGEMENT FOR THE – The ORSA (Own Risk and Solvency Assessment) process is fully embedded across the Group. It provides a BENEFIT OF ALL OF OUR STAKEHOLDERS clear articulation of our risk appetite, ensures that strong risk oversight applies on an ongoing basis, and acts In managing the business, it is essential that our decision making assesses the risk as a key input to inform risk-based decision making. impact of any decision. We achieve this by understanding the key risk drivers of the – We have enhanced the Group’s Cyber Response Framework and performed simulation testing. business plan and strategy, as well as by making sure we monitor the potential – Delivered our continuous improvement regime regarding how we manage risk across the Group, supported impact of these risks across our whole range of stakeholders. by our annual systems of governance review. PROVIDE A COMPETITIVE RETURN TO OUR INVESTORS – Continued our impressive track record of increasing our dividend for the last 20 years, even during turbulent As a public company, we seek to offer an attractive investment proposition for investment market conditions. investors. As most of our shareholders hold our shares through income-focused – Delivered strong cash generation with all divisions contributing to provide coverage of 160% against the investment funds, we are conscious of the importance of delivering an attractive shareholder dividend. and sustainable dividend to our investors. Debt-holders also want confidence in – Maintained a robust solvency position in all divisions and at Group level, supporting the continued dividend our ability to service our debt costs. We also recognise the benefit of an investment growth and providing substantial headroom for future acquisitions. that offers clarity and consistency of performance. ROBUST REGULATORY COMPLIANCE – Maintained robust solvency levels across the Group and all divisions, above regulatory requirements. Working constructively with our regulators and complying with regulatory – Continued to place a high priority on compliance, maintaining an open dialogue with our regulators. requirements and guidance is imperative to the delivery of our objectives. – Continued to monitor forthcoming non-financial reporting frameworks to ensure we implement them in line Regulators’ desire for robust and responsible governance is very much part with their effective date. of our culture and a principal priority for the Chesnara Board. MAINTAINING ADEQUATE LIQUIDITY – We use the business plan to project cash flows over the forthcoming five-year period. Ensuring we have liquidity to meet our ongoing financial obligations requirements – We assess the liquidity of the Group on a regular basis, working to an internal buffer and this is also is fundamental to the sound financial management of the business. considered as part of all acquisition processes to ensure we finance the deals in the most efficient way whilst also maintaining an adequate level of liquidity to meet the ongoing financial obligations of the business. A JUST TRANSITION TO A SUSTAINABLE GROUP Whilst we recognise the urgency for change and the opportunities that can arise from Further information on what we are doing and the outcomes are included on pages 74 to 91 and in our transitioning to a low-carbon economy and environmentally sustainable society, our work will Annual Sustainability Report. be guided by key principles of a just transition, ensuring the most vulnerable are not left behind. 30 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT Risk management is at the heart of what we do and embedded within our robust Governance Framework. THE OUTCOMES – Netherlands: Waard launched its digital customer portal in the year, making – Generally, a low level of complaints across the Group – More individually adapted communication and services, it easier for customers to access documents. Scildon simplified its product has continued. leading to higher customer engagement. portfolio and further digitalised its customer and advisor portals. In 2025, – Transparent customer communications, supporting better – Delivered positive investment returns for customers. the Group intends to merge our two Dutch entities, and will ensure that customer outcomes. customers continue to receive high quality service over this change period, – Good ongoing service levels over the course of the year, and into the future as part of a larger, more sustainable combined business. with a high level of customer satisfaction. – Where customer complaints arise, we have continued to manage them in accordance with the appropriate regulatory practice. – We have closely monitored any regulatory developments to ensure we continue to treat our customers fairly in accordance with changing regulatory requirements. – Robust solvency coverage over the course of the year. – Strong results from the annual review of the systems of governance across the business. – Ongoing constructive dialogue with regulators across the different territories in which the Group operates. – Remained active in the M&A market and completed one further value adding – Dividend growth track record continues, with 3% dividend – TSR of 17.4% delivered for 2022-24 (2021-23: 14.7%). UK acquisition in 2024. per share growth in 2024. – Monitored our leverage ratio, ensuring it remains in line with our ambition – Completed a further acquisition during 2024, adding of 30% over the medium to longer term. additional value and cash flow to the Group. – Ongoing constructive relationships with UK, Swedish – Materially compliant with DORA requirements in Sweden and Dutch regulators. and the Netherlands by the January 2025 deadline, with further activity during 2025 to fully embed into operations. – Continued adherence to internal governance policies and principles. – Reviewed compliance with the guidance of the FCA’s anti-greenwashing rule, as part of the Sustainability – Continued oversight of the Group’s sustainability agenda Disclosure Requirements and investment labels. and targets. – Progressed our implementation of the Corporate Sustainability – The UK division met the 31 July 2024 deadline for the Reporting Directive in our Dutch entities and continued to closed-book operations to comply with the FCA’s review the timeline of other frameworks. We are considering Consumer Duty regulation. The division is also on the impact of the EU Omnibus proposals announced in track to meet the 31 March 2025 deadline for the February 2025, which would mean we would no longer FCA’s Operational Resilience regulation. have to implement CSRD across the Group. – Strong closing Group Centre liquidity holdings at the end 30 June 2025, after allowing for the expected receipt of 2024 of £109m, significantly exceeding our internal of further divisional cash remittances, net of certain buffer. Pro forma Group Centre liquidity of £130m forecast Group Centre costs. CHESNARAANNUALREPORTANDACCOUNTS202431 STRATEGIC REPORT SECTION 172 THE BOARD’S APPROACH Our Section 172 reporting seeks to communicate the Board’s approach to decision making, an overview of our key stakeholders and how stakeholders are considered by the Board when making decisions. This section of the Annual Report and Accounts is therefore designed to provide insight into how the directors of Chesnara have discharged their responsibilities under Section 172 of the Companies Act, and having had regard to the matters set out in Section 172 (1) (a) to (f) when performing their duties. Section 172 statement The Board’s approach The directors of Chesnara believe that they have acted in a way that they consider, in good faith, Role of the Chair would be most likely to promote the success of the Company for the benefit of its members as As described on page 99 within the Corporate Governance Report, it is the role of the Chair to lead a whole, and in doing so have had regard (amongst other matters) to: the Board in the determination of the Group’s strategy; to ensure that the Board is furnished with sufficient information in order to support its decision making; and to ensure that relevant stakeholders a) the likely consequences of any decision in the long term; have been taken into account when making decisions. b) the interests of the Company’s employees; Business planning c) the need to foster the Company’s business relationships with suppliers, customers and others; The principal process supporting the longer-term decision making of the Board is the Group business d) the impact of the Company’s operations on the community and the environment; planning process. This is a three-stage process that takes place throughout the course of the year, e) the desirability of the Company to maintain a reputation for high standards of business conduct; and as follows: f) the need to act fairly between members of the Company. The following disclosures provide further insight supporting the above statement over the course STAGE 1 of 2024. The disclosures have been split into three key sections: STRATEGIC PLANNING The Board’s approach The preliminary stage of the business planning process allows the Board to review The overall approach taken by the Board in ensuring that the requirements of Section 172 are met. and challenge the strategy of the Group. Key stakeholders This covers the key stakeholders that the Board considers are important to the long-term success of the Company; how the Company depends on these stakeholders; how key stakeholders are STAGE 2 impacted by the decisions of the Company; and how we engage with those stakeholders. REVIEW AND CHALLENGE OF DIVISIONAL Significant decisions AND GROUP OPERATIONAL PLANS This covers the significant decisions made by the Board during the year and how the directors have considered key stakeholders and discharged their responsibilities under Section 172 in Following completion of the strategic planning, including any associated feedback to the making these decisions. operating business units, operational plans are developed by the respective management teams and reviewed by the Group Senior Leadership Team. The key objectives of these operational plans are explicitly linked to the strategic objectives of the Group, ensuring that the key management actions support the delivery of the Group strategy. STAGE 3 DETAILED BUSINESS PLANS SUPPORTED BY FINANCIAL PROJECTIONS Final business plans are then produced at both a divisional and Group level. These include the agreed operational deliverables for the short to medium term and their associated risks and opportunities, alongside the associated financial projections. 32CHESNARAANNUALREPORTANDACCOUNTS2024 STRATEGIC REPORT The business planning process for 2024 confirmed that the Board continues to support the Group’s Each key objective within the Group business plan is supported by relevant information to support strategic objectives: the review and challenge process by the Board, having regard to the factors required by Section 172 (1) (a) to (f). Further information on how the Board considers each key stakeholder group is provided on pages 34 to 36. 1 The projected financial and non-financial outcomes of the business plan process allows the Board to consider both the shorter-term and longer-term consequences of the plan in the context of all MAXIMISE VALUE FROM EXISTING BUSINESS our stakeholders. The key financial items/metrics that the Board considers are shown below. Managing our existing customers efficiently whilst delivering good outcomes is core Key financial metrics in the business planning process: to delivering our overall strategic aims. † CASH GENERATION RETURN ON CAPITAL SOLVENCY COVERAGE SHAREHOLDER DIVIDENDS † 2 ECONOMIC VALUE DIVISIONAL CASH REMITTANCES IFRS PROFITS EXPENSES ACQUIRE LIFE AND PENSIONS BUSINESSES † Acquiring and integrating companies into our business model is key to continuing IFRS CAPITAL BASE & GROUP LEVERAGE NEW BUSINESS CONTRIBUTION our growth journey. RETURN ON IFRS EQUITY Governance Framework and Board reporting Long-term decision making of the Board is supported by the Group’s Governance Framework, 3 which is set out in the Corporate Governance Report. Regular Board meetings and robust reporting requirements (underpinned by a schedule of matters ENHANCE VALUE THROUGH PROFITABLE NEW BUSINESS reserved for the Board) allow the Board to operate effectively, fulfil its responsibilities (including Writing profitable new business supports the growth of our Group and helps mitigate the in relation to Section 172 (1) (a) to (f) of the Companies Act 2006) and provide valuable oversight. natural run-off of our book. One of the key additional sources of reporting to the Board is the Group’s quarterly management information (MI) pack. This is designed to be a ‘one stop’ holistic view of the Group as a whole and covers, amongst other things, the following items of relevance to the requirements of Section 172: The strategy of the Group has regard for the following core culture and value principles: – Divisional updates, including financial results, business plan progress, key customer initiatives, – Fair treatment of customers regulatory interactions, operational performance (including updates on key outsourcer, supplier and – Responsible risk-based management for the benefit of all of our stakeholders employee matters); – Providing a competitive return to our investors – Matters pertaining to investor relations; – Robust regulatory compliance – Consolidated financial results; – Maintaining adequate financial resources – Investment performance analysis, covering both customer and shareholder returns; – A just transition to a sustainable group. – Progress updates on key objectives within the business plan and projects; These are described in more detail on pages 26 to 31. – Risk matters affecting the Group; and – Sustainability updates. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARAANNUALREPORTANDACCOUNTS202433 CUSTOMERS EQUITY INVESTORSDEBT INVESTORS STRATEGIC REPORT SECTION 172 KEY STAKEHOLDERS The following table identifies the key stakeholders that the Board considers are important to the long-term success of the Company. It provides insight into how the Company engages with these stakeholders and how they are considered when making strategic decisions. Matters arising in relation to each stakeholder group are communicated by management to the Board in a management information (MI) pack at each Board meeting. DEPENDENCIES OF IMPACT OF BUSINESS HOW WE ENGAGE KPIs MONITORED BUSINESS ON THE ON THE STAKEHOLDER WITH THE STAKEHOLDER RELATING TO THE STAKEHOLDER STAKEHOLDER Our customers are key to Our primary concern is ensuring that our Our primary engagement with customers comes from a combination of Policy lapses the long-term success of customers receive consistently strong outcome outward communication, coupled with customer contact, be it through Complaints the Group, both in terms from a well-capitalised and financially secure policy changes, queries or claims. Service levels of retaining existing company. Our financial management and culture From an outwards communication perspective, our aim is to ensure we customers and attracting & values statements demonstrate that this is Customer survey scores provide transparent and understandable information to our customers, new ones to our open embedded across the Group. We closely manage Policyholder investment be it in the form of regular written letters/booklets, information available books of business. Without all aspects of the customer journey, covering returns on our website or through any other material made available to customers. our customers, the Group customer experience, communications, Customer engagement would cease to exist. policyholder expectations, product value for From the perspective of responding to customer contact, we seek to make money, and our solvency coverage levels. our processes as helpful to the customer as possible, mindful of different customer group preferences. This involves ensuring that our customer contact staff are well trained for telephony or email correspondence and making other technology available where feasible (such as the use of apps). We obtain feedback on the way we engage with our customers through periodic market research or customer focus groups. Having a strong and stable Any business decision that is made that affects We primarily engage with investors through the following key channels: Dividend growth shareholder base is critical either the future dividend payments of the – Formal public financial reporting, which we produce every six months. Share price for the long-term success Group or its long-term sustainability may be – Meetings with current and potential investors during the year, including as TSR of the Group. It allows us of significant interest to our investors. If either part of investor roadshows after formal results and at investor conferences. to pursue our long-term of those elements are put under pressure, it Significant investor strategy, including the could reduce confidence in the Group, and could – Our Annual General Meeting. purchases/sales potential for raising new lead to a reduction in shareholder returns. – Periodically, we hold ‘investor days’ with our shareholders and other market Cash generation capital for acquisition related stakeholders, which are designed to provide further insight into Solvency Coverage Ratio purposes. our business and give investors an opportunity to meet a wider range Economic Value of Chesnara senior management. IFRS Capital Base & – We will periodically contact investors for feedback in advance of formal Leverage publication of matters, such as material changes to our Remuneration Policy. If we seek to raise additional debt or equity, our investors are actively IFRS Pre-Tax Profit engaged at the appropriate point in the process. Investor feedback Net zero targets The support of our debt Any business decision that is made that affects We primarily engage with debt investors through the following key channels: Debt investor feedback investors facilitates the the Group’s long-term sustainability may be of – Formal public financial reporting, which we produce every six months. Fitch Long-Term Issuer pursuit of our long-term significant interest to our debt investors, and any Default Rating – Meetings with debt investors, including as part of investor roadshows after strategy, including the decision that could reduce capacity is likely to formal results and at investor conferences. Gearing ratio potential for raising new reduce confidence in the Group. capital for acquisition Price of listed debt purposes. instruments Cash generation and Solvency Coverage Ratio Net zero targets † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. 34 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 SUPPLIERS AND PARTNERS STRATEGIC REPORT It is worth noting that not all stakeholders have the same interests and whilst there is considerable overlap, they can at times conflict. The Board’s role is to weigh these factors up when setting the strategy and operational plans of the business. DEPENDENCIES OF IMPACT OF BUSINESS HOW WE ENGAGE KPIs MONITORED BUSINESS ON THE ON THE STAKEHOLDER WITH THE STAKEHOLDER RELATING TO THE STAKEHOLDER STAKEHOLDER † Key suppliers and partners include Our various suppliers and partners are Banks: Our regular engagement with our banks takes the form of quarterly covenant Leverage ratio our banks, outsourcers, intermediaries impacted by the Group as follows. compliance reporting, which is required for our existing Revolving Credit Facility † EcV position and professional services providers. (RCF) debt arrangement. On an ad-hoc basis, we engage with our banks in the Banks: Our banking partners earn a return Solvency levels We depend on them for various aspects event of a change in our business or to seek new funding, say to support an on the facilities they provide and take of our business model. acquisition. In the event of an acquisition where we would like to secure more IFRS Return on Equity a keen interest in ensuring we manage short-term debt funding, we work with banks and other advisors to ensure that we Service levels Banks: Access to ongoing short-term our finances and strategy in a way that are providing relevant information to support the banks’ decision making process. lending to support our business. minimises their risk of loss. Adherence to timescales Outsourcers: We view having strong, open and honest relationships with our Cost efficiency Outsourcers: Supporting the day-to-day Outsourcers: Our outsourcers have an outsourcers as key to the long-term success of our business. We engage with our policy administration, customer contact opportunity to share in the growth of the Quality of service outsourcers through various scheduled meetings, focusing on a combination of and associated accounting of our Group through further acquisitions or specific function-driven relationship meetings and wider meetings focusing on the Credit rating applied business, primarily in the UK, together portfolio transfers. Our outsourcers rely on overall relationship. It is important that our outsource partners are suitably informed to Chesnara plc and with the decarbonisation of their the ongoing financial stability of the Group regarding business developments in the Group, and that the Group is aware of its subsidiaries operations to support our own net to ensure that the services they provide any relevant business changes in our outsourcers. This ongoing communication Investment performance zero plans. continue to be paid for by the Group. enhances the relationships and works towards maintaining the longer-term success Financed and of the Group. We are also working with our outsourcers to ensure they support the Intermediaries and partners: Distributing Intermediaries and partners: Selling our operational emissions delivery of our emission targets. our products in the UK, Sweden and products is a source of immediate and of key third parties the Netherlands. ongoing revenue for our intermediaries. Intermediaries and partners: We strive to work closely with our intermediaries, When dealing with the end customer, engaging in a variety of ways. In both Movestic and Scildon, all intermediaries have Suppliers: Support and advice from intermediaries and partners rely on quality access to a partner website, where they can administer customer processes and our key suppliers, including professional information being provided by us in a obtain information as required. The Swedish division also hosts annual meetings services, together with the timely manner. to engage with intermediaries, facilitating two-way discussion around products, decarbonisation of their operations services and market developments. Other areas of engagement include frequent to support our own net zero plans. Suppliers: For key suppliers of the Group, meetings with intermediaries and partners, on an individual basis. we are likely to be an important source Derivative counterparties: Provision Suppliers: A number of the Group’s suppliers take the form of the provision of of revenue, and therefore the Group’s of financial instruments to enable us a service or advice as opposed to the supply of goods. For these suppliers, our ongoing success in terms of delivering its to manage our risk profile in line with engagement focuses on ensuring that the service or advice is fit for purpose and growth plans and remaining financially our tolerances. meets the intended scope. This typically involves up-front interaction in scoping stable will be of interest to our suppliers. the work, coupled with close monitoring of progress throughout the duration Rating agency: Fitch has assigned an Derivative counterparties: They manage of the services. The Group ensures that it adheres to supplier payment terms. investment grade credit rating for the their own risk exposures through the We are also engaging with our key suppliers to understand how they will be able Group’s subordinated debt, which derivative instruments or make a return to support the delivery of our sustainability targets and goals. supports the Group in raising capital as market makers for the trades. Derivative counterparties: Once a risk exposure has been identified that we want to at attractive rates of interest. manage, we engage with the derivative counterparty about the structures available Rating agencies: Any business decision Asset managers: Support the delivery to mitigate that risk. This engagement process continues through to execution of the that affects the Group’s long-term of positive investment outcomes for trade and on an ongoing basis via regular reporting during the life of the instrument. sustainability may be of significant customers through the management interest to Fitch and could impact the Rating agencies: In addition to the annual ratings review process, we regularly of certain assets on behalf of the Group credit rating assigned. engage with Fitch to discuss the strategy, operational and financial performance and its divisions and in the transition of the Group. We also liaise with Fitch on an ad-hoc basis in advance of any key of our investment portfolio to net zero. Asset managers: Our asset management events, such as acquisitions or other key corporate activity. partners earn fees on the assets they Asset managers: Regular meetings are held with our main asset management manage and have an opportunity to share partners to review the investment mandates in place with significant focus on in the success of the Group through the underlying performance of the investments and their fit with our sustainability additional assets brought into the Group objectives. through new business and acquisitions. CHESNARAANNUALREPORTANDACCOUNTS202435 STAFF REGULATORSTHE PLANET AND NATURAL ENVIRONMENT STRATEGIC REPORT SECTION 172 KEY STAKEHOLDERS DEPENDENCIES OF IMPACT OF BUSINESS HOW WE ENGAGE KPIs MONITORED BUSINESS ON THE ON THE STAKEHOLDER WITH THE STAKEHOLDER RELATING TO THE STAKEHOLDER STAKEHOLDER Compliance with regulatory The manner in which the Group manages itself, Our engagement with regulators generally takes the following forms: Relationship with requirements is fundamental both from a prudential and conduct perspective, supervisory team – Regulators across the Group typically have regular routines and practices to the success of the Group. will dramatically affect how regulators view and in place to support the delivery of their oversight objectives. This typically Formal feedback Without it, we would not interact with Chesnara and its subsidiaries. The takes the form of periodic meetings with management, and involves the from regulators be able to maintain our higher risk that the Group is deemed to be to the Group furnishing regulators with relevant information, such as quarterly existing status as a life regulator, the more focus that Chesnara and its and annual financial risk reporting. The Group fully supports this process. and pensions provider. subsidiaries are deemed to require. In addition, – The Group management will also typically engage with regulators as and through being a member of the ABI, the Group when required should there be a business update that would warrant this; also has the potential opportunity to respond to for example at the appropriate point during an acquisition process. and shape future regulatory change in the UK. – Annual regulatory college meeting where a number of the Group’s regulators meet with the Group CEO and CRO. Our people are a key asset We aim to provide a place of work that supports Chesnara and its subsidiaries have various mechanisms in place to ensure Staff surveys and drive the development and develops the Group’s employees, and we appropriate levels of engagement exist with employees. This involves: Feedback from employee and deliver the strategy of recognise that the Group’s day-to-day culture and – Completing staff feedback surveys. forums the Group. We recognise its overall remuneration and benefits package also – Holding regular update briefings covering matters such as business Feedback from that to be able to meet the have a significant effect on employees. performance, policy updates or any other matters that are relevant appointed NED expectations that we have to employees. set ourselves, we need to Staff turnover ensure that we continue to – Holding regular employee forums to discuss any employee-related matters. Diversity information attract, promote and retain – Having an appointed non-executive director (NED) who is responsible high quality candidates. for employee-related matters and engages with local HR directors and Without high performing employee forums. and motivated staff, the – Ensuring that we have relevant employee policies in place and that these Group would not be are available to our employees. able to deliver against its – Having robust whistleblowing policies in place. Our corporate and social strategic aims. responsibility statement on pages 71 to 91 provides further information. Our business relies on Our main impact is from the assets in which We impact the planet and natural environment through the business CO ₂ e financed and natural capital and the we and our policyholders invest and their carbon decisions that we and our policyholders make. Ensuring that sustainability operational emissions environment, both for our and wider impact on nature. For our own is at the heart of our decision making is critical to ensuring that we consider Climate Value at Risk operations and our operations, the main category of emissions are the planet and natural environment. Energy consumption investments. Changes in the those arising from goods and services purchased Our business units are working closely with their respective fund managers natural environment and the from suppliers. The impact of our investment ESG risk scores to fully embed sustainability within our own investment decision making effects of climate change decisions and the investment choices made by Value of assets invested criteria. For policyholders who choose where they wish to invest, we can potentially affect the our customers are wide-ranging and will continue within our definition of provide access to a range of sustainability-focused funds, and we continue way we operate our to be a key focus area as we transition to become positive solutions to provide relevant material so that they can make informed decisions. businesses, and the returns a sustainable group and work towards our net to our customers and zero targets. In regard to our own operations, our business units are taking practical steps shareholders. We are to reduce our emissions and minimise the impact that we have committed to applying on the environment, as described on pages 74 to 91. sustainability-based decision Climate change risk is monitored as part of our risk identification and making across the Group. assessment processes (see pages 60 to 67 and 74 to 91). 36 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT SECTION 172 SIGNIFICANT DECISIONS The principal process that the Board uses to make shorter and longer-term decisions is the Group business planning process. Key decisions also arise outside of the business planning process depending on how the business develops during the year and the challenges and opportunities that it faces. The table below lists the key decisions made by the Board during 2024 and how the directors have considered the factors required by Section 172 in making these decisions, including their regard for matters set out in Section 172(1)(a) to (f). SIGNIFICANT OTHER STAKEHOLDER DECISION CONSIDERATIONS PROPOSED OVERVIEW Staff: The merger will impact the MERGER OF During the year, the Board approved the potential merger of the two Dutch subsidiaries, Scildon and Waard, and submission of the day-to-day work for employees of SCILDON required documents to local regulators for approval. The merger is expected to complete in July 2025. The emergent Dutch division Scildon and Waard. Implementation AND WAARD will trade under the Scildon brand. plans are being put in place with steps included to make this transition run as KEY CONSIDERATIONS smoothly as possible. a) Customers’ interests will continue to be protected or enhanced. Customers: Throughout the transitionary b) The proposed merger will enhance the long-term prospects of the business from efficiencies that scale will bring. period of the merger, ensuring that it c) The interests of employees within the two entities was a significant consideration during the process, as the merger will result in does not detrimentally affect customers organisational restructuring. Management engaged with employees through the Works Council in Scildon following the decision and continuing to foster the relationship and a positive opinion was received from their independent considerations. In addition, the Nomination & Governance Committee with our customers is a priority. considered the proposals for the senior roles. Regulators: The Dutch regulator, d) A key part of the implementation plan will be ensuring the merger brings no detriment to customers. De Nederlandsche Bank (DNB), will e) The merged entity will trade under the Scildon brand which has a strong reputation in the Netherlands for high standards of be interested in ensuring that the business conduct. merger does not cause any prudential or conduct issues. PRIMARY BENEFICIARIES Customers: The proposed merger should create a larger, more sustainable organisation that can even better support the needs of current and future customers. Shareholders: The merger is expected to improve the Solvency Coverage Ratio, cash generation and EcV Earnings of the Group in the short and longer term. ACQUISITION OVERVIEW Staff: The decision is of interest to the ANNOUNCED The Board is required to approve any acquisitions that the Group enters into. In addition to this, the Board reviews and approves any staff of our existing Group given it IN THE YEAR ‘firm’ material acquisition offers. supports our growth ambitions which provides greater financial stability and In December 2024, the UK division reached agreement with Canada Life UK to acquire a closed portfolio of unit-linked bonds and development opportunities. legacy pension business with total AuM of £1.5bn. The deal was initially executed via a reinsurance agreement, with the policies Regulators: The FCA and PRA are expected to transfer to Countrywide Assured through a Part VII insurance business transfer process once court approval is obtained. responsible for approving elements of the KEY CONSIDERATIONS Part VII documents and ensuring that the a) The UK division is largely closed to new business; therefore, acquisitions are the primary source of growth for the business. As such, Company continues to remain compliant this decision improves the long-term prospects of the division which benefits multiple shareholders including staff, our UK suppliers with regulations during the reinsurance and partners. period and after the Part VII. b) The impact on employees of completing the acquisition was considered through the process and in discussion with the seller. Suppliers: Our outsource partner, SS&C, c) Ensuring that customers would not be adversely affected by the acquisition and continue to receive good outcomes was fundamental will be administering the policies once to the decision making process. We consulted with our regulators in advance of completing the acquisition. the Part VII is complete, and therefore has an interest in the acquisition. Our d) Our due diligence process in assessing potential acquisitions includes an initial and ongoing assessment of sustainability criteria ratings agencies were engaged in against our goals and commitments. advance of the completion of the e) The Board considered how the acquisition would impact the business’ reputation for high standards of business conduct. acquisition. PRIMARY BENEFICIARIES IFAs: Financial advisors who Customers: The customers of the acquired portfolio will wish that their policies continue to be administered in line with expectations, recommended these products to the and that they continue to be prudently managed. As part of the Part VII process, we ensure all policyholders continue to receive the impacted customers will want to feel same benefits in their existing policies with the same level of security after the transfer. confident that the products will continue Shareholders: The acquisition resulted in a day 1 EcV gain of £11m (in excess of the expected day 1 gain as quoted in the to be supported. announcement of £8m). CHESNARAANNUALREPORTANDACCOUNTS202437 STRATEGIC REPORT SECTION 172 SIGNIFICANT DECISIONS SIGNIFICANT OTHER STAKEHOLDER DECISION CONSIDERATIONS STAFF AND OVERVIEW Shareholder: Investment REMUNERATION Over the course of the year, there were a number of significant staff and remuneration related decisions, the most notable of which are: in staff provides a DECISIONS – Tom Howard was appointed as a director of Chesnara plc. He joined as Group CFO in April 2024. sustainable environment – Dave Rimmington stood down as a director and as Group Finance Director. and workforce, which in – Stefan Klohammar was appointed as CEO of the subsidiary Movestic Fonder AB in September 2024. turn is expected to have – Pauline Derkman and Edwin Bekkering are proposed as the CEO and CFRO of the future merged business in the Netherlands, subject to regulatory approval. a positive impact on the business. Both in advance – UK staff were invited to a 2024 issuance of the approved save as you earn (SAYE) scheme. of the 2024 AGM and – Salary increases across the UK as part of the annual review. following shareholders’ KEY CONSIDERATIONS votes on the 2023 Each decision was discussed by the Board giving consideration as to the relevant merits of each item and whether the cost was appropriate given Directors’ Remuneration the current economic climate. For each of the decisions, the impact, the benefits and the position in the market and relative to competitors were Report, the Chair of the considered (where appropriate). Remuneration Committee a) The Board considered the long-term impact of their choice of leadership and remuneration. engaged with major b) The impact of expanding employees’ benefits packages on employees was considered by the Board. shareholders and a c) The Board considered the impact the Group’s leadership has on the Group’s reputation for high standards of business conduct. number of changes and PRIMARY BENEFICIARIES clarifications were made The appointment of appropriately skilled and experienced Board members and senior leaders is in the interest of all our stakeholders. as a result. Staff: The primary stakeholder affected by the SAYE decision is the UK workforce, as this directly affects their benefits packages. GOVERNANCE OVERVIEW CHANGES Mindful of non-executive director tenures, during the year we commenced the search for a new independent non-executive member of the Chesnara Board. In January 2025, Gail Tucker was appointed as a NED and a member of the Audit & Risk Committee, and the Nomination & Governance Committee. Gail also joins the Board of Chesnara’s UK subsidiary, Countrywide Assured plc as a Non-Executive Director and it is intended will chair its Audit & Risk Committee subject to regulatory approval. Jane Dale, Non-Executive Director, will stand down at the AGM having completed her 9-year term. At the same time, Gail Tucker will be appointed as Chair of the Audit & Risk Committee. In addition, there have been a number of other changes: Karin Bergstein stood down as a Non-Executive Director of the Movestic Board, and Mark Hesketh stood down as a Non-Executive Director of the Chesnara Board and was appointed as the Chair of the CA Board. KEY CONSIDERATIONS Governance Code guidance, as well as skills, experience, geographical knowledge & capability, diversity, segregation and adequate oversight were all taken into account by the Nominations & Governance Committee in its deliberations. So too was the broader skills matrix of the Board as a whole. PRIMARY BENEFICIARIES Strong governance and a breadth of knowledge, experience and capability in the Board and its committees puts the Company in the best possible position to drive positive outcomes for all our stakeholders. APPLICATION OVERVIEW Banks: Our bankers are OF CAPITAL Every year, the Board is required to consider what level of dividends are appropriate for shareholders, whilst also ensuring that it continues to adhere considered in terms of the MANAGEMENT to its own Capital Management Policy. Dividend proposals are subject to Board approval, with proposed final dividends being included in a resolution impact of distributions on AND DIVIDEND voted for at the Annual General Meeting. our liquidity and solvency POLICIES During 2024, the Board approved the year end 2023 final dividend, amounting to 15.61p per share, and the interim 2024 dividend of 8.61p per share. position. KEY CONSIDERATIONS Regulators and The Directors’ Report on page 135 provides information on the key considerations made by the Board when approving dividends. The aim is to customers: These satisfy investor expectations by delivering an attractive dividend, with steady growth where possible. This dividend cannot and will not be delivered stakeholders are at the expense of financial security, be it to solvency or liquidity. In the process of approving a dividend, the Board is presented with a paper by considered in the context management which considers the various aspects of the dividend decision, including cash generation, solvency, leverage, the Group’s acquisition of ensuring that the strategy and investor expectations. solvency position of the a) The Board ensures that the payment of a dividend does not jeopardise the long-term prospects of the Group. Group remains robust. b) The AGM allows Chesnara to engage with shareholders, ensuring fair consideration across all members, and informs dividend and capital management decisions. PRIMARY BENEFICIARIES Shareholders are the primary beneficiaries of dividends. 38 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT SIGNIFICANT OTHER STAKEHOLDER DECISION CONSIDERATIONS DECISIONS OVERVIEW Regulators have a UNDERPINNING Over the course of the year, a number of key regulatory projects were progressed or completed. The most material were: vested interest to REGULATORY – Consumer Duty in the UK – with a deadline of 31 July 2024 to comply for closed books. ensure compliance. ACTIVITIES – EU DORA regulations which entered into force 17 January 2025. KEY CONSIDERATIONS Consumer Duty – The CA Board were responsible for setting clear objectives for consumer outcomes and ensuring these were aligned with the overall business strategy. The CA Board received appropriate MI on the relevant customer segments to effectively assess customer outcomes. Material decisions were put to the relevant Board or committee for approval. DORA – The local Boards were responsible for setting and approving the digital operational resilience strategy and ensuring this aligns to the overall business objectives. This involved determining the Governance Frameworks for risk identification and mitigation, incident reporting and the criteria for identifying critical ICT suppliers. PRIMARY BENEFICIARIES Customers, as any changes made to processes or policies are likely to impact them. EMBEDDING OVERVIEW Asset managers: SUSTAINABILITY We have continued to embed sustainability into our processes and decision making across the Group. This is in line with our commitment to become Our asset managers INTO OUR a sustainable Chesnara, including being a net zero Group by 2050. are fundamental to the BUSINESS transition to net zero for In reaching its decision to continue with our sustainability strategy, the Board considered the rationale for investing time and expenses in becoming financed emissions and a sustainable Chesnara. The Board, supported by the oversight and direction provided by the Group Sustainability Committee, has considered the sustainability criteria forms importance of managing the transition to net zero of the investments we hold, being an organisation where all stakeholders feel welcome and part of our selection and decarbonising our own operations and supply chain. The strategic importance of these activities, together with their potential to provide risk oversight processes. We mitigation for issues such as climate change, continued to be assessed by the Board. will continue to have active Notable areas of focus during 2024: engagement to ensure that our targets are met. – Determining our interim financed emissions reduction target, as detailed in our 2023 Annual Report and Accounts; – In addition to our existing training schedule, providing sustainability training for all employees across the Group to ensure that all colleagues have Suppliers and a foundation of knowledge of key issues such as climate change, biodiversity loss, equality, diversity and inclusion and key governance principles; outsourcers: Sustainability criteria forms part of our – Embedding sustainability as a key consideration in the acquisition process for potential businesses and portfolios; supplier selection and – Enhancing our climate risk assessment to further understand the resilience of our investment portfolio to climate change; oversight processes. – Developing our initial transition plan, for publication later this year, which will detail the steps we will take to start the transition to net zero; and – Engaging with our key asset managers and partners in our supply chain to understand their own plans and priorities. KEY CONSIDERATIONS a) Being a sustainable group helps to ensure our long-term success and therefore provides more certainty over long-term returns for shareholders. b) The decision takes due account of the welfare of our colleagues, valuing the diverse needs and perspectives of this group of stakeholders. It raises awareness of the relevance of sustainability in our day-to-day operations, providing opportunities to work in an organisation making positive contributions to society and the planet. c) Embedding sustainability provides customers with the confidence that we continue to do the right thing, alongside developing our sustainable product offerings for policyholders looking for sustainable investment opportunities, and improves the sustainability of investment returns where we are responsible for investment decisions. It also gives customers the benefit of more accessible and inclusive services. d) A just transition to being a net zero organisation, and one which directs capital to positive solutions, delivers positive outcomes for the planet and environment. e) Our sustainability practices confirm our commitment to meet our regulatory obligations and comply with disclosure requirements, in line with our reputation for good business conduct. PRIMARY BENEFICIARIES All shareholders are impacted by the Group being a sustainable business. CHESNARAANNUALREPORTANDACCOUNTS202439 STRATEGIC REPORT MAXIMISE VALUE FROM BUSINESS REVIEW UK KPIs EXISTING BUSINESS Capital & value management Commercial Cash Generation: The UK division manages The division has continued the programme of migrating the existing books £40m c290k policies covering linked of business to SS&C Technologies as part of the long-term strategic (2023: £49m) partnership entered into in 2023. This now includes the migration and pension business, life integration of the Canada Life acquisitions. In December, the UK division extended the scope of its existing mass-lapse reinsurance arrangements, SII ratio (pre dividend): insurance, endowments, further reducing its associated capital requirements. 182% annuities and some with-profit (2023: 183%) Customer outcomes business. The division is largely The division met the 31 July 2024 deadline for the closed-book operations to comply with the FCA’s Consumer Duty regulation. This regulation sets SII ratio (post dividend): closed to new business, high standards for consumer protection and focuses on ensuring firms act 135% in a way to deliver good outcomes for customers. The division is also on generating future value (2023: 149%) track to meet the 31 March 2025 deadline for the FCA’s Operational Resilience regulation. through small levels of new EcV Earnings: business, investment returns Governance £20m The insurance business of CASLP was transferred to Countrywide Assured on unit-linked policies, (2023: £38m) on 31 December 2023. CASLP Limited was de-authorised in Q3 2024, and the remaining assets were subsequently transferred to Countrywide increments to existing policies Assured. The Company was dissolved in January 2025. The division has IFRS Pre-Tax Profit: and periodic acquisitions. supported the wider Group’s sustainability programme over the course of £28m the year and rolled out training for staff across the business to help embed (2023: £3m noting the 2023 result sustainability into day-to-day decision making. included a one off impairment charge of £21m). FUTURE PRIORITIES Dividend remittances – Continued migration of the majority of the existing and the acquired in 2024: books of business to SS&C. – Implementation of identified potential capital management actions. £35m – Finalisation of the operational resilience programme to ensure the Analysis of the segmental movements regulatory deadline of 31 March 2025 is met. are available on pages 47 and 49 to 54. – Continued focus on delivering good customer outcomes and maintaining strong customer service performance. – Continued engagement with our asset managers on progress towards net zero and investing in positive solutions and wider support of the groupwide sustainability programme including focus on operations, social purpose and reporting. 40 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT ACQUIRE LIFE AND KPIs PENSIONS BUSINESSES In December 2024, the UK division reached agreement with Canada Life Acquisitions in the year UK to acquire a closed portfolio of unit-linked bonds and legacy pension have added: business with a total AuA of £1.5bn. This transaction is being initially executed via a reinsurance agreement, with the policies expected – Day 1 OF: £10m to transfer to the Group through a Part VII insurance business transfer – Day 1 EcV: £11m process following court approval. (£3m in excess of the expected During 2024, work progressed on the Part VII transfer of the Canada Life day 1 gain as quoted in the individual protection business acquired in May 2023 under a reinsurance announcement of £8m) agreement. The transfer completed on 24 February 2025 following – AuM: £1.5bn court approval. – Policies: 17,000 FUTURE PRIORITIES In the last three years, – Support the Group in identifying and delivering UK acquisitions. acquisitions have added – Continue to deliver strong financial outcomes from past acquisitions. £39m of EcV at group level. ENHANCE VALUE THROUGH KPIs PROFITABLE NEW BUSINESS The division generated positive new business profits, through significantly APE: increased volumes of the on-platform onshore bond. This resulted in a £13m New Business Contribution of £2m. (2023: £7m) Increased demand for the onshore bond is being driven in part by changes to personal tax allowances. The Autumn Budget 2024 strengthened the attractiveness of the product due to changes in capital gains tax and New Business Contribution: inheritance tax. £2m The division has developed a suite of advisor-facing technical product (2023: £2m) documents and a tax tool which will go live in early 2025 and continues to work on opportunities to improve the advisor and customer proposition with platform partners. FUTURE PRIORITIES – Continue to enhance the customer and advisor proposition. – Expand distribution of the onshore bond with existing and new platform partners. – Work with our strategic outsource partner to leverage technology to generate administrative efficiencies. CHESNARAANNUALREPORTANDACCOUNTS202441 STRATEGIC REPORT MAXIMISE VALUE FROM BUSINESS REVIEW KPIs EXISTING BUSINESS SWEDEN Capital & value management Commercial Cash Generation: Over 2024, the division saw growth in AuA driven by positive total net client £11m Our Swedish division consists cash flows and favourable investment markets. High transfer activity within (2023: £nil) the Swedish occupational pension segment has continued, affecting both of Movestic, a life and pensions inward and outward transfer flows. Inflows within both the unit-linked and the custodian lines grew compared to the prior year, generating a positive SII ratio (pre dividend): business which is open to net client cash flow. 153% new business. It offers (2023: 153%) Customer outcomes personalised unit-linked During 2024, Movestic released an updated version of its digital service which helps customers to plan their retirement, start withdrawing and SII ratio (post dividend): pension and savings solutions change how they receive their occupational pension. To enable increased 151% individual adaptation, more flexible terms for pension withdrawals were through brokers, together (2023: 147%) launched during the year. An additional digital service within salary sacrifice savings was launched during the year, and more customers than ever signed with custodian products up for individual pension advice within the ‘Movestic Freedom’ concept. EcV Earnings: via private banking partners £31m Governance and is well regarded within (2023: £7m) Movestic’s sustainability programme is aligned to the Group’s strategy and commitments, forming the basis of Movestic’s own sustainability work and both communities. targets. The EU commission adopted a new regulatory framework, Digital IFRS Pre-Tax Profit: Operational Resilience Act (DORA), and over 2024, work progressed on this £10m project to ensure compliance when it came into force. Work in the year also (2023: £5m) concluded that Movestic is outside the scope of the EU-adopted Corporate Sustainability Reporting Directive and the Global Minimum Tax regulations which were implemented in Swedish law in 2024. Dividend remittances in 2024: £7m FUTURE PRIORITIES (payment in Q4 2024 and Q1 2025) – Continue building solid and long-term sustainable value creation for customers and investor stakeholders through a diversified business model. Analysis of the segmental movements – Continue offering modern and individually adapted high-quality solutions are available on pages 47 and 49 to 54. within pension, savings and health insurance, and expand customer- focused digital services. – Increase the use of automation, streamline processes, and improve administrative efficiency and control. – Ensure group sustainability reporting processes are embedded into everyday operations. – Monitor developments in the regulatory landscape. 42 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT ACQUIRE LIFE AND PENSIONS BUSINESSES We have been engaging with other market participants and investment bank advisors in order to better understand potential opportunities for inorganic growth in the market. FUTURE PRIORITIES – Seek out opportunities to bring in additional scale through M&A. ENHANCE VALUE THROUGH KPIs PROFITABLE NEW BUSINESS New Business Contribution of £5m over 2024 which is an increase on the APE: prior year result of £3m. £100m The division expanded its custodian distribution network in 2024, two new (2023: £65m) partner collaborations were launched in 2024 and a project to onboard another new partner in custodian sales is ongoing, the launch is planned for early 2025. New Business Contribution: £5m To improve distribution and sales within the life and health insurance segment, the division launched a new, updated risk insurance offering, as (2023: £3m) well as new technical integrations for brokers and partners during the year. A new partnership for the distribution of the digital life insurance product Occupational pension has also been entered into over the course of the year. market share: 4.4% (2023: 4.4%) FUTURE PRIORITIES – Continue to build customer value and loyalty through further enhancement Custodian accounts of the division’s offering, consisting of individually adapted pension and savings and life and health products, and associated digital services. market share: Focus on both growing new business and retention activities. 12.2% – Continued development and enhancement of partnerships with our (2023: 7.7%) intermediaries within both the unit-linked and custodian business. – Continued focus on growing the life and health insurance business to diversify and offer our customers a broader selection. CHESNARAANNUALREPORTANDACCOUNTS202443 STRATEGIC REPORT MAXIMISE VALUE FROM BUSINESS REVIEW KPIs EXISTING BUSINESS NETHERLANDS Capital & value management Commercial Cash Generation: Scildon’s enhancement of its IT infrastructure completed in 2024, generating £16m Our Dutch businesses deliver operating and cost efficiencies. Scildon also conducted asset reviews to (2023: £24m) provide more efficient interest rate hedges, replaced short-duration growth through our acquisitive government bonds with investments in money market funds to improve its overall return profile and is increasing its investment in mortgage funds to SII ratio (pre dividend): closed-book business, Waard, improve its asset/liability matching positions. Waard also made changes to Waard 350% its asset mix to improve longer-term expected returns. The proposed merger and our open-book business, of the two Dutch businesses will result in a division stronger than the sum of Scildon 205% its parts, through scale and synergies. Scildon, which seeks to write (2023: 377% Waard and 184% Scildon) profitable term, investments Customer outcomes Scildon has continued to make improvements to its customer offering and annuity business. SII ratio (post dividend): through new products and digitalisation options. Waard launched its digital customer portal, making it easier for customers to access their documents Waard 324% in digital format. Scildon 205% (2023: 353% Waard Governance and 184% Scildon) During 2024, the businesses progressed the implementation of the requirements of the Digital Operational Resilience Act (DORA), becoming EcV Earnings: compliant by the January 2025 implementation date. Work progressed over the year in respect of the implementation of the Corporate Sustainability £21m Reporting Directive (CSRD), with both companies completing their double (2023: £41m of which £21m related materiality assessments and gap analyses in 2024. We are considering the to the day 1 gain from Conservatrix) impact of the EU Omnibus proposals announced in February 2025, which would mean we would no longer have to implement CSRD across the Group. In January 2024, Chesnara Holdings BV was dissolved resulting in Scildon, IFRS Pre-Tax Profit: Waard Leven and Waard Schade becoming directly owned by Chesnara plc. £5m Chesnara Holdings BV was de-registered in April 2024. During the year, the division prepared all of the required documents relating to the (2023: £23m) potential merger and submitted these to the local regulator for approval in January 2025. Dividend remittances in 2024: £7m FUTURE PRIORITIES – Complete the proposed merger of the Waard and Scildon businesses Analysis of the segmental movements (subject to regulatory approvals), enhancing the scale, efficiency and are available on pages 47 and 49 to 54. longer-term sustainability of the Group’s Netherlands division. – Identify potential capital management actions, focusing on those that generate the appropriate balance of value and cash generation. – Ensure customers continue to receive high-quality service throughout the change period of the merger. – Regular engagement with customers to improve service quality, as well as enhance existing processes, infrastructure, and customer experiences. – Consider the impact of the EU Omnibus proposals announced in February 2025 on the business’s requirements under the Corporate Sustainability Reporting Directive (CSRD). – Prepare the roadmap for investments to become net zero in 2050. 44 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT ACQUIRE LIFE AND PENSIONS BUSINESSES The division has continued to support the Group’s acquisition strategy by assessing M&A opportunities and processes, including due diligence activity, as appropriate. FUTURE PRIORITIES – Continue to remain active in seeking acquisitions and have actively examined opportunities during the year. – Will continue to engage with possible vendors during 2025 on opportunities. ENHANCE VALUE THROUGH KPIs PROFITABLE NEW BUSINESS Scildon generated a New Business Contribution of £2m (2023: £5m), New Business Contribution: against a backdrop of continued suppressed term market volumes and £2m pressure on pricing. Scildon has maintained a disciplined approach to pricing, albeit at lower volumes. (2023: £5m) In April 2024, Scildon launched a Stop Smoking lifestyle proposition on new business, reflecting its focus on expanding offerings to customers. Term assurance market share: The initiative won an award in the Customer Interest category of the Adfiz 10.6% Performance Survey 2025. (2023: 11.2%) FUTURE PRIORITIES – Simple focused product portfolio offering primarily sold through IFAs with digital options where preferred by customers. – Look to offer more sustainable solutions for our unit-linked proposition. CHESNARAANNUALREPORTANDACCOUNTS202445 STRATEGIC REPORT CAPITAL MANAGEMENT SOLVENCY II The Group’s Solvency Coverage Ratio is significantly above the upper end of our operating range of 140% to 160%. GROUP SOLVENCY Solvency position 205% 203% 351 327 Group Solvency II surplus is £327m (2023: £351m) with a Solvency Coverage Ratio of 203% (2023: 684 643 205%), which includes the proposed final 2024 dividend of £24m and payment of the interim 2024 dividend of £13m. KEY 316 333 Own Funds include the impact of a £32m rise in the Tier 2/3 restriction and a £10m day 1 gain from Own Funds (Post Div) SCR the acquisition of the policy portfolio from Canada Life. The SCR reduced in 2024, mainly due to a Surplus general fall in market and life underwriting risk, with a rise in LACDT in UK and Dutch businesses. 31 Dec 2024 31 Dec 2023 Solvency coverage movement 4% 16% (3%) (7%) 205% 203% (12%) CONTINUED ROBUST SOLVENCY COVERAGE Operating solvency range: 140% to 160% OF 203% SII ratio Capital Management Acquisitions SII Dividend SII ratio 31 Dec 2023 generation actions adjustments 1 payments 31 Dec 2024 Note: 1. SII adjustments includes change in the fair value of the T2 asset and the Symmetric Adjustment, included associated movements in T2/T3 restrictions. 46 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT DIVISIONAL SOLVENCY Solvency position UK SWEDEN The rise in surplus (pre-foreseeable dividend of Surplus growth of £11m (pre-foreseeable dividend £45m) to £60m (2023: £29m) includes growth of £2.5m) was underpinned by economic factors, 151% in Own Funds and an SCR reduction during 2024. with unit-linked equity returns driving the increase Key drivers of the increase in Own Funds included in Own Funds, offsetting adverse lapse experience. 147% 37 the portfolio acquisition from Canada Life UK, 149% A smaller rise in SCR was also largely attributable new business profits and economic returns to the impact of positive market conditions on the 29 135% 29 (rising equities and bond income). equity risk component of the SCR. 24 15 22 21 19 184 159 152 130 122 108 103 KEY 96 KEY Own Funds (Post Div) Own Funds (Post Div) SCR SCR Buffer Buffer Surplus Surplus 31 Dec 2024 31 Dec 2023 31 Dec 2024 31 Dec 2023 NETHERLANDS WAARD GROUP NETHERLANDS SCILDON The reduction in Solvency II surplus (£10m) includes Growth in Solvency II surplus arose from higher the Own Funds impact of a foreseeable dividend 353% Own Funds with a broadly flat SCR over the period. (£7m) and a transfer of capital to the Group, Growth was driven by positive operating variances, following liquidation of Chesnara BV. The reduction 324% 205% and operating assumption changes from cost in SCR was primarily due a fall in life underwriting management actions. An increase in LACDT 184% 20 risks and an increase in LACDT, offsetting a rise in outweighed rises in expense and lapse risks, 6 market risks. 58 resulting in a small reduction in SCR (£1m). 48 51 52 94 82 140 127 9 9 KEY KEY 6869 Own Funds (Post Div) Own Funds (Post Div) SCR 25 27 SCR Buffer Buffer Surplus Surplus 31 Dec 2024 31 Dec 2023 31 Dec 2024 31 Dec 2023 The graphs on this page present the divisional view of the solvency position which may differ to the position of the individual insurance company(ies) within the consolidated numbers. Note that year end 2023 figures have been restated using 31 December 2024 exchange rates in order to aid comparison at a divisional level. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 47 STRATEGIC REPORT CAPITAL MANAGEMENT SENSITIVITIES The Group’s solvency position remains strong and we proactively evaluate the main factors that can affect our solvency. The diagram below provides some insight into the immediate impact of certain sensitivities on the Swap rates: A reduction in the swap discount rate profile reduces the Group’s surplus by increasing Group’s Solvency Coverage Ratio and solvency surplus. the time-value of the projected future liabilities associated with the in-force book. This sensitivity assumes that this change applies with no change in the value of the assets backing the liabilities. Foreign exchange: Appreciation of sterling relative to our overseas currencies reduces the value of overseas surplus with partial mitigation from the Group currency hedge. Mass lapse: A 10% mass-lapse event drives an immediate reduction in the Group’s projection of future surpluses, largely offset by the reduction in the associated SCR. Equity valuations: Lower equity valuations reduce the Group’s AuA. In turn, this decreases the value of Own Funds and the associated SCR as the value of the funds exposed to market risk reduce. Inflation: A permanent increase in inflation for all future years increases the Group’s future The reduction in SCR is limited by the impact of the Solvency II symmetrical adjustment. expense profile, reducing Own Funds and surplus. Interest rates: An interest rate fall has a more adverse effect on surplus than an interest rate rise. Mortality rates: A 5% increase in mortality rates across the Group will reduce the future Group solvency is less exposed to rising interest rates, as a rise in rates causes capital requirements surplus projections from the in-force book, leading to lower Own Funds and a reduction in the to fall, increasing solvency. Group’s surplus. Credit spreads: Higher spreads reduce surplus, as the rise in spreads decreases the value of Own Funds. SOLVENCY SOLVENCY RATIO SURPLUS Impact range £m (80) (60) (40) (20) - 20 40 60 80 20% sterling appreciation 33.6% 20% sterling depreciation (12.3)% 25% equity fall 6.4% 25% equity rise (4.6)% 10% equity fall 2.6% 10% equity rise (1.9)% 1% interest rate rise 6.1% 1% interest rate fall (8.4)% 50 bps credit spread rise (3.6)% 25 bps swap rate fall (4.7)% 10% mass lapse (0.2)% 1% inflation (9.9)% 5% mortality increase (3.6)% Each individual bar in the diagram illustrates the estimated impact range (£m) of the respective sensitivities and whether that impact is positive (green) or negative (red). 48CHESNARAANNUALREPORTANDACCOUNTS2024 STRATEGIC REPORT FINANCIAL REVIEW CASH GENERATION Continued strong cash generation was reported in 2024, with total Commercial Cash of £59.6m, benefitting from surplus generation from operating activities and positive market conditions. Cash generation is the increases in the Group’s Solvency II surplus, after allowing for ‘prudent management buffers’, as defined by the Group’s Capital Management Policy. £59.6M 2023 £52.4m £51.6M 2023 £31.9m COMMERCIAL CASH GENERATION BASE CASH GENERATION UK SWEDEN NETHERLANDS NETHERLANDS DIVISIONAL GROUP ADJ ACQUISITIONS TOTAL WAARD SCILDON TOTAL Commercial Cash Generation 39.6 10.6 1.6 14.6 66.4 0.9 (7.7) 59.6 Symmetric adjustment (2.8) (2.4) (0.1) (0.5) (5.8) (0.7) – (6.5) WP restriction look through (1.5) – – – (1.5) – – (1.5) Base Cash Generation 35.3 8.2 1.4 14.1 59.1 0.2 (7.7) 51.6 UK SWEDEN The UK reported another strong year of cash generation, contributing £39.6m in 2024 In Movestic, cash generation of £10.6m (2023: £0.3m) was stronger, with economic returns (2023: £48.5m). This was delivered through both Own Funds growth and a reduction in on the division’s unit-linked business the primary factor in Own Funds growth, exceeding capital requirements. Economic conditions (mainly the positive impact of rising yields) a rise in SCR and underpinning the cash result. The rise in SCR was also attributable to the supported both the growth in Own Funds and the reduction in SCR, predominantly lapse equity market-driven growth, with an increase in market-risk related capital requirements. risk (resulting from management action on mass lapse reinsurance). NETHERLANDS – WAARD NETHERLANDS – SCILDON Waard recorded modest cash generation of £1.6m (2023: £15.8m), with positive movements Scildon generated an increased cash return of £14.6m for the period (2023: £8.2m). in both Own Funds and SCR. Own Funds growth, delivered through operating profits, was Operating profits, including management actions on cost efficiencies, were the primary restricted due to economic losses (mainly the negative impact on bond holdings of interest driver of Own Funds growth. This action also had a positive effect on capital requirements, rates). An increase in LACDT offset a rise in market risk, owing partly to the purchase of driving a reduction in SCR, offsetting the adverse impact of economic conditions and government bonds (with longer duration increasing interest rate SCR) and proactive re-risking lower interest rates. through an increase in corporate bond holdings (increasing spread SCR). The divisional result also includes a material FX loss on consolidation owing to sterling appreciation versus the euro. GROUP The Group Centre component of cash generation includes Tier 2 debt coupon payments (c£10m) and other central costs. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 49 STRATEGIC REPORT FINANCIAL REVIEW EcV The Economic Value of the Group represents the present value of future profits of the existing insurance business, plus the adjusted net asset value of the non-insurance businesses within the Group. £531.0M 2023: £524.7m ECONOMIC VALUE (EcV) Value movement: 1 Jan 2024 to 31 Dec 2024 £m EcV to Solvency II £m 200 7 643 58 11 567 (34) (24) 525 531 531 (26) 4 (37) (42) EcV EcV Acquisitions Forex EcV Dividends EcV EcV Risk Contract Tier 2 RFF & DeferredDividends SII Own 31 Dec Earnings 31 Dec 31 Dec 31 Dec margin boundaries debt Tier 2/3 tax asset Funds 2023 before 2024 2024 2024 restrictions adj 31 Dec acquisitions (pre-div) 2024 EcV Earnings: EcV profits of £59m have been driven primarily by positive market conditions EcV is based on a Solvency II assessment of the value of the business but adjusted for certain items during 2024, supported by operating profits. Further detail can be found on page 51. where it is deemed that Solvency II does not reflect the commercial value of the business. The above waterfall shows the key difference between EcV and SII, with explanations for each item below. Acquisitions: The Group completed the acquisition of a closed portfolio from Canada Life, the transaction delivering a day 1 EcV gain of £11m. Risk margin: Solvency II rules applying to our European businesses require a significant ‘risk margin’ which is held on the Solvency II balance sheet as a liability, and this is considered to be materially Foreign exchange: The closing EcV of the Group reflects a foreign exchange loss in the above a realistic cost. We therefore reduce this margin for risk for EcV valuation purposes from being period, which is a consequence of sterling appreciation against both the Swedish krona and based on a 6% (UK: 4%) cost of capital to a 3.25% cost of capital, risk tapering is subsequently also the euro. applied in line with the parameters and approach used in the calculation of the risk margin under Dividends: Under EcV, dividends are recognised in the period in which they are paid. Dividends Solvency II in the UK. of £37m were paid during the year, representing the final dividend from 2023 and interim Contract boundaries: Solvency II rules do not allow for the recognition of future cash flows on dividend for 2024. certain in-force contracts, despite the high probability of receipt. We therefore make an adjustment to reflect the realistic value of the cash flows under EcV. EcV by segment at 31 Dec 2024 £m Ring-fenced fund restrictions: Solvency II rules require a restriction to be placed on the value of surpluses that exist within certain ring-fenced funds. These restrictions are reversed for EcV UK 189 valuation purposes as they are deemed to be temporary in nature. Sweden 199 Dividends: The proposed final dividend of £24.3m is recognised for SII regulatory reporting purposes. It is not recognised within EcV until it is actually paid. Netherlands 252 Tier 2: The Tier 2 debt is treated as ‘quasi equity’ for Solvency II purposes. For EcV, consistent Other group (110) with IFRS, we continue to report this as debt. Under SII, this debt is recognised at fair value, activities while for EcV, this remains at book value. Tier 3: Under Solvency II, the eligibility of Tier 3 Own Funds is restricted in accordance with The above chart shows that the EcV of the Group remains diversified across its different regulatory rules. For EcV, the Tier 3 Own Funds are recognised at a deemed realistic value. geographical markets. 50 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT FINANCIAL REVIEW EcV EARNINGS Continued strong EcV Earnings have been delivered through economic profits, new business gains and delivery of our acquisition strategy. Total Operating Earnings: Operating earnings of £10.4m were Analysis of the EcV result by business segment: £69.2M 2023 £59.1m reported in 2024, driven by positive results in our Dutch and Swedish businesses, offsetting an operating loss in the UK. EcV EARNINGS 31 Dec 31 Dec Total Economic Earnings: The economic result continues £m 2024 2023 to be the largest component of the total EcV Earnings, with Analysis of the EcV Earnings by source of value: UK 19.6 31.4 a profit of £50.3m in the year. The result is in line with our reported sensitivities and is driven by the following key 31 Dec 31 Dec Sweden 30.9 6.8 market movements: £m 2024 2023 Equity indices: Netherlands 21.4 19.5 Expected movement in period 15.0 14.9 – FTSE All Share index increased by 5.6% (year ended New business 5.2 4.4 31 December 2023: increased by 3.7%). Group and Group adjustments (13.3) (27.0) Operating experience variances (9.1) 14.9 – Swedish OMX all share index increased by 5.6% Acquisitions 10.5 28.4 (year ended 31 December 2023: increased by 15.6%). Operating assumption changes 9.0 (25.9) – The Netherlands AEX all share index increased by 7.5% EcV Earnings inc. acquisitions 69.2 59.1 Other operating variances (9.7) (1.9) (year ended 31 December 2023: increased by 13.4%). Total Operating Earnings † 10.4 6.4 Credit spreads: UK: The UK’s result of £19.6m was driven primarily by favourable market conditions, predominantly the long-term impact of rising Total Economic Earnings † – UK AA corporate bond yields decreased to 0.68% 50.3 42.9 (31 December 2023: decreased to 0.71%). yields and equities with an offset from non-recurring costs of investment in outsourcing arrangements and the business Other non-operating variances (11.3) (11.9) – European AA credit spreads decreased to 0.56% acquisitions. The result was also supported by higher year on Central costs (11.8) (14.1) (31 December 2023: increased to 0.63%). year new business earnings. Risk margin movement 22.8 1.1 Yields: Sweden: The Movestic result of £30.9m benefitted from Tax (1.8) 6.3 – 10-year UK gilt yields increased to 4.64% (31 December 2023: favourable market conditions in Sweden and Europe. New decreased to 3.64%). business volumes contributed further earnings of £2.3m EcV Earnings 58.6 30.7 – 10-year euro swap yield decreased to 2.37% (31 December 2023: (on an EcV basis). The operating result was partially offset decreased to 2.49%). Acquisitions 10.5 28.4 by the impact of transfers out. Other costs: The result also includes Group Centre, primarily Netherlands: The Dutch businesses reported combined growth EcV Earnings inc. acquisitions 69.2 59.1 associated with the M&A strategy and development of the of £21.4m, with positive operating profits offsetting economic Group, and other non-operating items, including the release losses, primarily due to the impact of rising interest rates on of risk margin and financing costs, such as Tier 2 debt servicing. the value of bond holdings. Scildon generated EcV growth of £14.0m, driven by positive operating variances, including the impact of management actions driving cost efficiencies. New business profits were muted, due to market pricing pressures and a smaller term market. In Waard, the negative impact of economic conditions on the bond portfolio was offset by positive operating earnings and release of risk margin, delivering overall growth of £7.0m. Group: This component includes Group Centre personnel costs; the cost of funding the Group’s acquisition strategy; debt financing costs and investment returns on Group Centre assets. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. * Prior year comparators have been restated following a reallocation of components, with total EcV Earnings remaining unchanged. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 51 STRATEGIC REPORT FINANCIAL REVIEW IFRS BALANCE SHEET The transition to IFRS 17 is now fully embedded in the reporting of the Group’s IFRS results and balance sheet. As at 31 December 2024, total net equity is £314.4m, and the CSM, which represents unearned future profits from insurance contracts, is £175.8m (net of reinsurance and gross of tax). HOW THE CSM HAS MOVED IN THE PERIOD £m 2 74 32 176 (19) 157 (7) CSM Experience & New Interest Other FX CSM CSM (gross of tax) assumption business accreted release impact (gross of tax) 31 Dec 2023 changes 31 Dec 2024 The CSM represents future profits that are expected to be released to the income statement over HOW DOES IFRS COMPARE TO ECV AND SOLVENCY II? the lifetime of the portfolio. The CSM (net of reinsurance and gross of tax) has increased by £18.9m from £156.9m to £175.8m during 2024. EcV and IFRS share common principles. However, for investment contracts, expected future profits on existing policies are not recognised in the IFRS balance sheet, with-profits being reported as they Positive experience and assumption changes across the Group have added £32.0m of CSM. New arise. This differs to the approach in EcV, where these future profits are fully recognised on the business in Scildon and the portfolio acquisition in the UK have also added £7.5m of CSM, reflecting balance sheet, subject to contract boundaries. the future profits arising on profitable new business added in the period. These additions are offset by the £18.9m release to profit in the period, as the insurance services have been provided with LEVERAGE other smaller net negative movements including the impact of foreign exchange and the interest accretion totalling £1.7m making up the total movement. Applying the Fitch gearing definition of debt divided by debt plus equity, with the equity denominator adding back the net of tax CSM liability, the leverage of the Group as at 31 December 2024 was The CSM values are shown net of reinsurance but gross of tax. When calculating the IFRS Capital † 30.9% (31 December 2023 restated: 29.5%). Base a net of reinsurance and net of tax figure is used. The equivalent net of reinsurance and tax movement of CSM during 2024 is an increase of £15.2m. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. 52 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT FINANCIAL REVIEW IFRS INCOME STATEMENT Group IFRS Pre-Tax Profit of £20.8m represents a £19.1m year on year increase versus 2023. £20.8M 2023 restated: £1.7m £(11.0)M 2023 restated: £10.2m IFRS PRETAX PROFIT TOTAL COMPREHENSIVE INCOME Net insurance service result Analysis of IFRS result: The net insurance service result comprises the revenue and expenses from providing insurance Restated services to policyholders and ceding insurance business to reinsurers and is in respect of current 31 Dec 2024 31 Dec 2023 and past service only. £m £m Assumption changes, relating to future service, are excluded from the insurance result (as they Net insurance service result 8.6 (5.2) adjust the CSM), unless the CSM for a given portfolio of contracts falls below zero; thereby in a ‘loss component’ position. Economic impacts are also excluded from the insurance service result. Net investment result 52.7 71.7 The net insurance service result of £8.6m is broken down into the following elements: Fee, commission and other operating income 104.2 89.4 – gains from the release of risk adjustment and CSM of £22.2m (2023 restated: £23.2m). Other operating expenses (133.6) (149.9) These gains represent a consistent source of future profits for the Group. Financing costs (11.1) (11.0) – losses of £13.6m (2023 restated: £28.5m loss) caused by experience impacts and loss component Profit arising on business combinations and portfolio effects where portfolios of contracts with no CSM have suffered adverse impacts that would – 6.7 acquisitions otherwise be offset in the balance sheet if the CSM for those portfolios were positive. Net investment result Profit before income taxes 20.8 1.7 The net investment result contains the investment return earned on all assets together with the Income tax (charge)/credit (16.9) 16.9 financial impacts of movements in insurance and investment contract liabilities. The investment results include policyholder tax impacts in the UK of £13.9m (2023: £14.2m) and the impact of effect Profit for the period after tax 3.9 18.6 of locked-in discount rates has contributed a further £4.3m (2023: £12.8m), largely in respect of Foreign exchange (loss)/gain (15.3) (7.8) groups of contracts in a loss component position and therefore partly offsetting the losses noted above in the insurance service result. Other comprehensive income 0.4 (0.6) Fee, commission and other operating income Total comprehensive income (11.0) 10.2 The most significant item in this line is the fee income that is charged to policyholders in respect of the asset management services provided for investment contracts. There is no income in respect Movement in IFRS Capital Base † of insurance contracts in this line, as this is all now reported in the insurance result. Total fee, commission and operating income in the year was £104.2m (2023: £89.4m) and was Opening IFRS Capital Base 479.4 469.2 £73.4m net of Swedish policyholder yield tax (2023: £71.5m). The year on year values are comparable with equity market returns in the UK and Sweden, with the retention of pension Movement in CSM (net of reinsurance and tax) 15.2 34.5 business in Sweden being the largest contributory factor. Total comprehensive income (11.0) 10.2 Other adjustments made directly to shareholders’ equity 2.1 0.9 Other operating expenses Other operating expenses consist of costs relating to the management of the Group’s investment Dividends (36.5) (35.4) contracts, non-attributable costs relating to the Group’s insurance contracts and other certain one-off costs such as project costs. Closing IFRS Capital Base 449.1 479.4 Other items of note are the impairment and amortisation of intangible assets in respect of investment business and the payment of yield tax relating to policyholder investment funds in Movestic, for which there is a corresponding offset within the fee income line. After removing the impacts of policyholder yield tax (£30.8m in 2024 and £17.9m in 2023) and the impact of the AVIF impairment (£21.0m) from the prior year, the other operating expenses in the year are £102.8m (2023: £111.0m). CHESNARAANNUALREPORTANDACCOUNTS202453 STRATEGIC REPORT FINANCIAL REVIEW IFRS INCOME STATEMENT Financing costs Other comprehensive income This predominantly relates to the cost of servicing our Tier 2 corporate debt notes which were issued This represents the impact of movements in the valuation of land and buildings held in our in early 2022. Further details can be found in Note C5 of the financial statements. Dutch division. Profit arising on business combinations and portfolio acquisitions Income tax The portfolio acquisition of unit-linked bond and pension business from Canada Life in December Income tax consists of both current and deferred taxes. 2024 is not classed as a business combination under IFRS accounting and has therefore been The income tax expense of £16.9m in 2024 predominately arises from a UK deferred tax charge, accounted for as an ‘asset and liability’ transfer at cost, with no day 1 gain. The acquisition of the driven by the investment returns on assets backing policyholder liabilities. Under current UK tax Conservatrix insurance portfolio in 2023 did meet the requirements of a business combination and legislation, these investment returns are taxed over a seven-year period, leading to the deferred the resulting day 1 gain is reported within the 2023 income statement. tax impact. Foreign exchange Although current tax charges are being offset by carried-forward tax losses (Excess Expenses) from The IFRS consolidated result of the Group reflects a foreign exchange loss of £15.3m in the period, a prior periods, these losses had already been fully recognised as a deferred tax asset by year end consequence of sterling appreciation, against both the euro and the Swedish krona. The loss is partly 2023. As a result, their utilisation in 2024 does not reduce tax expense but instead triggers a deferred offset by a £4.0m gain from foreign exchange rate hedges, reported within the investment result. tax charge. 54 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT FINANCIAL MANAGEMENT The following diagram illustrates the aims, approach and outcomes from the Financial Management Framework: OBJECTIVES The Group’s Financial Management Framework is designed to provide security for all stakeholders, while having regard for the expectations of policyholders, investors and regulators. Accordingly we aim to: Maintain solvency in Provide an attractive Optimise the gearing ratio Ensure there is sufficient Maintain the Group or above our normal return to investors to ensure an efficient liquidity to meet as a going concern operating range of capital base obligations to 140-160% policyholders, debt financiers and creditors HOW WE DELIVER OUR OBJECTIVES In order to meet our obligations we employ and undertake a number of methods. These are centred on: 1. Monitor and control risk 2. Longer-term projections 3. Responsible investment 4. Management actions & solvency management OUTCOMES Key outcomes from our financial management process, in terms of meeting our objectives, are set out below: 1. Solvency 2. Investor returns 3. Capital structure 4. Liquidity and 5. Maintain the Group policyholder returns as a going concern Group solvency ratio: 203% 2022-2024 TSR 17.4% Leverage ratio of 30.9% Policyholders’ reasonable Group remains (2023: 205%) (2021-2023: 14.7%) (2023: 29.6%) expectations maintained. a going concern. (see page 56) 2024 dividend yield 9.6% Asset Liability Matching (2023: 8.7%) Framework operated effectively in the year. Based on average 2024 share price and full year 2024 dividend Sufficient liquidity in the of 24.69p. Group holding company. Further detail on capital structure The Group is funded by a combination of share capital, retained earnings and debt finance. Debt The net proceeds of the notes has been partially used for corporate purposes, including the funding leverage was 30.9% at 31 December 2024 (29.5% at 31 December 2023). The level of debt that the of the CASLP acquisition in 2022 and the partial funding of the Conservatrix acquisition in 2023. Board is prepared to take on is driven by the Group’s Debt and Leverage Policy which incorporates The balance is held as investments. the Board’s risk appetite and has a long-term ambition to maintain IFRS leverage at 30% or less. Acquisitions are funded through a combination of debt, equity and internal cash resources. The ratios Over time, the Group’s debt leverage will change, and is a function of the funding requirements for of these three funding methods vary on a deal-by-deal basis and are driven by a number of factors future acquisitions and the repayment of existing debt. During 2022, the Company announced the including, but not limited, to the size of the acquisition; current cash resources of the Group; solvency successful pricing of its inaugural debt capital markets issuance of £200m Tier 2 Subordinated Notes. levels, the current gearing ratio and the Board’s risk tolerance limits for additional debt; the expected cash generation profile and funding requirements of the existing subsidiaries and potential acquisition; future financial commitments; and regulatory rules. In addition to the above, in the past, Movestic used a financial reinsurance arrangement to fund its new business operation. CHESNARAANNUALREPORTANDACCOUNTS202455 STRATEGIC REPORT FINANCIAL MANAGEMENT Outcomes from implementing our financial management objectives 3. Viability Statement Based on the results of the analysis above, the directors have a reasonable expectation that the 1. Maintain the Group as a going concern Company will be able to continue in operation and meet its liabilities as they fall due over the After making appropriate enquiries, the directors confirm that they are satisfied that the Company three-year period of their assessment. Although we produce business plans and other financial and the Group have adequate resources to continue in business for a period of twelve months from projections over longer time horizons, the selection of a three-year viability assessment recognises the date of this report. Accordingly, they continue to adopt the going concern basis in the preparation that the level of operating, regulatory and market certainty reduces towards the later years of the of the financial statements. projection time-frames. The three-year period also aligns with executive director LTIP performance In performing this work, the Board has considered the current solvency and cash position of the time frames. Group and Company, coupled with the Group’s and Company’s projected solvency and cash position 4. Assessment of prospects as highlighted in the most recent business plan and Own Risk and Solvency Assessment (ORSA) Our longer-term prospects are primarily assessed through the Group’s quarterly business forecasting process. These processes consider the financial projections of the Group and its subsidiaries on cycles and the annual business planning process. The Group’s performance projections include both a base case and a range of stressed scenarios, covering projected solvency, liquidity, and underlying operational deliverables, an assessment of the business model and the financial IFRS positions. These projections assess the cash generation of the life insurance divisions and consequences of following those plans. We also consider the principal risks and uncertainties how these flow up into the Group Centre Company balance sheet and support the Group’s debt that the Group faces (see pages 61 to 67) and how these might affect our prospects. repayments, shareholder dividends and the head office function of the Parent Company. Further insight into the immediate and longer-term impact of certain scenarios, covering solvency, An assessment of our prospects is shown below and is structured around our three strategic cash generation, can be found on page 48 under the section headed ‘Capital Management objectives: Sensitivities’. The directors believe these scenarios encompass the potential future impact of Value from in-force book: The Group has c1m policies in force at 31 December 2024. These are the prevailing economic uncertainty on the Group. The following key assumptions underpin the generally long-term policies, and the associated cash flows can, at an overall portfolio level, be sensitivity analyses: reasonably well predicted on base case and stressed scenarios. The Group is well capitalised at both a Group and divisional level and we have high quality assets backing our insurance liabilities. – Economic assumptions: long-term investment returns reflecting current investment portfolio mix. During the year, we have seen a rise in yields in the UK and Sweden and a small reduction in – Operating assumptions: based on most recent actuarial assumptions for mortality and morbidity, euro-denominated yields. Coupled with rising equity indices, this has contributed positively overall lapses and expenses. to the Group’s solvency coverage. We are mindful that in uncertain economic times, this situation – New business volumes: future sales and margins in line with the Board-approved business plan. can reverse, leading to sustained depressed equity market values and an adverse impact on – Acquisitions: the Group does not engage in future M&A activity. fee-related income streams. Similarly, adverse movements in yields would adversely impact our prospects, potentially increasing the value of the Group’s liabilities and associated capital As set out in pages 46 to 48, the Group’s capital position is resilient to a wide range of adverse requirements. Temporary market volatility is a natural feature of investment markets, and the economic and operating scenarios. Group is well positioned to withstand adverse economic scenarios without creating any permanent harm to the longer-term profitability prospects. The Group also holds cash significantly in excess of requirements to meet its debt obligations as they fall due and does not rely on the renewal or extension of bank facilities to continue trading. Acquisition strategy: The outlook and prospects of continuing to deliver against this strategic This position was further enhanced in early 2022, when the Company announced the successful objective are covered on pages 40 to 45. We see no reason to expect that periods of economic pricing of its inaugural debt capital markets issuance of £200m Tier 2 Subordinated Notes, the net uncertainty will have a long-term impact on the availability of acquisition opportunities. Indeed, we proceeds of which have been used for corporate purposes, including investments and acquisitions. have proactively assessed a number of acquisition opportunities across 2024. This has included our participation in multiple due diligence processes, primarily on a bilateral basis, as well as work The Group’s subsidiaries rely on cash flows from the maturity or sale of fixed interest securities on legal documentation. We announced another UK acquisition on 23 December and our second which match certain obligations to policyholders, which brings with it the risk of bond default. portfolio deal with Canada Life. Our latest acquisition involves the acquisition of a portfolio of c17k To manage this risk, we ensure that our bond portfolio is actively monitored and well-diversified. onshore bond and personal pensions. We expect an uplift in Economic Value of around £11m from Other significant counterparty default risk relates to our principal reinsurers. We monitor their the deal against the £2m of consideration paid. The first step of the deal has been executed by way financial position and are satisfied that any associated credit default risk is within acceptable of a reinsurance agreement between both parties. risk-appetite levels. We retain significant fire power for future acquisitions and can immediately deploy around £200m 2. Assessment of viability in support of deals. We have additional financing options available as well, should we have the The Board’s assessment of the viability of the Group is performed in conjunction with its going opportunity to execute a larger value enhancing opportunity. concern assessment and considers both the time horizons required for going concern, and the slightly longer-term timelines for assessing viability. The assessment for viability also considers Value from new business: The Group’s prospects are not significantly reliant on sustained new the same key financial metrics as for assessing going concern, being solvency, cash, EcV and IFRS, business volumes. New business levels have contributed positively to the Own Funds of the Group both on base case and stressed scenarios. throughout 2024. Our business fundamentals such as Assets Under Administration (AuA), policy volumes, new business market shares and expenses have all proven resilient to the impact of economic uncertainty. This, together with the positive assessment of our core strategic objectives and a line of sight to positive management actions over the planning period, leaves us well positioned to deliver ongoing positive outcomes for all stakeholders. 56 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 We continue to monitor the volatile global economic and geopolitical backdrop that appears to have become the new normal. Our solvency position remains strong, and our financial sensitivities remain well within the Board’s risk appetite. GAVIN HUGHES, CHIEF RISK OFFICER RISK MANAGEMENT CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 57 STRATEGIC REPORT RISK MANAGEMENT Managing risk is a key part of our business model. We achieve this by understanding the current and emerging risks to the business, mitigating them where appropriate and ensuring they are appropriately monitored and managed. RISK MANAGEMENT SYSTEM The Group adopts the ‘three lines of defence’ model, with a single set of risk and governance principles applied consistently across the business. RISK MANAGEMENT SYSTEM REVIEW CLEAR ACCOUNTABILITIES AND DEVELOPMENT AND RESPONSIBILITIES In all divisions, we maintain processes for identifying, evaluating and managing all material risks faced by the Group, which are regularly reviewed by the divisional and Group Senior Leadership Teams and Audit & Risk STRATEGY Committees. Our risk assessment processes have regard to the significance of risks, the likelihood of their occurrence The risk management strategy contains the objectives and principles of risk management, the risk appetite, and take account of the controls in place to manage them. risk preferences and risk tolerance limits. The processes are designed to manage the risk profile within the Board’s approved risk appetite. Group and divisional risk management processes are enhanced by stress and scenario testing, which evaluates the impact of certain adverse events occurring separately or in combination. The results, conclusions and any recommended actions are included within divisional and POLICIES Group ORSA Reports to the relevant Boards. There is a The risk management policies implement the risk management strategy and provide a set of principles strong correlation between these adverse events and the (and mandated activities) for control mechanisms that take into account the materiality of risks. risks identified in ‘Principal risks and uncertainties’ (pages 61 to 67). The outcome of this testing provides context against which the Group and divisions can assess whether any changes to its risk appetite or to its management processes are required. PROCESSES The risk management processes ensure that risks are identified, measured/assessed, monitored and reported to support decision making. REPORTING The risk management reports deliver information on the material risks faced by the business and evidence that principal risks are actively monitored and analysed and managed against risk appetite. 58 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT RISK MANAGEMENT ROLE OF THE BOARD The Group Board is responsible for monitoring the Group Risk Management System and carrying out a review of its effectiveness on an annual basis. The Group and its divisions have a defined risk strategy and supporting Risk Appetite Framework to embed an effective Risk RISK STRATEGY Management Framework, with culture and processes at its heart, and to create a holistic, transparent and focused approach to risk AND RISK APPETITE identification, assessment, management, monitoring and reporting. On the recommendation of the Audit & Risk Committee, the Chesnara Board approves a set of risk preferences which articulate, in simple terms, the desire to increase, maintain, or reduce the level of risk taking for each main category of risk. The risk position of the business is monitored against these preferences using risk tolerance limits, where appropriate, and they are taken into account by the management teams across the Group when taking strategic or operational decisions. The Group has a set of Risk and Control Policies that set out the key policies, processes and controls to be applied. Senior RISK AND CONTROL management is responsible for the day-to-day implementation of the Risk and Control Board Policies. Subject to the materiality POLICIES of changes, the Chesnara Board approves the review, updates and attestation of these policies at least annually. The Board is considering the provisions of the new UK Corporate Governance Code, including the arrangements to implement and report on Provision 29 (effective for accounting periods beginning on or after 1 January 2026) in relation to the effectiveness of internal controls. The Group maintains a Risk Register of risks which are specific to its activity and reports these, along with the principal risks RISK IDENTIFICATION of each business unit, to the Group A&RC on at least a quarterly basis. On an annual basis the Board approves, on the recommendation of the Audit & Risk Committee, the materiality criteria to be applied in the risk scoring and in the determination of what is considered to be a principal risk. At least quarterly, the principal and emerging risks are reported to the relevant Boards, assessing their proximity, probability and potential impact. On an annual basis, or more frequently if required, the Group produces a Group ORSA Report which aggregates the divisional OWN RISK AND SOLVENCY ORSA findings and supplements these with an assessment specific to Group activities. The Group and divisional ORSA policies ASSESSMENT ORSA outline the key processes and contents of these reports. The Chesnara Board is responsible for approving the ORSA, including steering in advance how the assessment is performed and challenging the results. The primary objective of the ORSA is to support the Company’s strategic decision making, by providing insights into the Company’s risk profile over the business planning horizon. Effective ORSA reporting supports the Board, in its role of protecting the viability and reputation of the Company, reviewing and challenging management’s strategic decisions and recommendations. The Group and its divisions undertake a formal annual review of and attestation to the effectiveness of the Risk Management RISK MANAGEMENT System. The assessment considers the extent to which the Risk Management System is embedded. SYSTEM EFFECTIVENESS The Chesnara Board is responsible for monitoring the Risk Management System and its effectiveness across the Group. The outcome of the annual review is reported to the Group Board which makes decisions regarding its further development. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 59 STRATEGIC REPORT RISK MANAGEMENT EMERGING RISKS On a regular basis, the senior management teams scan the horizon to identify potential risk events (e.g. political; economic; technological; environmental, legislative & social), assessing potential outcomes in terms of threats and opportunities. This section provides details on some of the emerging risks that have been kept under close watch during 2024. GEOPOLITICAL RISK ARTIFICIAL INTELLIGENCE AI Geopolitical risk continues to create a greater level of uncertainty across the Group risk profile, Developments in the field of AI mean companies are looking towards both self-developed and for example market volatility and investment performance. To name some examples, the ongoing externally acquired AI applications, often with the aim to automate or optimise existing processes conflict between Ukraine and Russia, unrest in the Middle East and growing tensions between and sub-processes. As a result, financial services organisations are entering the AI space, with many China and Taiwan all continue to be areas of emerging risk for the Group, in the sense that these looking at incorporating it into their long-term strategies. are evolving situations which have potential implications for the Group’s principal risks. The Group is exploring the use of Artificial Intelligence, including the risks and opportunities arising During 2024, more than 40 countries, accounting for over 40 percent of the world, held national from developments in the field of AI. elections, making it the largest year for global democracy. Against a backdrop of geopolitical tensions The EU Artificial Intelligence Act officially came into force in August 2024. The regulations are and economic instability, significant political change is happening: designed to ensure that AI systems are safe, transparent, and respect fundamental rights while – The UK’s Conservative Party was heavily defeated after 14 years in power. Labour’s first Budget promoting innovation within the EU. announced significant changes impacting business owners and employers, with an anticipated inflationary impact. In 2024, the UK has continued to develop its approach to AI regulation with a focus on balancing innovation and security. The UK government has adopted a principles-based, cross-sector framework – In the US, former president Donald Trump was re-elected with a decisive victory. Pledges made for AI regulation. Various regulators, including the FCA and the Information Commissioner’s Office around tariffs and trade wars could impact inflation, global markets and economic growth. (ICO) have been updating their strategic approaches to AI. The long-term effects of his policies are unpredictable but could bring significant turbulence. SUSTAINABILITY MACROECONOMIC VOLATILITY Sustainability and the response to the challenges and opportunities presented continues to be a Global economic growth is experiencing fluctuations due to various factors, including geopolitical key focus in the UK and Europe and is an evolving area of potential risk for the business. The 2030 tensions, supply chain disruptions, and changes in consumer behaviour. It was anticipated that 2024 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, would see a number of interest rate cuts but inflation proved persistent, meaning central banks have however, in early 2025, the United States of America withdrew from the United Nations Sustainable been reluctant to ease interest rates too quickly. The future path of inflation remains difficult to Development Goals. The agenda provides a shared blueprint for peace and prosperity for people and predict, with most commentators forecasting a continuation of disinflation but with potential for the planet, now and into the future. At its heart are the 17 Sustainable Development Goals (SDGs), smaller shocks or further persistence in some areas. which are an urgent call for action by all countries – developed and developing – in a global Economic uncertainty remains a prominent emerging risk for the Group, with inflation driven expense partnership. The SDGs and the potential risks they look to address cover areas including poverty, risk and future market risk exposures being the potential key areas with greatest potential impact. inequality, climate change, environmental degradation, peace, and justice. – Many of the Group’s material supplier contracts, as well as a majority of the Group’s internal costs, Of these, a prominent area of focus across the UK and the EU is the financial risks of climate change. are directly linked to wage/price inflation measures. 2024 was the hottest year on record and the first calendar year to exceed the 1.5°C warming – Changes in market conditions can affect the Group’s capital position, future growth and long-term threshold of the Paris Agreement, with the global average at 1.6°C, and an understanding of the investment performance. potential impacts on businesses is developing. The need for organisations, businesses and wider society to take action is clear and to support this, the Group has published its sustainability strategy together with its initial targets. This is an integral part of the Company’s overall strategy and will look to address current and forthcoming sustainability- related risks. The risk information on the following pages includes specific commentary, where appropriate, on the impact of emerging events on our principal risks. The following tables outline the principal risks and uncertainties of the Group and the controls in place to mitigate KEY or manage their impact. It has been drawn together following regular assessment, performed by the Audit & Risk HEIGHTENED Committee, of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The impacts are not quantified in the tables. However, by virtue of the risks being NO MATERIAL CHANGE defined as principal, the impacts are potentially significant. Those risks with potential for a material financial impact LESSENED are covered within the sensitivities on page 48. 60 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT RISK MANAGEMENT PRINCIPAL RISKS AND UNCERTAINTIES INVESTMENT AND LIQUIDITY RISK PR1 Exposure to financial losses or value reduction POTENTIAL IMPACT Market risk results from fluctuations in asset values, foreign exchange rates and interest rates and has the potential to affect the arising from adverse movements in currency, Group’s ability to fund its commitments to customers and other creditors, as well as pay a return to shareholders. investment markets, counterparty defaults, Chesnara and each of its subsidiaries have obligations to make future payments, which are not always known with certainty in terms or through inadequate asset liability matching. of timing or amounts, prior to the payment date. This includes primarily the payment of policyholder claims, reinsurance premiums, debt repayments and dividends. The uncertainty of timing and amounts to be paid gives rise to potential liquidity risk, should the RISK APPETITE funds not be available to make payment. The Group accepts this risk but has controls in place to prevent any increase or decrease in the risk Other liquidity issues could arise from counterparty failures/credit defaults, a large spike in the level of claims or other significant exposure beyond set levels. These controls will result unexpected expenses. in early intervention if the amount of risk approaches Worldwide developments in environmental, social, and governance (ESG) responsibilities and reporting have the potential to those limits. influence market risk in particular, for example the risks arising from transition to a carbon neutral industry, with corresponding changes in consumer preferences and behaviour. KEY CONTROLS RECENT CHANGE/OUTLOOK – Regular monitoring of exposures and performance; There remains a high level of uncertainty in the external operating environment with a varied outlook globally. – Asset liability matching; – Maintaining a well-diversified asset portfolio; Uncertainty around geopolitics and monetary policy may bring continued market volatility and potential for shocks. Escalating tariffs could impact inflation, equity – Holding a significant amount of surplus in highly liquid ‘Tier 1’ assets such as cash and gilts; and credit markets. – Utilising a range of investment funds and managers to avoid significant concentrations of risk; With greater global emphasis being placed on environmental and social factors – Having an established investment Governance Framework to provide review and oversight of external fund managers; when selecting investment strategies, the Group has an emerging exposure to – Regular liquidity forecasts; ‘transition risk’ arising from changing preference and influence of, in particular, – Considering the cost/benefit of hedging when appropriate; institutional investors. This has the potential to result in adverse investment – Actively optimising the risk/return trade-off between yield on fixed interest assets compared with the associated returns on any assets that perform poorly as a result of ‘ESG transition’. balance sheet volatility and potential for defaults or downgrades; and Work is ongoing to embed sustainability into the wider strategy of the Group. – Giving due regular consideration (and discussing appropriate strategies (with fund managers)) to longer-term global Ongoing global conflict brings additional economic uncertainty and volatility changes that may affect investment markets, such as climate change. to financial markets. This creates additional risk of poor mid-term performance on shareholder and policyholder assets. REGULATORY CHANGE RISK PR2 The risk of adverse changes in industry POTENTIAL IMPACT The Group currently operates in three main regulatory domains and is therefore exposed to potential for inconsistent application practice/regulation, or inconsistent application of regulatory standards across divisions, such as the imposition of higher capital buffers over and above regulatory minimum of regulation across territories. requirements. Potential consequences of this risk for the Group are the constraining of efficient and fluid use of capital within the Group or creating a non-level playing field with respect to future new business/acquisitions. RISK APPETITE Regulatory developments continue to drive a high level of change activity across the Group, with items such as operational The Group aims to minimise any exposure to this resilience, climate change, Consumer Duty and ESG reporting being particularly high profile. Such regulatory initiatives carry risk, to the extent possible, but acknowledges that the risk of expense overruns should it not be possible to adhere to them in a manner that is proportionate to the nature and scale it may need to accept some risk as a result of carrying of the Group’s businesses. The Group is therefore exposed to the risk of: out business. KEY – incurring one-off costs of addressing regulatory change as well as any permanent increases in the cost base to meet enhanced ongoing standards; HEIGHTENED – erosion in value arising from pressure or enforcement to reduce future policy charges; NO MATERIAL CHANGE – erosion in value arising from pressure or enforcement to financially compensate for past practice; and – regulatory fines or censure in the event that it is considered to have breached standards or fails to deliver changes to the required LESSENED regulatory standards on a timely basis. CHESNARAANNUALREPORTANDACCOUNTS202461 STRATEGIC REPORT RISK MANAGEMENT PRINCIPAL RISKS AND UNCERTAINTIES REGULATORY CHANGE RISK CONTINUED PR2 KEY CONTROLS RECENT CHANGE/OUTLOOK The Group seeks to limit any potential impacts of regulatory There continues to be active regulatory agendas across the territories in which we operate. change on the business by: The UK Treasury and EIOPA have both been undertaking a review of SII rules implementation. In the UK, this resulted in a reduction – Having processes in place for monitoring changes, to enable in the SII Risk Margin and similar is expected for the overseas entities from the EIOPA review. The European Parliament approved timely actions to be taken, as appropriate; the final text of the Solvency II review in 2024 with the Solvency II Directive amended on 5 November 2024. It is expected once – Maintaining strong open relationships with all regulators, fully entered into force Member States will have two years to transpose it. and proactively discussing their initiatives to encourage There is also potential for divergence of regulatory approaches amongst European regulators, with potential implications for a proportional approach; the Group’s capital, regulatory supervision and structure. – Being a member of the ABI and equivalent overseas organisations and utilising other means of joint industry representation; The Group is subject to evolving regimes governing the recovery, resolution or restructuring of insurance companies. As part of the global regulatory response to the risk that systemically important financial institutions could fail, banks, and more recently insurance – Performing regular internal reviews of compliance with companies, have been the focus of new recovery and resolution planning requirements developed by regulators and policy makers regulations; and nationally and internationally. The PRA is expected to publish a policy statement in the near future following CP2/24 Solvent exit – Utilising external specialist advice and assurance, planning for insurers. UK Insurers will be required to prepare a Solvent Exit Analysis (SEA) as part of BAU activities. when appropriate. In July 2022, the FCA published final rules for a new Consumer Duty and response to feedback to CP21/36 – A New Consumer Duty. Regulatory risk is monitored and scenario tests are performed The Consumer Duty regulations set higher and clearer standards of consumer protection across financial services and require firms to understand the potential impacts of adverse political, regulatory to act to deliver good outcomes for customers. The first key regulatory deadline of 31 July 2023 required implementation for new or legal changes, along with consideration of actions that may be business, whilst all products including closed books must be compliant by 31 July 2024. Our UK business established a Consumer taken to minimise the impact, should they arise. Duty project which delivered all requirements across its businesses within the FCA deadline. The Group has also been progressing activity to implement major regulatory driven operational resilience programmes including UK Operational Resilience, UK Third Party Risk Management and EU Digital Operational Resilience Act. ACQUISITION RISK PR3 The risk of failure to source acquisitions that meet the Group’s criteria POTENTIAL IMPACT The acquisition element of the Group’s growth strategy is dependent on the availability of attractive or the execution of acquisitions with subsequent unexpected financial future acquisition opportunities. Hence, the business is exposed to the risk of a reduction in the losses or value reduction. availability of suitable acquisition opportunities within the Group’s current target markets, for example arising as a result of a change in competition in the consolidation market or from regulatory RISK APPETITE change influencing the extent of life company strategic restructuring. The Group has a patient approach to acquisition and generally expects Through the execution of acquisitions, the Group is also exposed to the risk of erosion of value or acquisitions to enhance EcV and expected cash generation in the medium financial losses arising from risks inherent within businesses or funds acquired which are not term (net of external financing), though each opportunity will be assessed adequately priced for or mitigated as part of the transaction. on its own merits. KEY CONTROLS RECENT CHANGE/OUTLOOK The Group’s financial strength, strong relationships and reputation as a ‘safe hands acquirer’ During 2024, the Group announced a second portfolio acquisition from Canada Life which will via regular contact with regulators, banks and target companies enables the Company to adopt see a closed portfolio of unit-linked bonds and legacy pension business transfer to Chesnara’s a patient and risk-based approach to assessing acquisition opportunities. Operating in multi- UK subsidiary. territories provides some diversification against the risk of changing market circumstances There remains a positive pipeline of activity in relation to acquisitions, with the Group also looking in one of the territories. Consideration of additional territories within Western Europe remains at whether further M&A is possible in Sweden. on the agenda, if the circumstances of entry meet the Group’s stated criteria. The successful Tier 2 debt raise in 2022, in addition to diversifying the Group’s capital structure, The Group seeks to limit any potential unexpected adverse impacts of acquisitions by: has provided additional flexibility in terms of funding the Group’s future growth strategy. – Applying a structured Board approved risk-based Acquisition Policy including CRO involvement in the due diligence process and deal refinement processes; – Having a management team with significant and proven experience in mergers and acquisitions; and – Adopting an appropriate risk appetite and pricing approach. 62 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT DEMOGRAPHIC EXPERIENCE RISK PR4 Risk of adverse demographic experience POTENTIAL IMPACT If demographic experience (rates of mortality, morbidity, persistency etc.) deviates from the assumptions underlying product pricing compared with assumptions (such as rates and subsequent reserving, more or less profit will accrue to the Group. of mortality, morbidity, persistency etc.). The effect of recognising any changes in future demographic assumptions at a point in time would be to crystallise any expected future gain or loss on the balance sheet. RISK APPETITE The Group accepts this risk but restricts its exposure, If mortality or morbidity experience is higher than that assumed in pricing contracts (i.e. more death and sickness claims are made to the extent preferred, through the use of reinsurance than expected), this will typically result in less profit accruing to the Group. and other controls. Early warning trigger monitoring is in place to track any increase or decrease in the risk If persistency is significantly lower than that assumed in product pricing and subsequent reserving, this will typically lead to reduced exposure beyond a set level, with action taken to Group profitability in the medium to long term, as a result of a reduction in future income arising from charges on those products. address any impact as necessary. The effects of this could be more severe in the case of a one-off event resulting in multiple withdrawals over a short period of time (a ‘mass lapse’ event). KEY CONTROLS RECENT CHANGE/OUTLOOK The Group performs close monitoring of persistency levels across all groups of business to support Continued cost of living pressures could give rise to higher surrenders and lapses should best estimate assumptions and identify trends. There is also partial risk diversification in that the customers face personal finance pressures and not be able to afford premiums or need to Group has a portfolio of annuity contracts where the benefits cease on death. access savings. The Group continues to monitor closely and respond appropriately. The Group seeks to limit the impacts of adverse demographic experience by: Since 2020, we have seen mortality experience in the Netherlands in excess of expectations due to the direct and indirect consequences of the COVID-19 pandemic. This is reflected in the – Aiming to deliver good customer service and fair customer outcomes; shorter-term assumptions but anticipated to fade away in the longer-term assumptions, in line – Having effective underwriting techniques and reinsurance programmes, including the application with industry practice/standard tables. of ‘Mass Lapse reinsurance’, where appropriate; Any prolonged stagnation of the property market could reduce protection business sales – Carrying out regular investigations, and industry analysis, to support best estimate assumptions compared to plan, particularly in the Netherlands. and identify trends; – Active investment management to ensure competitive policyholder investment funds; and Following the introduction of new legislation in 2022 making it easier for customers to transfer insurance policies in Sweden, the transfer market remains very active. This risk continues to be – Maintaining good relationships with brokers, which is independently measured via yearly external actively monitored. surveys that consider brokers’ attitudes towards different insurers. EXPENSE RISK PR5 Risk of expense overruns and unsustainable POTENTIAL IMPACT The Group is exposed to expenses being higher than expected as a result of one-off increases in the underlying cost of performing unit cost growth. key functions, or through higher inflation of variable expenses. RISK APPETITE A key underlying source of potential increases in regular expense is the additional regulatory expectations on the sector. The Group aims to minimise its exposure to this risk, For the closed funds, the Group is exposed to the impact on profitability of fixed and semi-fixed expenses, in conjunction with to the extent possible, but acknowledges that it a diminishing policy base. may need to accept some risk as a result of carrying out business. For the companies open to new businesses, the Group is exposed to the impact of expense levels varying adversely from those assumed in product pricing. Similarly, for acquisitions, there is a risk that the assumed costs of running the acquired business allowed for in pricing are not achieved in practice, or any assumed cost synergies with existing businesses are not achieved. CHESNARAANNUALREPORTANDACCOUNTS202463 STRATEGIC REPORT RISK MANAGEMENT PRINCIPAL RISKS AND UNCERTAINTIES EXPENSE RISK CONTINUED PR5 KEY CONTROLS RECENT CHANGE/OUTLOOK For all subsidiaries, the Group maintains a regime of budgetary control. The Group has an ongoing expense management programme and various strategic projects aimed at controlling expenses and seeking opportunities to exploit efficiencies/synergies, whilst ensuring we have – Movestic and Scildon assume growth through new business such that the general unit the capabilities and capacity to support our growth ambitions, whilst continuing to keep tight cost control. cost trend is positive; Acquisitions also present opportunities for unit cost reduction and the UK business announced a – The Waard Group pursues a low cost-base strategy using a designated service company. long-term strategic partnership with Fin Tech market leader SS&C Technologies (‘SS&C’) in May 2023, The cost base is supported by service income from third party customers; to provide policy administration services to the Group’s UK division. – Countrywide Assured pursues a strategy of outsourcing functions with charging structures such that the policy administration cost is more aligned to the book’s run off profile; and The merger of our businesses in the Netherlands is anticipated to create a more sustainable business with the potential for further synergies. – With an increased current level of operational and strategic change within the business, a policy of strict project budget accounting discipline is being upheld by the Group for all Through its exposures to investments in real asset classes, both direct and indirect, Chesnara has an material projects. indirect hedge against the effects of inflation and will consider more direct inflation hedging options should circumstances determine that to be appropriate. OPERATIONAL RISK PR6 Significant operational failure/business POTENTIAL IMPACT The Group and its subsidiaries are exposed to operational risks which arise through daily activities and running of the business. continuity event. Operational risks may, for example, arise due to technical or human errors, failed internal processes, insufficient personnel resources or fraud caused by internal or external persons. As a result, the Group may suffer financial losses, poor customer RISK APPETITE outcomes, reputational damage, regulatory intervention or business plan failure. The Group aims to minimise its exposure to this risk, to the extent possible, but acknowledges that it Part of the Group’s operating model is to outsource support activities to specialist service providers. Consequently, a significant may need to accept some risk as a result of carrying element of the operational risk arises within its outsourced providers. out business. KEY CONTROLS RECENT CHANGE/OUTLOOK The Group perceives operational risk as an inherent part of the day-to-day running of the Significant operational change is underway across the Group particularly from the merger in the business and understands that it can’t be completely eliminated. However, the Company’s Netherlands and through the transition and transformation programme in the UK. This may bring objective is to always control or mitigate operational risks, and to minimise the exposure additional operational risk in the shorter term but is anticipated to significantly reduce the risk in the when it’s possible to do so in a convenient and cost-effective way. longer term. The Group seeks to reduce the impact and likelihood of operational risk by: In addition, advancements in operational risk management and control continue to be made as a result of major regulatory driven operational resilience programmes across the Group, as described below. – Monitoring of key performance indicators and comprehensive management information flows; Operational resilience remains a key focus for the business and high on the regulatory agenda following – Effective governance of outsourced service providers, in line with SS2/21 the regulatory changes published by the BoE, PRA and FCA. The Group continues to progress activity Outsourcing and Third Party Risk Management, including a regular financial under the UK operational resilience project. The next key regulatory deadline is 31 March 2025; the assessment. Appropriate contractual terms contain various remedies dependent deadline by which all firms should have sound, effective, and comprehensive strategies, processes, and on the adverse circumstances which may arise; systems that enable them to address risks to their ability to remain within their impact tolerance for each important business service (IBS) in the event of a severe but plausible disruption. To support this, the – Regular testing of business continuity plans; project is currently in the process of running a schedule of ‘real life severe but plausible’ scenario testing. – Regular staff training and development; The Digital Operational Resilience Act (DORA) entered into force in January 2023 and applied from – Employee Performance Management Frameworks; January 2025. It aims at strengthening the IT security of financial entities such as banks, insurance – Promoting the sharing of knowledge and expertise; and companies and investment firms and making sure that the financial sector in Europe is able to stay – Complementing internal expertise with established relationships with external resilient in the event of a severe operational disruption. Movestic, Scildon and Waard are considered to specialist partners. be materially compliant with the new regulations, taking account of their size and overall risk profile, as well as the nature, scale and complexity of their services, activities and operations. Through 2025, there will be further activity to fully embed DORA into business as usual operations, closing any residual gaps and completing the first round of regulatory reporting. Each division continues to carry out assurance activities through local business continuity programmes to ensure robust plans are in place to limit business disruption in a range of severe but plausible events. 64 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT ITDATA SECURITY & CYBER RISK PR7 Risk of IT/ data security failures or impacts of POTENTIAL IMPACT Cyber risk is a growing risk affecting all companies, particularly those who are custodians of customer data. The most pertinent malicious cyber-crime (including ransomware) risk exposure relates to information security (i.e. protecting business sensitive and personal data) and can arise from failure on continued operational stability. of internal processes and standards, but increasingly companies are becoming exposed to potential malicious cyber-attacks, organisation-specific malware designed to exploit vulnerabilities, phishing and ransomware attacks etc. The extent of the RISK APPETITE Group’s exposure to such threats also includes third party service providers. The Group aims to minimise its exposure to this risk, The potential impact of this risk includes financial losses, inability to perform critical functions, disruption to policyholder services, to the extent possible, but acknowledges that it loss of sensitive data and corresponding reputational damage or fines. may need to accept some risk as a result of carrying out business. KEY CONTROLS RECENT CHANGE/OUTLOOK The Group seeks to limit the exposure and potential impacts from IT/data security failures or cyber-crime by: The Group continues to invest in the incremental strengthening of its cyber risk resilience and response options. – Embedding the Information Security Policy and Group Cyber Response Framework in all key operations and development processes; During 2024, there have been no reports of any material – Seeking ongoing specialist external advice, modifications to IT infrastructure and updates as appropriate; data breaches. – Delivering regular staff training and attestation to the Information Security Policy; The risk of cyber-crime campaigns particularly originating – Regular employee phishing tests and awareness sessions; from state sponsored attacks remains heightened as a result – Ensuring that the Board maintains appropriate information technology and security knowledge; of the ongoing geopolitical unrest. – Conducting penetration and vulnerability testing, including third party service providers; During 2024, the Group has continued to test and seek – Executive Committee and Board level responsibility for the risk, including dedicated IT Security Committees with executive membership; assurance of the resilience to cyber risks, this has included: – Having established Group and supplier disaster recovery and business continuity plans which are regularly monitored and tested; – Completing a ransomware scenario test, which involved – Ensuring the Group’s outsourced IT service provider maintains relevant information security standard accreditation (ISO27001); one business unit, group crisis management team and – Monitoring network and system security including firewall protection, antivirus and software updates; and Group Board. A lessons learned session has been held with relevant actions identified; – The Group has cyber insurance in place which covers all of the UK operations including head office. Elsewhere in the Group, where cyber insurance is not in place, we are able to access support and resources (e.g. forensic analysis) through existing contracts with – Regular phishing testing and training campaigns; third parties. – Board training and awareness; and In addition, a designated steering group provides oversight of the IT estate and information security environment including: – Ongoing penetration testing and vulnerability management. – Changes and developments to the IT estate; Enhancements to the IT control environment have also been – Performance and security monitoring; made as a result of implementation of EU Digital Operational Resilience Act in our overseas business units, which came – Oversight of information security incident management; into effect on 17 January 2025. – Information security awareness and training; – Development of business continuity plans and testing; and – Overseeing compliance with the Information Security Policy. NEW BUSINESS RISK PR8 Adverse new business performance compared POTENTIAL IMPACT If new business performance is significantly lower than the projected value, this will typically lead to reduced value growth in the with projected value. medium to long term. A sustained low-level performance may lead to insufficient new business profits to justify remaining open to new business. RISK APPETITE The Group does not wish to write new business that does not generate positive new business value (on a commercial basis) over the business planning horizon. CHESNARAANNUALREPORTANDACCOUNTS202465 STRATEGIC REPORT RISK MANAGEMENT PRINCIPAL RISKS AND UNCERTAINTIES NEW BUSINESS RISK CONTINUED PR8 KEY CONTROLS RECENT CHANGE/OUTLOOK The Group seeks to limit any potential unexpected adverse impacts to new business by: Increased expenses and price pressure remains a risk for the ongoing viability of writing profitable new business across the Group and the Swedish transfer market remains active following regulatory changes – Monitoring quarterly new business profit performance; which give greater transfer freedom. – Investing in brand and marketing; Market share is currently being maintained in the Netherlands with activity to look at some broader – Maintaining good relationships with brokers; wealth products. – Offering attractive products that suit customer needs; In Sweden, action is being taken to diversify distribution partners whilst expanding product offering – Monitoring market position and competitor pricing, adjusting as appropriate; across unit-linked, custodian and life & health markets. – Maintaining appropriate customer service levels and experience; and The UK continues to write new business primarily through the onshore bond wrapper acquired as part of – Monitoring market and pricing movements. Sanlam Life & Pensions UK. REPUTATIONAL RISK PR9 Poor or inconsistent reputation with customers, POTENTIAL IMPACT The Group is exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, advisors, regulators, investors, staff or other key press speculation and negative publicity, disclosure of confidential client information (including the loss or theft of customer data), stakeholders/counterparties. IT failures or disruption, cyber security breaches and/or inadequate services, amongst others, whether true or not, could impact its brand or reputation. The Group’s brand and reputation could also be affected if products or services recommended by it (or any RISK APPETITE of its intermediaries) do not perform as expected (whether or not the expectations are realistic) or in line with the customers’ The Group aims to minimise its exposure to this risk, expectations for the product range. to the extent possible, but acknowledges that it Any damage to the Group’s brand or reputation could cause existing customers or partners to withdraw their business from the may need to accept some risk as a result of carrying Group, and potential customers or partners to elect not to do business with the Group and could make it more difficult for the out business. Group to attract and retain qualified employees. KEY CONTROLS RECENT CHANGE/OUTLOOK The Group seeks to limit any potential reputational damage by: The Group is exposed to strategic and reputational risks arising from its action or inaction as part of its sustainability strategy. This includes the risks – Regulatory publication reviews and analysis; – Operational and IT Data Security Frameworks; associated with not meeting our published targets and there are regulatory – Timely response to regulatory requests; – Product Governance and Remediation Frameworks; and reputational risks arising from our public disclosures on the matter through – Open and honest communications; – Appropriate due diligence and oversight of outsourcers the potential of unintentional greenwashing. and third parties; and – HR policies and procedures; The Group has a published sustainability strategy which aims to provide clear – Proactive stakeholder engagement with inclusivity – Fit & Proper procedures; and honest disclosure of the actions being taken, the rationale for those actions for all stakeholders. and areas of uncertainty. MODEL RISK PR10 Adverse consequences from decisions based POTENTIAL IMPACT The Group and each of its subsidiaries apply statistical, economic and financial techniques and assumptions to process input data on incorrect or misused model outputs, or fines into quantitative estimates. Inaccurate model results may lead to unexpected losses arising from inaccurate data, assumptions, or reputational impacts from disclosure of judgements, programming errors, technical errors, and misinterpretation of outputs. materially incorrect or misleading information. Potential risk impacts of inaccurate model results include: – Poor decisions, for example regarding business strategy, operational decisions, investment choices, dividend payments RISK APPETITE or acquisitions; The Group aims to minimise its exposure to this risk, to the extent possible, but acknowledges that it – Potentially overestimating the value of acquisitions resulting in over payment; may need to accept some risk as a result of carrying – Misstatement of financial performance or solvency, resulting in misleading key shareholders or fines; and out business. – Provision of inaccurate information to the Board on business performance resulting in poorly informed or delayed decisions. 66 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT MODEL RISK CONTINUED PR10 KEY CONTROLS RECENT CHANGE/OUTLOOK – Robust model Governance Framework and independent Model risk management is becoming an increased area of focus of the regulators, particularly in the UK banking industry, with PS6/23 and standards of ‘do-check-review’; SS1/23 becoming effective for bank and building societies on 17 May 2024, and an expectation that further guidance will follow for insurers. – Independent model validation & internal audit review; The Group is in the process of embedding a new aggregation model (Tagetik) that provides greater access control for Group consolidation on – Monitoring and reporting of risk appetite limits; both IFRS and SII bases. – Documented processes and policies; Many insurers, including Chesnara, are exploring the use of artificial intelligence, including the risks and opportunities arising. While this – Ongoing and regular data quality assessment checks; increases the opportunity to benefit from expense synergies, it also has the potential to introduce additional model risk. Conversely though, there are also opportunities to reduce model risk by applying machine learning techniques to validation and sense checking of results. – Model version control and user access restrictions; – Robust due diligence processes on acquisitions including As part of the Group’s operational resilience programme, the Group is undertaking a review of the operational resilience of its financial external support on model development/review; and reporting and modelling processes. This includes resilience scenario testing of the processes, and is expected to improve efficiency and model risk mitigation. – Intra-Group financial reporting planning, monitoring and delivery management. CLIMATE CHANGE RISK PR11 Exposure to adverse consequences POTENTIAL IMPACT Physical risks impacts of the physical or transitional risks – Extreme weather events such as floods, hurricanes, and wildfires can damage physical assets leading to direct business interruption as well as arising from climate change. indirect consequences due to the impact on the supply chain. – Sustained but gradual changes in the weather can also lead to both direct and indirect disruption of business operations, affecting everything RISK APPETITE from third parties to data centres. The Group aims to restrict its exposure to climate change risk, such that it can Transitional risks impacts continue to operate within the existing – New regulations aimed at reducing carbon emissions may impact the profitability of certain investments, particularly in carbon-intensive industries. risk tolerance limits for the associated – As the economy transitions to greener technologies, there may be shifts in market demand, affecting the value of investments in traditional risks and potential impacts. The risk energy sectors. impacts below can have a direct impact – Inflationary impacts from global climate policy failure, including on energy prices. on the operations of the Group and, more significantly, to the businesses within the – Reputational damage if we are seen to be failing to manage the effects of climate change or to deliver on our targets/commitments. Group’s investment universe. – Litigation risk if we are considered not to have published enough information or to have made unsubstantiated claims leading to ‘greenwashing’. KEY CONTROLS RECENT CHANGE/OUTLOOK – Quantitative analysis of the potential impact of To manage the risks associated with climate change, financial institutions are increasingly adopting advanced data and modelling techniques. climate change on our business; Additionally, regulatory bodies require financial institutions to perform climate scenario analyses to test their resilience to emerging climate-related financial risks. COP 29 emphasised the crucial role of non-party stakeholders such as businesses, investors and society, in driving global climate – Working towards embedding climate change risk action. The outcomes reflected the ongoing efforts to enhance global climate action and cooperation although it was made clear more ambition into investment and operational decision making and concrete plans are needed to meet the 1.5°C target. across the business; – Providing clear and honest disclosure on our In early 2025, the United States of America implemented a number of actions and executive orders that have potentially wide reaching implications targets and commitments and where there are for climate change and global action plans. areas of challenge and uncertainty for those targets; The Group has aligned its targets with the Paris Climate Agreement and aims to be net zero for all emissions by 2050. Our climate transition plan is – Robust Risk and Governance Frameworks; being developed using the IIGCC’s Net Zero Investment Framework 2.0 and is due to be published later this year. – Monitoring of associated KPIs; A Chesnara Group Climate Risk Report was produced for the first time in 2024 and was presented to the Board. The report includes an estimated impact – Using external data providers to provide groupwide on Own Funds from climate risk, demonstrating the potentially significant impact of climate change, and the mitigating actions that are being taken. ESG data on our asset portfolio; Whilst we consider climate change to be a cross-cutting risk, that manifests through other Principal risks (e.g. equity, credit, regulatory etc), the – Factoring an assessment of climate commitments Group has recently enhanced its climate change risk modelling by utilising MSCI data, and this has increased our assessment of the potential into the selection of prospective partners; and materiality of potential impacts in the longer term. It is a significant step forward in terms of coverage, granularity and robustness of Chesnara’s – Factoring sustainability-related risk analysis into the climate risk analysis compared to our previous approach and, as a result, climate change risk has been included as an explicit principal risk, to make due diligence completed on potential acquisitions. more explicit the exposure to potential adverse consequences of the physical and transitional risks that could arise from climate change. CHESNARAANNUALREPORTANDACCOUNTS202467 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY We are committed to transitioning to become Our Annual Sustainability Report (www.chesnara.co.uk/ We believe that sustainability is not solely for our Board and sustainability) provides detail on the work we are doing to leadership teams, and we have taken and will continue to take a sustainable group and manage our business become a sustainable Chesnara, including setting out our steps to educate, involve and support our workforce and other for the long-term benefit of all stakeholders, sustainability vision and targets. We want sustainability at the stakeholders, including our suppliers, in the delivery of our including our customers, investors, employees, heart of decision making at all levels across the business and sustainability strategy. In 2024, we delivered our groupwide are basing our work on the mantra of ‘Do no harm. Do good. Sustainability and Skills Development Programme for all staff. regulators, suppliers and partners, local Act now for later’. Our commitments are: In addition, the Group and divisional directors received training communities, and the planet. on transition planning, delivered by the Institutional Investors 1. Supporting a sustainable future, including our net zero Group on Climate Change (IIGCC). Each of our businesses transition plans. Transitioning to a sustainable group has also incorporated sustainability into its Investment Policy, 2. Making a positive impact, including our plans to invest in Investment Committee Terms of Reference and investment We have a clear corporate and social purpose. As a business, positive solutions. decision making. We are expanding this to capture all we help protect our customers and their families from the 3. Creating a fairer world, ensuring our Group is an inclusive policies across the business to ensure that sustainability economic impact of an early death through our product offering, environment for all employees, customers and stakeholders. is a key consideration. and help support them during retirement through pension and investment savings. We believe that stakeholder value creation These commitments have been developed with consideration of The sustainable management of our Assets Under Administration is best delivered through the embedded consideration of the UN Sustainable Development Goals. These 17 goals are an (AuA) is a critical component of our sustainability journey. environmental, social and governance issues. In this regard, urgent call to action to promote peace and prosperity for people In all three of our territories, we work with fund managers among our key considerations are the following strategic aims: and the planet, now and into the future. We’ll focus our activities that are committed to the UN SDGs and the UN’s Principles on those goals where we feel we can have the greatest impact; of Responsible Investment (UNPRI). Both Chesnara and – Care for our customers, helping them create financial security however, we will support all of the goals wherever possible. Movestic Livförsäkring are signatories to the UNPRI. As well now and for the future; as this, we are signatories to the UN Global Compact and will – Investments focusing on long-term sustainability and strong submit an annual Communication on Progress report setting Embedding sustainability financial solvency for the Company; out specific actions taken with regard to the four designated – Assessing and managing our impact on the planet and natural Embedding sustainability into decision making at all levels categories covering human rights, labour, environment and environment, including managing climate-related and wider across the Group is a fundamental part of what we are working anti-corruption. Chesnara is also a signatory of the Finance sustainability-related risks; and to achieve. This is vitally important as sustainability needs to be for Biodiversity Pledge. part of every strategic conversation. Our Annual Sustainability – Maintaining a long-term sustainable working environment for Our TCFD report on pages 74 to 91 describes our assessment Report (ASR) gives more detail on what we are going to do to our staff, suppliers and partners and local communities. of climate change risks and opportunities under four pillars – achieve this. Governance; Strategy; Risk Management; and Metrics and As described on pages 59 and 93 to 103, a key part of this Targets. Further regulatory and disclosure requirements around work includes the annual review of the effectiveness of our Risk sustainability are forthcoming and we will take measures Management System and the system of governance to ensure to ensure that we give full and appropriate disclosure of our that we can achieve our business objectives and safeguard the progress as these standards are issued. interests of our stakeholders. The overall conclusion from the review conducted in 2022 was that the Group has a stable and well understood risk profile, controlled by an effective and embedded system of governance. 68 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT OUR MANTRA DO NO HARM. DO GOOD. ACT NOW FOR LATER. CHESNARAANNUALREPORTANDACCOUNTS202469 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY OUR CUSTOMERS Customer care Health, safety and welfare at work Our actions are always underpinned by our focus on delivering good outcomes to customers. As a responsible business, we place primary importance on the health, safety and welfare of our We understand that every customer is different, yet everyone deserves good service. We are taking employees. We operate a hybrid working model across all of our geographies, taking into account action across the Group to continue to identify potential enhancements including some that can individual circumstances where necessary so that appropriate support can be provided. improve our customers’ experiences. A key part of this work in 2024 has been complying with the requirements of the UK Consumer Duty, including a review of our customer journeys and Our colleagues have access to a range of initiatives that benefit their physical and mental wellbeing, communications and completing fair value assessments of the products our customers have with us. including comprehensive health insurance, annual health checks and Employee Assistance Programmes. All staff are made aware of these benefits through contracts of employment, policies Our products and services and staff briefings. We offer and manage life and health insurance and pension products for our customers to help them Employees are supported by policies that promote a healthy work/life balance, including flexible meet their financial goals. We achieve this by paying attention to and understanding the customer’s working, compressed hours, summertime hours, remote working, enhanced maternity and paternity point of view, by regularly asking for feedback and by investigating any complaints thoroughly and leave, and paid sickness, bereavement and carers’ leave. They are also reminded of their duty to act promptly. Lessons learned from our interactions with customers are used to train and develop our responsibly and do everything possible to prevent injury to themselves and others. Management staff, make our processes more efficient and to take further steps to ensure our policyholders are teams across the Group monitor the level of sick leave and absence and, where necessary, they treated fairly. Our aim is to consistently exceed industry service standards. take appropriate action to address any issues identified. Relevant policies and procedures are reviewed on a regular basis so as to ensure that they meet Reuniting customers with their policies appropriate standards. Any hazards or material risks are removed or reduced to minimise or, where We appreciate that customers can lose touch with their policies due to business acquisitions, house possible, exclude the possibility of accident or injury to employees or visitors. moves, name changes and the passage of time, so we actively try to trace and recontact customers wherever possible. Equal opportunities and diversity The Group always aims to attract, promote and retain high quality candidates suitable for the roles Digitalisation within all its operations. Our approach is to be open, entrepreneurial, transparent and inclusive in Advancements in technology and data usage are having a significant impact on how business is how we select and manage our employees. conducted, and the way regular communication is taking place. We have continued to invest in digital We are committed to providing equal opportunities in employment and will continue to treat all technology and applications so that we can meet the expectations of our business partners and applicants and employees fairly regardless of race, age, gender, marital status, ethnic origin, religious customers, whilst maintaining the traditional contact methods for customers that are more beliefs, sexual orientation or disability. The Group has policies in place to ensure that no employee comfortable using that option. suffers discrimination, harassment or intimidation and to effectively address any issues that do come Regulatory compliance to light. We maintain an open and constructive relationship with the regulators in the jurisdictions we operate in. Understanding and implementing regulatory requirements is a key part of management responsibility, including the timely and accurate submission of information requested by the regulator. None of the business entities were subject to any regulatory intervention during 2024 and no penalties were imposed. 70 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT Employees with a disability 2024 2023 The Group endeavours to provide employment for people with a disability wherever the requirements Year end headcount Male Female Total Male Female Total of the business allow and if applications for employment are received from suitable applicants. Where an existing member of staff becomes disabled, every reasonable effort is made to achieve Directors of Chesnara plc 4 3 7 5 3 8 continuity of employment by making reasonable adjustments to give the staff member as much Group senior leaders 4 4 8 4 4 8 access to any training, promotion opportunities and employee benefits that would otherwise be available to any non-disabled employee. Executive management total 8 7 15 9 7 16 Staff training and development Executive management gender split % 53.3 46.7 56.3 43.8 Our employees are a key asset of the Chesnara business and we invest in our staff through individual and Group training and development plans. All staff are encouraged and supported Employees of the Group 190 181 371 175 175 350 to acquire relevant knowledge and build their skills and competence. Financial support is provided to staff who wish to achieve recognised qualifications that are appropriate for specific roles and the Total 198 188 386 184 182 366 needs of the business. Total gender split % 51.3 48.7 50.3 49.7 Fair pay We are a Living Wage employer, paying the real living wage in the UK. We also engage with our Note: The number of staff reported in the table above is based on the number of employees employed at the year end. suppliers to raise the profile of paying a wage that enables people to meet their everyday needs. This differs to the employee note, which is calculated based on average FTEs during the course of the year. All UK employees, subject to a minimum service requirement, have access to our SAYE scheme, improving employee engagement with company performance and directly linking a proportion of Gender diversity forms an important part of Chesnara’s selection and appointment process employee benefits to our performance. at Group level. Our gender disclosure workings include ‘non-binary’, ‘other’ and ‘prefer not to say’ as further categories of gender to ensure our categories of gender are fully inclusive for all staff. As we have done in previous years, the Remuneration Committee consulted with employees on the alignment of directors’ pay with UK employees ahead of the 2024 year. The same engagement has We define executive management as: non-executive and executive directors, Group senior since taken place in late 2024 for the 2025 calendar year. leaders and business unit CEOs. Details of our staff pay and benefits, and in relation to executive pay, are set out in the corporate The executive management data presented in the table is based on collected data. Other employees governance section as part of our Remuneration Report. of the Group are based on observational data, which we acknowledge as an area for improvement. We are working on collecting this data more formally from our Group where possible and enhancing the granularity of our data, noting there are limitations on what we can reasonably collect from our staff, and in particular in differing jurisdictions. The Corporate Governance Report contains further analysis of diversity on our Board and wider executive management. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 71 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY OUR CUSTOMERS Employee engagement Across our businesses, we provide high quality jobs with competitive remuneration along with appropriately remedied. Each of our divisions make use of stringent policies and procedures to requisite training and good working conditions. Regular contact with employees and keeping them ensure that the highest standards are met across the Group. These policies are made in accordance updated on business strategy, priorities and achievements is a key part of management responsibility with the relevant laws and regulations of the respective jurisdictions and are available in local at Chesnara. Frequent employee engagement has become even more important over the last few languages. Policies are reviewed on an annual basis and any changes made are communicated years given the shift to more remote working. Each of our businesses has a multi-channel approach to individuals throughout the Company. for effective employee communication such as regular updates from the CEO, monthly team and In the UK, the Audit & Risk Committee Chair is appointed as a Whistleblowing Champion, whose departmental meetings, Company briefings, discussions via Employee Forums, and the use of responsibilities are aligned to the prescribed requirements set out in the PRA’s Senior Managers employee surveys to highlight issues and drive any necessary change. Certification Regime. The policy is shared with all new joiners and whenever it is updated it is As the Workforce Engagement NED appointed by the Chesnara Board, Carol Hagh’s liaison with the provided to all existing employees. Similar arrangements are in place within our overseas divisions CEOs, HR teams and Employee Forum representatives has been invaluable in terms of independent with the policies being available in employees’ local languages. Confirmation was also received engagement with staff and also for the ongoing assessment of our culture and embedding of our that each material outsource service provider (OSP) has a Whistleblowing Policy in place which values across our UK, Swedish and Dutch divisions. is provided to all employees. Within the UK division, the Employee Forum has continued to meet on a monthly basis. This forum Our suppliers and business partners comprises staff members who represent each functional area, rotated from time to time, for the purposes of discussing any matters of concern or areas of interest for the staff and management. At Chesnara, we believe in developing mutually respectful and sustainable relationships with our suppliers and business partners. Our preference is to establish long-term relationships where they Our operations in Sweden and the Netherlands make similar use of Employee Forums, staff surveys, remain commercially competitive and operationally viable. This is achieved through a structured formal and informal employee engagement both at the individual, team and whole Company level. due diligence process before selection, followed by clear agreement of the business objectives, In the Scildon business, this is formalised through the operation of a Works Council and, in Sweden, consistent implementation of regulatory requirements and relevant policies, and effective attention staff representation is via a Working Environment Committee and a trade union. to resolving issues fully. We require our suppliers and business partners to apply high standards of ethical conduct in all their dealings with us and their other stakeholders. The Group’s aim is to continue to grow via acquisition of life assurance businesses and our due diligence plan incorporates an assessment of all relevant workforce matters which are reported We are conscious that through our outsourcing arrangements we indirectly utilise the services to the Board to assist its deliberations on any potential acquisition opportunities. of a much larger workforce and we seek to ensure that our suppliers are similarly adopting appropriate arrangements for proper engagement with their own workforces. Whistleblowing As part of our work to decarbonise our operations, in 2024 we have engaged a defined set of At Chesnara, we strongly encourage all employees, suppliers, customers, and other contracted suppliers to understand how they are taking action on climate change. This is the first step in parties experiencing concerns about any aspect of the Company’s work to come forward and creating a long-term supplier engagement initiative. report them. Our policies make sure anyone can voice concerns without fear of reprisal, and we strive to maintain effective mechanisms throughout our Group to ensure any concerns are 72 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT Human Rights and the Modern Slavery Act 2015 Human rights are the basic rights and freedoms that belong to all human beings regardless We have zero tolerance to financial crime, including money laundering and bribery and corruption. of nationality, gender, race, age, religion, language, physical or mental ability or any other Our Internal Control Framework includes the maintenance and review of a Gifts & Hospitality political, economic or social status. Such rights are protected by the rule of law through legal Register, the disallowance of any political contributions or inducements and careful consideration mechanisms designed to prevent abuse by those in positions of power. of any charitable donations. These controls act as a monitoring and prevention system. Policies are made available to all staff and they are required to attest that they have read and understood their Modern slavery is just one such form of human rights abuse. In addition to the freedom importance and application. There were no instances of money laundering or bribery or corruption of expression, human rights includes: in the period. – the right to life; Taxation – prohibition on torture; – the right to a fair trial; and We strive to ensure that we pay our fair share of tax across the Group and that we do so in a transparent manner. We adopt a responsible and open approach to taxation and, consequently, – the right to fair and just working conditions. pay the appropriate taxes due throughout the Group, details of which are set out in the respective The Group has zero-tolerance to the abuse of human rights and modern slavery and is committed Annual Report and Accounts for each of our operating entities. to acting ethically and with integrity in all of its business dealings and relationships. We seek to avoid causing or contributing to adverse human rights impacts by operating and enforcing effective Our communities systems and controls to ensure human rights abuse and modern slavery are not taking place Chesnara’s management and staff support local community initiatives to the extent deemed anywhere in the Group or its supply chains. appropriate given our financial responsibilities as a public limited company. Chesnara supports The Modern Slavery Act (2015) requires a commercial organisation over a certain size to publish charitable causes both locally and internationally, donating £9k across the Group during 2024 a slavery and human trafficking statement for each financial year. (2023: £36k). The Modern Slavery Act does not apply to our European divisions, but instead they adhere to the We have provided financial and non-financial assistance to charitable organisations including UNICEF, European Convention on Human Rights (ECHR) treaty which is similarly designed to protect people’s Sherpa, Justdiggit and Safenet. UK colleagues also can donate through a Give as You Earn scheme, human rights and basic freedoms. supported by the Charities Aid Foundation. In the UK, our Human Rights & Modern Anti-Slavery Policy is made available to our entire workforce Our people across the UK and Netherlands can take two days’ paid leave each year to volunteer. and is also available at www.chesnara.co.uk/sustainability/modern-anti-slavery-statement The planet There have not been any breaches of human rights or the Modern Slavery Act during the reporting period. We know that we have a commitment to do all we can to protect the planet and all of its inhabitants. Our work to tackle the climate and nature emergencies, including our net zero targets, is detailed in Anti-bribery and corruption our Annual Sustainability Report. In addition to other financial control policies, Chesnara has groupwide Anti-Money Laundering and Anti-Bribery & Corruption policies in place which are reviewed at least annually. Their scope includes all directors, employees and third-parties operating on behalf of the Group. CHESNARAANNUALREPORTANDACCOUNTS202473 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY • CLIMATE-RELATED FINANCIAL DISCLOSURES This report is in support of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD). The relevant TCFD recommendations have been referenced throughout the disclosures to show where they have been addressed. Our compliance with TCFD All disclosures in respect of the TCFD Recommendations and Recommended disclosures are on pages 74-91 with additional information such as illustrations and case studies included in the Annual Sustainability Report which is cross referenced where applicable throughout this section. Our Annual Sustainability Report Alongside the financial statements, the Group has published its 2024 Annual Sustainability Report (www.chesnara.co.uk/sustainability) and provides further detail on a number of items noted in this report which are referenced as appropriate. Steps to address climate-related risks during 2024 Development of our climate transition plan Complied with the Energy Updated our UK Expense Policy Embedded using the IIGCC’s Net Zero Investment Savings Opportunities to encourage sustainable travel sustainability into the Framework 2.0 underway Scheme Regulations 2014 acquisition process Delivered Joined UK Sustainable Investment Enhanced our climate risk modelling, Engaged with our largest sustainability training and Finance Association, Finance including assessing our Climate Value suppliers and asset managers to all employees for Biodiversity Foundation and at Risk (CvaR) on their climate strategy across the Group became a signatory to the Principles for Responsible Investment 74 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT GOVERNANCE The Chesnara Board sets the values and culture of how the business operates and the Group invests time and resources to ensure that the governance structures in place remain appropriate for the evolving business and regulatory landscape. Further information on the Group’s governance is provided in the corporate governance section. a) Board oversight of climate-related risks and opportunities The chart below sets out the Group reporting structure and how the Board has delegated climate-related risk and opportunity oversight to its various committees. CHESNARA GROUP BOARD Meets at least quarterly The Board defines the Group’s strategic aims, ensures that the necessary resources and structures are in place and sets the targets to review management performance. The Board benefits from regular sustainability reporting covering environmental, social and governance matters. GROUP AUDIT & RISK COMMITTEE GA&RC NOMINATION & GOVERNANCE COMMITTEE GROUP REMUNERATION COMMITTEE Meets at least quarterly Meets a minimum of three times a year Meets a minimum of three times a year The role of the GA&RC includes reviewing and The Nomination & Governance Committee plays a key role The role of the Remuneration Committee is to monitoring the current and potential risk in ensuring that the composition of the Board and its ensure that the Remuneration Policy promotes, exposures, including the monitoring of subsidiaries is appropriate and that members have the encourages and drives long-term growth of climate-related risk exposures across the Group necessary skills, knowledge and experience to discharge shareholder value of which climate change is a key and how such risks are treated. The GA&RC their duties effectively, including with regards to climate consideration. In 2024, a 20%/15% weighting of the reviews external reporting, including with regards change. It is also responsible for reviewing the Group’s Group CEO and CFO strategic objectives were to climate-related risks and opportunities. governance practices and procedures to ensure they linked to sustainability actions. remain appropriate and reflect best practice. GROUP SUSTAINABILITY COMMITTEE GSC1 Meets at least quarterly The GSC interacts with the Board and the committees above and below in the following ways: with the Board on the sustainability strategy and embedding it into the overall group strategy; with the GA&RC on ESG risks and external disclosures, including TCFD; with the Nomination & Governance Committee on matters regarding Board composition and sustainability-related skills, knowledge and experience of the Board and Board committees; with the Remuneration Committee on trends in which management is and should be incentivised on ESG factors; with the GIC on investment-related matters, including the transition plan to net zero; and with the SLT and divisional Executive Committees to facilitate all of the above. GROUP CEO SENIOR LEADERSHIP TEAM SLT GROUP INVESTMENT COMMITTEE GIC Meets monthly Meets twice a quarter The SLT is in place to challenge and support the Group CEO. It supports the The GIC is in place to challenge and support the Group CEO. The GIC identification and review of risks impacting the Group, including any material Terms of Reference specifically include consideration of ESG factors, variations in the impact of climate change upon the Group, as well as the including overseeing the asset managers’ approach to ESG and climate monitoring of risk appetite compliance. It also supports oversight of the change related matters. sustainability programme. The business units, with their own local governance structures and Boards, feed climate-related matters into the Group governance structure via GSC reporting, Board Board committees quarterly business reviews, risk reporting and annual local business plans (note this list is not exhaustive) where applicable. Group Sustainability Committee Sustainability is being embedded into succession planning and recruitment on a role-by-role basis, and forms part of the overall skills matrix for the Chesnara Board in order to ensure the Board and committees have appropriate knowledge and competency to be able to oversee climate-related matters. Group Executive Committees 1 The GSC is not a Board committee but operates across the Group, interfacing with the Board and working with its Board committees and Group Executive Committees. CHESNARAANNUALREPORTANDACCOUNTS202475 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES b) Management’s role in assessing and managing climate-related risks and opportunities How climate-related risks and opportunities are Group Sustainability Committee: chaired by Jane Dale, the Group’s Senior Independent Non- Executive Director. Its membership consists of the executive management across the Group identified and considered and its divisions. This committee is the key focal point for the review of climate-related risks and The divisions are responsible for identifying their own climate-related risks and opportunities through opportunities and links in with the other Group governance committees. The GSC annual agenda assessing potential matters that may impact the business. These risks and opportunities, together planner determines which topics are covered at each meeting and those meetings, together with with those areas that may impact the Parent Company or Group as a whole, are reviewed by the the GIC and SLT, will determine the items to be escalated to the Board. The interactions of the Group Head of Sustainability and the Group Chief Risk Officer & Chief Actuary, to form an GSC with the different committees and the Board are detailed on the previous page. Jane’s tenure assessment of the risks and opportunities for the Group. The risks and opportunities are reassessed as a Non-Executive Director of the Group is ending in May 2025 and therefore steps to appoint regularly so that, if a material risk was to arise, we would add it to the risk and opportunity register to a replacement chair are ongoing. ensure that it is are evaluated according to the Risk Management Framework and evolving climate- Senior Leadership Team: regularly discusses climate-related risks and opportunities and how they related matters. factor into business planning, strategy and risk management. Who is assigned responsibility? Group and local Investment Committees: working with the GSC, the Group Investment Committee (GIC) focuses on the just transition of the Group’s asset portfolio in line with its net zero Management responsibility for matters related to climate change is assigned to the Group Chief targets. The GIC and GSC also work together to identify potential further areas of impact investing. Executive at Group level and the respective CEOs at business unit level. All divisions and business The local Investment Committees are fundamental to the transition by providing oversight of the units are responsible to the relevant divisional Chief Executive who has dual reporting lines to asset managers across the Group. They also approve and oversee the application of investment the divisional Board and the Group Chief Executive. Sustainability forms part of the executive policies which incorporate climate and sustainability related considerations. management variable remuneration, and the ratio allocated to sustainability will continue to be assessed on an ongoing basis. Sustainability workstream working groups: these groups consist of our key sustainability leaders across all divisions for investments, operations and reporting. Progress is reported directly into the How management and Board members are informed of and monitor GSC. In addition, we have established a Transition Plan Steering Group to oversee and direct the climate-related risks and opportunities production of our transition plan and delivery of the actions that will be identified. Group Board: receives regular reporting on sustainability, including climate change. This includes Acquisitions: as part of the due diligence process, for potential acquisitions of entities, we assess consideration of the Group climate change risk assessment (through the GA&RC), and the overall the target company’s approach to climate-related risks and consider the emissions of their operations vision and approach of the Group in regards to sustainability and groupwide climate change-related and underlying assets. For potential acquisitions of books of business, we assess the Climate Value scenario analysis. Specific training on transition plans and their key elements was delivered to at Risk and financed emissions of the assets. executive and non-executive directors across the Group during 2024. 76 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT STRATEGY As highlighted above, we are already taking steps to embed sustainability, including the Group’s approach to climate risk and decarbonisation, as a fundamental part of our strategy. Changes in the environment and the impacts of global warming could potentially affect how we achieve our strategic objectives either through the way we operate our businesses or through the returns to our customers and shareholders. We are committed to continuing to develop sustainability-informed investment and operational decision making across the Group. Climate-related risks and opportunities a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning We have identified and assessed the impact of climate-related risks and opportunities on the Group’s business, strategy and financial planning over short-, medium- and long-term time horizons. This process is based on the below framework, considering the materiality, time horizons and types of risk. TIME HORIZON MATERIALITY TYPES OF RISK Short term Our definition of materiality is as follows: Physical risks up to 12 months – in line with budget setting process Arise due to the direct impact of events EcV Cash generation such as heatwaves, flood, wildfire, storms, Medium term >£20m >£3.5m increased weather variability, and rising 2 to 5 years – in line with our business planning and Own Reputational mean temperatures and sea levels. Risk and Solvency Assessment (ORSA) projection period Nationally publicised reputational event Transition risks Longer term Regulatory Emerge from the process of change 6+ years – post business plan horizon Action involving penalty imposition (£0 threshold) and/or requirement towards a low carbon economy such as: During the setting of the time horizon profile, we considered for remediation leading to a restriction of activity climate-related developments in policy the useful life of the Group’s assets and believe our definition and regulation; technological change Other takes this into account. The average duration of the wider (e.g. electric vehicles); a shift in consumer For example, safety – high potential for an injury to an individual or Group’s assets is between 5-10 years, but the Group is sentiment and social attitudes; and several individuals. acquisitive and writes longer-term business for our insurance climate-related litigation against firms liabilities so the risk assessment needs to consider a longer that fail to mitigate, adapt or disclose The materiality levels of the Group are approved by the Board annually as part time horizon also. The short-term period of 12 months aligns climate-related financial risks. of the Principal Risk Definition report and consider a number of factors that with the risk basis that underpins SII, and the medium term are broader than purely financial indicators. Whilst this is largely risk focused, Likelihood is aligned to our business planning period. we have chosen to apply this materiality definition to opportunities as well. Likelihood is determined as low, This is deemed to be an appropriate limit and is predicated on the Group risk medium or high. assessment thresholds that are discussed and approved by the Board annually. We believe this is a reasonable disclosure level and would enable a user to appropriately assess our exposure to climate-related risks and opportunities. Impact of climate-related risks and opportunities in the Group business strategy and financial planning We produce a five year Group business plan on an annual basis, and our climate and wider We are also currently developing our first climate transition plan, which will be published later sustainability strategy is included into both operational and financial plans to reflect our this year. Using the NZIF 2.0 framework to structure our actions, it will outline our initial plans immediate priorities, risks and longer-term ambition. This includes consideration of our products, on how we will tackle and report on the net zero transition. Delivering against our plans, targets investments, and our value chain in order to manage our climate risks and opportunities and meet and commitments will become a fundamental part of our business. We acknowledge that further our commitments. Sensitivities are also performed to assess the impacts of negative exposures plans will be required as more information, data and methodology becomes available. to our assets. Becoming a sustainable Chesnara is a key part of the Group’s strategy and our goal is for it to be considered and embedded in all areas of the business. CHESNARAANNUALREPORTANDACCOUNTS202477 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES As part of our ongoing risk assessment, we monitor climate-related risks, and of those, four are deemed to be material. In 2024, we have consolidated the reputational risks we had in our 2023 disclosures into a broader risk around not meeting our stakeholder expectations which we believe presents a more holistic view of the risk that we are managing. RISK 1. Not being able to fully assess and manage the climate risk exposure of our investment Time horizon: Likelihood: portfolio, as a result of data limitations, uncertainty and impacts from the current geopolitical Medium term 2-5 years Medium situation; limited control or influence over investment decision making; insufficient resource or knowledge. Climate change risk is identified as a principal risk, with the risk also being captured as a principal risk under investment and liquidity risk Potential impact (linking to financial statements) How is the risk being managed, mitigated and addressed? Investment decision making impacts which could lead to a reduction in value of policyholder and shareholder Utilising MSCI to provide groupwide ESG data analysis on our asset portfolio. assets held by the Group, directly impacting the balance sheet, Economic Value and solvency, as well as Engaging with our asset managers to understand their own plans and pathways. investment return or the fees generated on the management of those assets. This reduction in value could lead to stranded assets being held by the Group, further impacting valuation. Producing our transition plan which will outline our steps to decarbonise, including targets and actions. Inability to execute the Board’s chosen strategy for climate change effectively or transitional risks occurring where exposures were not understood or where there is insufficient control or influence over the investment decision making. Associated targets and metrics: Physical or transition risk: Transition The % coverage of our asset look through data which is shown in our financed emissions data. Territory: Groupwide 2. Not meeting changing and evolving stakeholder expectations in relation to climate change. Time horizon: Likelihood: For example, through failure to meet our targets and commitments. Medium term 2-5 years in respect of our 2030 financed Medium emissions interim target and longer-term 6+ years in respect Climate change risk is identified as a principal risk, with this risk also being captured as of our 2050 net zero target a principal risk under operational and reputational risk Potential impact (linking to financial statements) How is the risk being managed, mitigated and addressed? Loss of customers, major suppliers and investors if we fail to meet our commitments and targets or provide Engaging with stakeholders and providing clear and honest disclosure on our targets and inadequate disclosure around progress against them. commitments and where there are areas of challenge and uncertainty for those targets. Reduction of the liquidity of our shares and impact to the market capitalisation of the Group. Committing time and resources to complete and publish a transition plan in 2025 which will outline our steps to decarbonise. Associated targets and metrics: Physical or transition risk: Transition Our net zero and interim targets, and associated metrics for our operational and financed emissions. Territory: Groupwide 78 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT From the conclusion of our scenario analysis work, we have also expanded our previous inflationary risk to consider the wider cost uncertainty around transitioning and responding to climate change. More detail is provided below, considering the likely time horizon in which we expect the risk to manifest and how the risk is being managed, mitigated and addressed. 3. Not adequately anticipating the cost implications associated on our business, value chain and Time horizon: Likelihood: wider society of both: Medium term 2-5 years High – Taking action to address the risk of climate change including decarbonising and policy change; – Transition and physical risks resulting from a disorderly transition. Climate change risk is identified as a principal risk, with this risk also being captured as a principal risk under expense and market risk Potential impact (linking to financial statements) How is the risk being managed, mitigated and addressed? Negative financial impact on the expense base and cost assumptions. Active monitoring of costs, upcoming regulations and performing sensitivities to manage our future cash flows. Costs of disorderly transitioning could have an indirect impact to the valuation of our unit-linked assets i.e., through the fall of future charges, and a direct impact for non-linked assets. Conducting detailed scenario analysis to assess the financial impact of a disorderly transition. Publishing our first transition plan in 2025 which will outline our steps to decarbonise. Associated targets and metrics: Physical or transition risk: Transition and physical Our net zero targets and associated metrics for our operational and financed emissions. Territory: Groupwide 4. Litigation risk if we are seen not to have published enough information or taken enough action; Time horizon: Likelihood: are considered to have made unsubstantiated claims leading to a claim of ‘greenwashing’; Medium term 2-5 years Medium or are seen to have taken too much action relative to stakeholder expectations. Climate change risk is identified as a principal risk, with this risk also being captured as a principal risk under reputational and regulatory risk Potential impact (linking to financial statements) How is the risk being managed, mitigated and addressed? Litigation may lead to potential fines and payouts increasing the Group’s liabilities and potentially damaging Providing clear and honest disclosure on our work and areas of challenge and uncertainty. the Group’s reputation. Proactive consideration of what we are reporting in our sustainability disclosures, ensuring the use of clear and consistent sustainability language. Detailed consideration of upcoming regulatory requirements. Associated targets and metrics: Physical or transition risk: Transition Number of complaints and threatened litigation regarding sustainability matters. Territory: Groupwide For the first time, a separate climate risk report assessing the CVaR of our asset portfolio was We have also considered climate-related physical risks; however, as we lease the majority of our presented to the Board and the conclusions were also included in the 2024 ORSA report. There are office buildings and most of our staff would be able to work from home if workplaces were affected, a number of risks that are not featured in the table above that one may consider to be potentially we do not believe physical risks present a material impact to the operations of the Group. material for an insurer. For example, climate effects on morbidity or mortality. Climate scenario stress testing performed for the Group (detailed in the resilience section) concluded that climate effects on morbidity or mortality do not give rise to a material impact. CHESNARAANNUALREPORTANDACCOUNTS202479 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES Using the same approach as for the risks, we have identified climate-related opportunities for the Group. The table below focuses on those that are deemed to be material as per the definition of materiality referenced earlier in the report. OPPORTUNITIES 1. Investments: target enhanced returns and climate resilience of our investment portfolio through Time horizon: Likelihood: increased investment in aligned assets. Longer term 6+ years Medium Potential impact (linking to financial statements) How is the opportunity being managed and implemented? Increase in key metrics: cash generation and Economic Value. Performing analysis of the Climate Value at Risk of our investment portfolio to factor into investment decision making. Monitoring performance of our investment portfolio including aligned assets. Working with our asset managers to understand their transition to net zero. Developing our approach to positive solutions impact investment, including investing in climate solutions. At the end of 2024, we had £135m of assets invested in funds which meet our definition of positive solutions. Associated targets and metrics: Amount invested in our Positive Solutions Framework (£m) and performance of our investment portfolio. 2. Financing: attract a wider pool of debt and equity investors by demonstrating our commitment Time horizon: Likelihood: to climate change. Medium term 2-5 years High Potential impact (linking to financial statements) How is the opportunity being managed, mitigated and addressed? Positive share price movements through access to increased options and potential for lower borrowing costs. Publicly disclosing our targets, commitments and progress against the plans and engaging with external stakeholders to provide details. Engaging with and joining industry bodies to collectively engage and support action to address climate change. Ensuring sustainability is a high priority by embedding it into decision making at all levels. Associated targets and metrics: Our sustainability strategy and three commitments, including net zero targets and associated metrics. 3. People: attract and retain the best talent through providing opportunities for people to make Time horizon: Likelihood: a big impact in a smaller organisation. Medium term 2-5 years Medium Potential impact (linking to financial statements) How is the opportunity being managed, mitigated and addressed? Our people are the Group’s biggest value creator, which translates into cash generation Clearly defining and demonstrating our commitment to sustainability and Economic Value for the business. and helping to address climate change. Disclosing our training and development opportunities. Associated targets and metrics: Employee retention rate and survey feedback. 80 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT Our approach to decarbonisation We understand that our best strategy to mitigate our climate risks and realise the opportunities To support the understanding of our approach, in line with the United Nations, we define net zero as is to actively manage our transition to become a net zero business. We frame this transition in line cutting carbon emissions to a small amount of residual emissions that can be absorbed and durably with the UN Sustainable Development Goals (SDGs), including goal 13: Climate Action. stored by nature and other carbon dioxide removal measures, leaving zero in the atmosphere. 1 Decarbonise our investment portfolio The emissions from our investment portfolio, captured as part of scope 3, category 15 reporting self-select their own investments. We remain strongly committed to net zero by 2050 for all our under the Greenhouse Gas (GHG) Protocol, represent the significant majority of our carbon financed emissions and so our targets will expand over time to include all asset classes. footprint. We have currently set two targets for financed emissions: There are a number of significant headwinds largely out of our control which will affect our ability 1. Net zero for all emissions by 2050. to meet our targets, such as policyholder choices and asset manager progress. Therefore, as 2. 50% intensity reduction by 2030 from our 2023 baseline figures in the scope 1 and 2 emissions for our transition plans are developed and refined and baseline data is further understood, we may our listed equity and corporate fixed income investments which we are able to influence or control. naturally look to refine our targets at a later date to better reflect the position of the Group and the market. Our initial transition plan which will be published later this year, will include further detail We will set further interim targets covering additional asset classes and time periods up to 2050. on the steps we will take to meet our targets as well as challenges which may affect the Group’s For our targets, we have followed the Institutional Investors Group on Climate Change’s (IIGCC) ability to implement the plan. Additional governance has been put in place to provide oversight for Net Zero Investment Framework (NZIF) and the Intergovernmental Panel on Climate Change the development of the transition plan, including a cross-group steering committee to ensure there (IPCC) Special Report on Global Warming of 1.5°C (SR1.5), which states that in mitigation are appropriate review and approvals. pathways with no or limited overshoot of 1.5°C, global net carbon emissions need to decline We have started to engage with some of our key asset managers, who collectively manage c60% by between 41% and 58% from 2010 levels by 2030, reaching net zero around 2050. of our assets under management. Initially, this is to gain an understanding of their own net zero As an asset owner, to reduce these emissions it is necessary to work with our asset managers to plans and how our portfolios of assets fit in with those plans. During 2025, we will be further understand their own decarbonisation plans. We will also be working with partners and customers engaging and collaborating to assess if their strategy aligns with our decarbonisation pathway. for those assets where we have less control or influence, for example those where policyholders CHESNARAANNUALREPORTANDACCOUNTS202481 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES 2 Decarbonise our operations and supply chain The second element of our decarbonisation journey relates to our operations. Though these emissions represent a small number in comparison to our financed emissions, they remain a priority and we remain committed to leading by example. The target section of the report explains further our planned approach, with further detail of our net zero targets to be communicated in our transition plan. Chesnara’s carbon footprint 97% of our operational emissions arise from scope 3 emissions; Scope 1 Scope 2 specifically purchased goods and services, which represent 77%. 1% 62 tCO e 2% 64 tCO e Methodology to calculate these emissions currently relies heavily 2 2 on estimates and industry averages and so we have been working Scope 3 with Greenly, as our carbon accounting data provider, to enhance the accuracy of this data by bringing in supplier specific data 97% 3,592 tCO e 2 where possible. This has lead to a reduction of our scope 3.1 tCO e 2 emissions. As this methodology evolves, we hope to see 77% Purchased goods and services 2,907 a reduction in intensity for those suppliers who are transitioning. 2% Capital goods 66 As with our asset managers, we have started conversations with our key suppliers, to understand their decarbonisation 1% Fuel- and energy-related 28 plans. We will be continuing to engage with our supply chain activities 3,718 during 2025. 4% Upstream transportation and 147 tCO e 2 distribution The UK business has also enhanced its supplier onboarding due (2023 4,961 tCO e) 2 diligence and annual attestation processes, bringing the Supplier 2% Waste generated in operations 81 Code of Conduct in line with the key principles of the United 4% Business travel 122 Nations Global Compact to ensure our suppliers uphold the same values, standards and commitments that we do. 5% Employee commuting 192 2% Upstream leased assets 49 3 Invest in positive solutions Investing in ‘positive solutions’ means investing in assets, industries and organisations that will generate specific, measurable, social and/or environmental benefits in addition to financial returns. At the end of 2024, our Group held approximately £135m of investments in positive solutions, which we are looking to continue to increase in 2025. Scenario analysis c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios Overview During 2024, Chesnara completed an assessment to understand the resilience of our investment – Physical risks: This captures the risk of asset damage or business interruption as a direct portfolio to climate risk. This was previously considered as part of the ORSA process, but a stand- consequence of extreme weather events or from sustained gradual changes in the weather. alone assessment was performed this year to enhance our understanding of the risk faced by climate The physical risk assessment is dependent on the location in which the Company operates and change. This analysis is also a key consideration in the development of the Group transition plan, the scenario under consideration as this document will begin to consider how we mitigate the risks we, as a business, are facing as a – Transition risks: This estimates the cost of achieving the required reduction in emissions in the result of climate change. The focus of our assessment was the Climate Value at Risk (CVaR) metric, scenario under consideration. Transitional risk is dependent on the sector and location in which which is a forward-looking measure of the potential impact of climate on Chesnara’s portfolio of the Company operates and the scenario under consideration. invested assets. CVaR includes an assessment of the following in relation to the companies in which we invest: 82 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT – Transition opportunities: This estimates the potential benefits arising from the switch to low- granularity and robustness of Chesnara’s climate risk analysis compared to our previous approach. carbon technologies. Transitional risk is dependent on company specific data and the scenario Both the methodology and data will continue to evolve over time reflecting the fact that the industry under consideration. approach to modelling climate change is in its infancy and is continuing to develop. For this assessment, we have changed our approach to modelling climate risk from using the PRA’s Our climate risk assessment is based on the invested assets under management. The impact arising 2019 UK Insurance stress test scenarios to using a climate risk model provided by MSCI which uses from non-invested assets and the liabilities are less material for Chesnara and hence have not been data from the Network for Greening the Financial System (NGFS) scenarios. We made the decision considered to date. to change our approach as the MSCI methodology is a significant step forward in terms of coverage, Climate-related scenarios and key assumptions The climate-related scenarios considered, and the key assumptions embedded within these scenarios, are summarised below: MSCI scenario name Underlying NGFS Physical risk – policy Transition risk Technology change Carbon dioxide removal Regional Policy variation scenario ambition 1.5°C Orderly Net Zero 2050 1.4°C Immediate and smooth Fast change Medium-high use Medium variation 1.5°C Disorderly Divergent Net Zero 1.4°C Immediate but divergent Fast change Low-medium use Medium variation across sectors 2.0°C Orderly Below 2°C 1.6°C Immediate and smooth Fast change Low-medium use Medium variation 3.0°C NDC NDC 2.6°C NDC’s Slow change Low use Low variation NDC = Nationally Determined Contributions Timelines Key findings The modelling of climate risk associated with bond holdings is based on the maturity date of the The key findings observed from the scenario analysis are summarised below: bond (i.e. it is assumed that the bond is held to maturity). The transitional risks and opportunities – 1.5°C scenarios: In the two 1.5’ scenarios the estimated impact of physical risk is the same, associated with equity holdings are modelled until 2050 with physical risks modelled until 2100. reflecting the same assumed level of warming in both scenarios. Transitional risks are higher in the It is noted that this exceeds the duration of Chesnara’s liabilities and hence Chesnara will realise disorderly scenario reflecting the delayed or divergent implementation of low carbon policies. The the equity prior to this date. MSCI discounts the estimated impacts over the above timelines to transitional risks are partially offset by the transitional opportunities which are expected to emerge produce a shock factor which is then applied to our portfolio of invested assets. as a result of increased low-carbon technologies. Limitations – 2.0°C and 3.0°C scenarios: In these scenarios the expected physical risk increases as expected. As noted above, climate scenario analysis is still an evolving field and as such there are limitations However, we note that whilst physical risk is thought to be underestimated in all scenarios the in our approach. The key limitations are listed below and are common throughout the industry. degree of underestimation is expected to be higher in these scenarios. Transitional risks and opportunities are significantly lower in these scenarios reflecting the introduction of fewer low- – It is assumed that the market has not already priced the effects of climate risks into market values carbon policies. of assets. In practice, it is likely that the market will have priced in an element of climate risk but the uncertainty in quantifying this means that this has not been allowed for. Summary Climate risk is a material financial risk factor and as such we have made commitments to transition – The analysis does not take into account future management actions in respect of the transition to net zero by 2050. The new approach has a larger Own Funds stress impact than in previous years, to net zero, i.e. it is based on the current assets held and it does not reflect any future switches and therefore the impact is potentially greater in the longer term than has previously been assessed. to low carbon assets. We are currently developing our first transition plan and its implementation will be fundamental to – The modelling of physical risk only considers the direct physical risks (i.e. the direct physical helping us to mitigate climate-related risks. The transition plan will map the journey, and thereafter damage to a company’s assets because of climate change or the costs associated with monitor progress, against the net zero commitments, whilst acknowledging the areas of uncertainty. interruption to business operations as a direct consequence of an extreme weather event or Furthermore, we are taking steps to embed climate risk into business as usual and as part of key from long-term gradual changes in the weather). The wider impacts of indirect physical risks decision making processes, in particular in the investment decision making process. Our climate (i.e. the impacts on the supply chain of a company as a result of climate change) are not scenario analysis will continue to be developed and enhanced to monitor our climate-related currently considered. exposure and to identify management actions to mitigate against these. – The impacts of tipping points are not currently considered. These are thresholds which, once crossed, will trigger irreversible changes such as loss of ice sheets, glaciers and rainforest. Given the considerable uncertainty around when a tipping point may be crossed and the consequences of crossing tipping points, the impacts of these are not included in the physical risk modelling. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 83 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES RISK MANAGEMENT Risk and solvency management are at the heart of Chesnara’s robust Governance Framework. a) Describe the organisation’s processes for identifying and assessing climate-related risks and b) Describe the organisation’s processes for managing climate-related risks PROCESSES FOR IDENTIFYING, ASSESSING AND MANAGING CLIMATE-RELATED RISKS A high-level summary of Chesnara’s Risk Management Framework is below: RISK MANAGEMENT RISK MANAGEMENT GROUP RISK MANAGEMENT GROUP’S RISK POLICY SYSTEM FRAMEWORK APPETITE Chesnara’s Risk Management Policy The Risk Management System The Group Risk Management Framework is designed The Group’s risk appetite reflects the which sets out the framework of principles supports the identification, to embed effective risk control systems with a holistic and Chesnara Board’s view on the amount of and practices, policies and strategies for assessment and reporting of risks. transparent approach to risk identification, assessment, risk the Group is willing to take and sets the Group’s Risk Management System. management, monitoring and reporting. The definition and boundaries to determine when there is scope of each principal risk category is based on a set of too much or too little risk. strategic and operating principles/tolerance limits. In addition, Chesnara’s Investment Policy contains investment criteria which are monitored by the With regards to the sector specific guidance, we believe the impact of: physical risks from changing Investment Committee. frequencies and intensities of weather-related perils; transition risks resulting from a reduction in insurable interest due to a decline in value and transition risks of changing energy costs would not The Group Chief Risk Officer is responsible for maintaining the overall Risk Management Framework. be material and therefore not disclosed within the TCFD report as material risks. Chesnara has The CEOs for each business unit are required to ensure that the framework is fully integrated into the developed an environmental, social and governance (ESG) Policy Statement for the Group, in which it business model and decision making processes. Each of our divisions is required to apply the Risk recognises the importance of understanding climate change risk in its operations and its investments Management Policy and operate within the limits set by the risk appetite. Each business unit is and continued monitoring of associated risks. responsible for identifying risks which might create, enhance, accelerate, prevent, hinder, degrade or delay the achievement of the Group’s objectives, together with the sources of risks, areas of impact, Chesnara believes its businesses that hold investments (insurance companies and investment events, and their causes and potential consequences. These risks are recorded in the risk register companies) should consider sustainability and implications for climate change in their investment and evaluated based on the likelihood of occurrence and severity of impact. Depending upon the policies. It expects each company to consider the implications of these for its business and nature and impact of the risk, the risk is either accepted, avoided, managed or transferred. Climate- investments and document its position. Chesnara’s businesses have adopted, either directly or via related risks and opportunities are identified and evaluated according to this framework by the their respective fund managers, the six UN Principles of Responsible Investment with the aim to respective management teams in our business units. continue to invest responsibly with sustainability considerations in mind and to provide a choice of sustainable funds to customers, e.g. green investments which aim to solve climate issues, or which Management teams keep up to date through the monitoring and assessment of emerging risks, primarily focus on companies that invest in improving health. reviewed by the executive teams on a quarterly basis. The 2024 approach to modelling climate risk has changed using the PRA stress tests as part Climate change risk has been included as its own principal risk (PR11) for the first time to reflect of the ORSA process to using a climate risk model provided by MSCI. This is considered to be a the exposure to adverse consequences of the physical and transitional risks arising from climate significant step forward in terms of the coverage, granularity and robustness of Chesnara’s climate change. We also consider climate change to be a cross-cutting risk, that manifests through other risk analysis: however, it is still subject to a number of limitations which will evolve over time. existing risk types, which includes equity and credit etc (PR1 – Investment and liquidity risk) and also regulatory risk (PR2 – Regulatory change risk) given the level of ongoing change. The Group is also exposed to strategic and reputational risks (PR9 – Reputational risk) arising from its action or inaction in response to climate change. 84 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management Integration of processes for identifying, assessing and managing climate-related risks An integral part of Chesnara’s governance and Risk Management Framework is compliance with the Chesnara’s approach to assessing financial risk is to identify and assess factors that could potentially Prudential Solvency II Regulations to perform the ORSA on an annual basis. The Chesnara Board is threaten the continued successful delivery of the anticipated stakeholder outcomes over a three-year responsible for the overall design of the ORSA process including its annual review. Climate-related time horizon, including risks to the business model and strategy. The Chesnara Board requires the risks are considered within the ORSA process and the impact of material risks upon the solvency management teams to ensure a good understanding of the solvency position at any point in time. and resilience of the business is documented. The views of the Actuarial function holder and any In Q2 2024 a series of stress and scenario tests were selected for the ORSA with the requirement recommendations or prior feedback from the regulator are considered when conducting the to follow the testing principles set out in the Group Risk Management System Policy. As well as assessment at business unit level. Conclusions drawn from the risk and solvency assessment are current known risks, the stresses and scenarios took account of forward looking and emerging risks. reported to the respective regulators by each of our businesses every year. The Group Sustainability These selected stresses and scenarios along with the rationale were reviewed and approved by Committee also review the climate-related risk and opportunities and climate scenario analysis, with the Chesnara Board. The tests conducted covered equity asset values, yields and credit spreads, overall responsibility for overseeing the programme of work across the group. expense inflation, mass lapse and adverse operational experience. The ORSA also included the Each business unit provides a forward-looking perspective on risks that are emerging quarterly to output of the climate risk report, and it will be determined how this will be incorporated going its own Audit & Risk Committee, the Group Audit & Risk Committee and monthly to the SLT. forwards. Performance against the business plans as well as known and emerging risks and A summary of principal risks and emerging risks is also provided quarterly to the Chesnara Board. opportunities are discussed at quarterly business review meetings at entity and group level. From a climate change perspective this incorporates consideration of the content of relevant Climate-related risk impacts and opportunities are considered at these meetings. publications and guidance, in the context of the Chesnara risk landscape, such as the reports More detail on Chesnara’s Risk Management Framework is set out in this section of the Annual published by the IPCC on the physical climate change risks to the environment. Similarly, our Report and Accounts. management teams evaluate the possible effects of transition risk by keeping abreast of relevant policy and legal developments, technological advancements, changes in market risk due to demand shifts and any legal and reputational risk exposure. Amongst other matters, business performance and risk management are discussed at the Senior Leadership Team monthly meeting. CHESNARAANNUALREPORTANDACCOUNTS202485 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES METRICS AND TARGETS The metrics and targets section also addresses the requirements within the Streamlined Energy & Carbon Reporting (SECR) Framework including reporting on energy usage, GHG emissions, methodology used to make the calculations, intensity ratios and a description of the efforts taken to improve the Group’s energy efficiency during the financial year. To support the understanding of our approach, we define net zero as cutting carbon emissions to a small amount of residual emissions that can be absorbed and durably stored by nature and other carbon dioxide removal measures, leaving zero in the atmosphere. a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas (GHG) emissions, and the related risks c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets Financed emissions We have published our initial interim and long-term net zero targets for our financed emissions which represent the most significant part of our carbon footprint. We baselined our emissions using 2023 data and as further data becomes available and methodology develops, we will continue to assess our baselines and our targets. TARGETS We are committed to decarbonising 2030 2050 our investment portfolio and have 50% intensity reduction Net zero all emissions set the following climate targets to achieve this: in the scope 1 and 2 emissions for our listed equity and corporate fixed income investments which we are able to influence or control To meet our commitments, we will report on the following metrics to monitor performance against our targets: 1. 2. 3. Total financed carbon Financed carbon emissions Weighted Average emissions (absolute emissions) (absolute emissions normalised Carbon Intensity (WACI) (tCO e) by $M invested) (tCO e) 2 2 a) WACI Corporate This shows our exposure to carbon intensive This shows our absolute greenhouse gas emissions This shows the total carbon financed emissions companies (tCO e by $M sales). 2 (GHG) and allows us to establish the emissions of a portfolio normalised by the market value b) WACI Sovereign baseline of our portfolio by measuring financed of the portfolio. The metric enables us to compare This shows our exposure to a country’s transitional scope 1, 2 and 3 emissions. the emissions of different portfolios. risks and physical and economic vulnerability to climate change (tCO e by $M GDP nominal). 2 86 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT 2024 performance The below tables summarise our 2024 performance against our baseline financed emissions. FINANCED EMISSIONS (tCO e) 2 Scope 1 and 2 Scope 3 2024 2023 baseline Movement 2024 2023 baseline Movement Total financed carbon emissions 515,298 533,073 (3%) 4,764,459 4,345,991 10% (absolute emissions) Financed carbon emissions 34 39 (13%) 313 316 (1%) (normalised by $M invested) % coverage 59% 58% 1% 59% 56% 3% WEIGHTED AVERAGE CARBON INTENSITY WACI Corporate Constituents Sovereign Constituents (tCO 2 e/$M sales) (tCO 2 e/$M GBP nominal) Scope 1 and 2 Scope 3 GHG intensity 2024 2023 baseline Movement 2024 2023 baseline Movement 2024 2023 baseline Movement Chesnara Group 69 72 (5%) 645 654 (1%) 221 207 7% % coverage 63% 62% 1% 63% 59% 4% 9% 12% (2%) Our 2024 calculations, which are based on the data at the end of September 2024, show we made When opportunities have arisen to rebalance our portfolios, we have been careful to integrate our good progress against our targets. For the assets classes for which emissions can be calculated, we financed emissions objectives into our decision making process. Analysis shows that redemptions 1 saw the scope 1 and 2 normalised emissions of our total portfolio reduce by 13%. The investments within our portfolios have also contributed to the change in our financed emissions figures. Of included in our 2030 targets represent a majority of the assets within this total and so we are on course, changes in data coverage and any updates that our investee companies have made in the track to achieve our target. Our scope 3 normalised emissions also dropped by 1% and whilst we reporting of their own financed emissions have all played a part in the changes we see. 2 saw progress in reducing our absolute scope 1 & 2 emissions by 3%, we did increase our scope 3 Our climate data comes from an external provider and just as we baseline and monitor our financed emissions by 10%. The difference between these two metrics is partly explained by the increase of emissions figures, we do the same for data coverage. Except for WACI sovereign, the data coverage our in-scope assets under management by circa 5% as a result of acquisition activity meaning that has improved across all our measures this year. We are eager that this continues to improve and so we have more assets for which we are reporting emissions. we are working with our external data provider to identify any assets that are not covered to help 3 Our WACI corporate exposure to carbon intensive companies decreased by 5% (scope 1 & 2) and ensure that they are added to coverage within expected timeframes. This will allow us to increase 4 1% (scope 3); however, our WACI sovereign exposure has increased by 7%. It is however important the accuracy of our financed emissions and exposures. to note that data coverage is very low for our sovereign bond investments (9%) which is likely to lead to an increase in the period-on-period volatility of our results for this asset class. We expect this data coverage to increase over time which will help address this volatility. 1. The absolute greenhouse gas emissions associated with an asset class or portfolio divided by the loan and investment volume (expressed in tCO 2 e/ $M invested). 2. The absolute greenhouse gas emissions associated with an asset class or portfolio (expressed in tCO 2 e). 3. Exposure to carbon intensive companies (expressed in tCO 2 e/$M sales). 4. A country’s exposure to transitional risk and physical and economic vulnerability to climate change (expressed in tCO 2 e/$M GDP nominal) to be provided for above text. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 87 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY CLIMATERELATED FINANCIAL DISCLOSURES Positive solutions As explained in the strategy section, we will continue to commit to assessing and investing in Targets and metrics: the amount of investments (£m) we currently invest in our Positive Solutions positive solutions, by intentionally directing capital into activities that deliver or enable the Framework is the key metric we currently report and monitor, and at the end of 2024 we had £135m achievement of the UN Sustainable Development Goals. We report annually on our progress against (2023: £80m). We are looking to set medium-term targets for our positive solution investments, and this commitment, detailing the level of investments held. These activities will be monitored by the include additional metrics to monitor the impact of the investments. GSC and reported annually to the Board. Operational emissions Since setting our initial 2028 target in March 2022, we have spent time collating and analysing our To monitor our performance against our targets and intensity, we report on the data, broadening the emissions captured by our calculations and reporting, engaging with key To monitor our performance, we report on the following metrics: following metrics: suppliers and working with members across the Group to gain valuable insights to inform our actions. From this work and the fact that the operational emissions within our control represent a materially insignificant amount of our total emissions, we recognise the need to adjust the Group’s operational net zero ambitions. This does not mean we are scaling back our efforts; instead, we are revising our focus to make sure we have the biggest impact we can with the control we have. We want our goals 1 1 2 2 to be ambitious, meaningful and reflect the urgency of the climate crisis, yet we must do it in a way Absolute emissions tCO Absolute emissions tCO e e Operational emissions Operational emissions 2 2 that doesn’t negatively impact livelihoods, wellbeing or inclusion. (scope 1,2 and 3) (scope 1, 2 and 3) per FTE tCO per FTE tCO e (including e (including 2 2 Later this year, we will publish our first transition plan and in it we will communicate how and when and excluding scope 3.1) and excluding scope 3.1) we plan to be operational net zero for all of our emissions. Other metrics we report and monitor include the Group’s energy consumption and water usage, which is detailed on page 90. 88CHESNARAANNUALREPORTANDACCOUNTS2024 STRATEGIC REPORT 2024 performance The below table summarises our 2024 performance against our baseline operational emissions. OPERATIONAL EMISSIONS tCO e 2 2024 2023 baseline UK & Global Total UK & Global Total Offshore (excl UK & Offshore (excl UK & Offshore) Offshore) Scope 1 Combustion of fuel and operation of facilities 2 60 62 18 65 83 Electricity, heat, steam and cooling purchased for own use (location based) 9 55 64 10 87 97 Scope 2 Electricity, heat, steam and cooling purchased for own use (market based) 2 55 57 – – – Scope 1 and 2 emissions (location based) 11 115 126 28 152 180 Purchased goods and services 1,165 1,742 2,907 1,906 2,129 4,035 Capital goods 29 37 66 28 69 97 Fuel- and energy-related activities not included in scope 1 or scope 2 3 25 28 9 45 54 Upstream transportation and distribution 32 115 147 9 215 224 Scope 3 Waste generated in operations 73 8 81 24 8 32 Emissions from business travel 72 50 122 52 131 183 Emissions from commuting 45 147 192 26 83 109 Upstream leased assets 40 9 49 8 40 48 Total scope 1, 2 and 3 emissions (location based) 1,470 2,248 3,718 2,090 2,871 4,961 Carbon offset (305) (506) (811) (184) (742) (926) Total net emissions 1,165 1,742 2,907 1,906 2,129 4,035 Company’s chosen intensity measurement: tCO 2 e per FTE 14.2073 8.2344 10.4772 19.2982 10.3692 12.8660 tCO 2 per FTE (less scope 3.1 emissions) 3.7195 1.8534 2.2845 1.6990 2.6595 2.3909 The Group FTE number used in this measurement is disclosed in note I1 of the Annual Report and Accounts. The 2024 results show a 25% reduction to our 2023 baseline. This is a movement in the right The reduction in purchased goods and services (scope 3.1) emissions is due to an enhancement of direction. Whilst this movement is in part down to data and methodology changes, we are pleased the data used in the calculations. Through our carbon accounting partner’s database, we have been to be able to able to point to actions we have taken across the Group to reduce our emissions: able to use an increased number of emission factors specific to suppliers to calculate the associated emissions instead of industry averages. – We have reduced our gas heating consumption (scope 1.1), through both moving our Bristol colleagues to a smaller office and closing off parts of Scildon’s office which are not occupied Not all types of emissions have reduced. For example, we have seen emissions from commuting during certain days of the week. increase during the year, as a result of higher office attendance across our businesses. This – The Group has also been focusing on digitalisation, particularly Waard through its online customer demonstrates some of the challenges we have with reducing emissions but we continue to consider portal ‘Mijn Waard’, as an endeavour to reduce postal emissions (scope 3.4). methods of encouraging and incentivising sustainable travel, including our employee electric vehicle salary sacrifice scheme in the UK. – We have been making a conscious effort to reduce unnecessary travel, and choosing sustainable options where available, leading to a reduction in the number of domestic flights and car usage since 2023. CHESNARAANNUALREPORTANDACCOUNTS202489 STRATEGIC REPORT CORPORATE & SOCIAL RESPONSIBILITY • CLIMATE-RELATED FINANCIAL DISCLOSURES Carbon offsetting We remain focused on reducing the carbon emissions associated with our operations and There are three (2023: five) Company-leased vehicles in total across the Group which are used investments. We also continue to consider the important yet complex role offsetting can play in the primarily for commuting and not business-related activities; this is in addition to eight Company- global transition to net zero. owned vehicles. All of the eleven vehicles are either hybrid or electric. For 2024, we have again offset our operational emissions, excluding scope 3.1 purchased goods and services, of 811 tCO e by supporting several verified projects in alternative energy and water safety, 2 METHODOLOGY, DATA & ASSUMPTIONS as well as planting 811 trees in the UK. These are high quality carbon reduction projects that comply with international verification standards and are amongst Carbon Footprint Ltd’s offset projections Operational emissions: Greenly has detailed methodology for each category and portfolio. We will continue to assess our approach to offsetting, including considering partnerships we can interrogate the Group’s accounting data to generate the results. Greenly has with organisations supporting nature-based solutions. integrated thousands of emission factors from Government publications and Life Energy usage Cycle Assessment (LCA) dashboards as reliable sources of data. No further data Energy consumption in the Group is reported on an actual basis where the records are kept in the and assumptions have been included for the calculation of non-financed emissions business (scope 2 – office use and scope 3.6 – business travel) with employee survey responses outside of the use of the Greenly platform. For further informations on Greenly used to obtain information for home working and commuting data. These are then converted to and its methodology, please visit www.greenly.earth/en-gb. emission measures using standard conversion factors based on Greenly’s assumptions and calculation engine which is in line with the GHG protocol methodology. Our energy and water Financed emissions: For more information on the MSCI methodology, please visit consumption over the last two years is shown in the following table: www.msci.com. Due to the timing of the publication of the accounts, we have used data as at 30/9/2024 to calculate our 2024 financed emissions and therefore there is UK & Global a three month lag to our reporting. We acknowledge that this is not in line with PCAF Offshore (exc UK & Offshore) Total guidance, however, we believe this will not result in a material difference to the results and allows us to perform and publish more in depth analysis of change each year. Energy consumption (KwH ’000) 360 1,298 1,658 2024 A separate climate-related financial disclosure report which included the basis of Water usage (m³) 289 1,815 2,104 preparation of each scope and the method of calculation has been published Energy consumption (KwH ’000) 382 1,301 1,684 separately on the website at www.chesnara.co.uk. 2023 The performance of climate-related disclosures requires the application of a number Water usage (m³) 163 1,526 1,689 of key judgements, assumptions and estimates to be made, in particular, for the * Excludes Waard since water usage is incorporated in the office service charge. The increase in water usage is due calculation of emissions and forming an assessment of the climate scenario analysis. to higher office attendance in 2024. The methodology relies on the quality of the underlying data used, which is constantly evolving and changing and therefore is an inherent limitation. As a result, we expect The Group encourages all employees to take reasonable steps to reduce waste, and to re-use and that certain disclosures are likely to be amended in the future and should be treated recycle office materials, and our sustainability statement reiterates our commitment to becoming with caution. a sustainable group. In addition to this, we use a mixture of renewable energy across the business, including a 100% renewable energy contract in the Preston office. With regard to the sector specific guidance requiring insurance companies to provide aggregated Intensity measurements risk exposure to weather-related catastrophes of their property business by relevant jurisdiction; the Our operational emission intensity measurements are ratios of operational emissions against the extent to which their insurance underwriting activities are aligned with a well below 2°C scenario; number of FTE staff, calculated as: and also indicate which insurance underwriting activities are included – this has been considered and 1. Operational emissions per FTE = total non-financed emissions (scope 1, 2 & 3.1-3.8 tCO e)/number 2 the impact is either immaterial or not applicable to the business, and therefore, no disclosure has of average FTE staff in the year. been made. 2. Operational emissions (less scope 3.1 emissions) per FTE = non-financed emissions as defined To increase energy efficiency, management in each of our business units takes practical steps to above (less scope 3.1 emissions)/number of average FTE staff in the year. minimise the effect of our operations on the environment and our workforce is encouraged to We believe these are appropriate measures, given a large proportion of the GHG emission conserve energy, avoid unnecessary travel, use video conferencing, and minimise waste. In 2024, categories are employee-related including commuting, business travel and waste. As supplier we delivered sustainability training to all employees to raise awareness of the impact we have on purchases (scope 3.1) are not directly correlated with the number of employees we have also chosen climate change, and how energy usage contributes to this. We also finalised our UK Expense Policy to disclose the FTE ratio without these emissions to reduce the impact of increased spend on goods which outlines the need to consider the business need to travel and the most sustainable option to and services. do this. Overseas, one of our Dutch entities has been focusing on closing parts of the office that are not in use on certain days. Chesnara is fully committed to complying with the Energy Saving Opportunity Scheme Regulations 2014 (ESOS). The UK’s energy consumption in the form of lighting, heating and fuel usage is assessed by an independent company every four years, with the latest assessment completed in 2024. An action plan has been created and submitted based on the recommendations provided. 90 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 STRATEGIC REPORT We have also determined appropriate intensity measures for financed emissions (scope 3.15), Non-Financial and Sustainability Information Statement as explained in detail on page 86, being: This section of the Annual Report constitutes Chesnara’s Non-Financial and Sustainability 1. Total financed carbon emissions (absolute emissions) tCO e – This shows our absolute 2 Information Statement, produced to comply with sections 414CA and 414CB of the Companies greenhouse gas emissions (GHG) and allows us to establish the emissions baseline of our portfolio Act 2006. The following table sets out where, within our Annual Report, we provide further by measuring financed emissions. details on the matters required to be disclosed under the section listed above. In particular, it 2. Financed carbon emissions (absolute tCO e emissions normalised by $M invested) – covers the impact we have on the environment, our employees, social matters, human rights, 2 This enables us to compare the emissions of different portfolios. This shows the total carbon anti-corruption and anti-bribery matters, policies pursued and the outcome of those policies, financed emissions of a portfolio normalised by the market value of the portfolio. and principal risks that may arise from the Company’s operations and how we manage those risks, to the extent necessary for understanding of the Company’s development, performance 3. Weighted Average Carbon Intensity (WACI) tCO e/$M revenue – This enables us to understand 2 and position and the impact of its activity. our exposure to carbon intensive companies within our portfolio: – WACI Sovereign – a country’s exposure to transitional risk and physical and economic vulnerability to climate change (tCO e by $M GDP nominal). 2 Reporting requirement Section(s) Page(s) – WACI Corporate – our exposure to carbon intensive companies (tCO e by $M sales). 2 Anti-corruption and anti-bribery Corporate & Social Responsibility 73 We hope that this combination of metrics will show the relative and absolute performance of our Business model Overview of our Business Model, decarbonisation activities. Strategy and Culture & Values 26-27 Employees Corporate & Social Responsibility 70 -72 S172 36-38 Environmental matters Corporate & Social Responsibility 74- 91 S172 Statement 32 Non-financial key performance indicators S172 Key Stakeholders 34-36 Business Reviews 40-45 Principal risks Risk Management – Principal Risks and Uncertainties 61-67 Respect for human rights Corporate & Social Responsibility 73 Social matters Corporate & Social Responsibility 73 CHESNARAANNUALREPORTANDACCOUNTS202491 CORPORATE GOVERNANCE 92CHESNARAANNUALREPORTANDACCOUNTS2024 94 Board profile and Board of Directors 96 Governance overview from the Chair 98 Corporate Governance Report 104 Nomination & Governance Committee Report 110 Directors’ Remuneration Report 127 Audit & Risk Committee Report 135 Directors’ Report 139 Directors’ Responsibilities Statement CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 93 CORPORATE GOVERNANCE BOARD PROFILE AND BOARD OF DIRECTORS The role for the Chesnara Board of Directors is to establish the purpose, values and strategy of the Group and provide leadership to maintain high standards of corporate governance and behaviour throughout all levels of the organisation. The diversity of skills, knowledge and experience of our Board members ensures that we continue to deliver against our strategic objectives. The Board knowledge, skills and experience summary below indicates the core competencies that have been identified as being key to the Board discharging its responsibilities and shows the collective score of the current Board. The matrix below shows the specific areas of specialism each Board member provides. Where a Board member has a competency in dark blue, this indicates a primary specialism. A purple colour indicates that this competency is a secondary specialism for that Board member. BOARD KNOWLEDGE AND SKILLS SUMMARY THE BOARD LUKE SAVAGE Industry knowledge – UK P P P P P P P CHAIR Industry knowledge – Sweden/Netherlands P P P P P P S Non-executive Chair of the Board, Luke is responsible for the leadership of the Board, setting the agenda and ensuring the Board’s effectiveness in all aspects of its role. Governance – actuarial P P P P S S S S Appointment to the Board: Appointed to the Board and as Chair in February 2020. Committee membership: Nomination & Governance (Chair to 31 December 2021) and Governance – financial/audit P P P P P P P S a member of the Remuneration Committee (from February 2020). Attends the Audit & Risk Committee by invitation. Risk management P P P P P P P S Current directorships/business interests: – Numis Corporation Ltd – Numis Securities Ltd Investment management P P P P S S – Liontrust Asset Management plc, Chair M&A and business development P P P P P S S S Commercial management P P P P P P S STEVE MURRAY GROUP CHIEF EXECUTIVE Change management P P P P S S S Appointment to the Board: Appointed as a director of Chesnara on 2 August 2021 and as Group Ensuring good customer service and outcomes P P P S S S Chief Executive on 19 October 2021. Career, skills and experience: Steve joined Chesnara from Royal London where, as part of their Information Technology/Cyber P P P S S S S Group Executive Committee, he was Chief Commercial Officer with groupwide accountability for M&A and Strategy, Transformation and Analytics & Insight, as well as accountability for its legacy Sustainability including ESG P P S S S S S S business and the take to market activity across the UK insurance and savings business. He was also a director of Royal London Asset Management. Prior to that he spent 15 years at Standard People & Reward P P S S S Life across a variety of roles, seeing it through demutualisation and IPO before leading Group M&A and strategy. He then worked in Standard Life’s UK & European insurance business initially as CEO of 1825 financial planning before becoming MD Commercial & Strategy. After leading the first Regulatory P P P P S S S phase of the separation of the UK & European insurance business to Phoenix, he was appointed as Deputy Head of the Private Market division in Aberdeen Standard Investments. Steve started his career with EY. KEY Current directorships/business interests: P Primary specialism – Countrywide Assured Services Ltd S Secondary specialism – CASFS Ltd – Countrywide Assured Life Holdings Limited – Movestic Livförsäkring AB – Scildon NV Supervisory Board – Waard Group Supervisory Board – Cattanach – a private charity (Chair) 94 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE JANE DALE KARIN BERGSTEIN SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR AND INDEPENDENT NON-EXECUTIVE CHAIR OF THE AUDIT & RISK COMMITTEE DIRECTOR Appointment to the Board: Appointed to the Chesnara Board in May 2016 and as Chair of Appointment to the Board: Appointed to the Chesnara Board on 14 February 2022. the Audit & Risk Committee in December 2016. Appointed as the Board’s Senior Independent Committee membership: Nomination & Governance and Audit & Risk. Non-Executive Director in October 2018. After a nine-year tenure, Jane intends to stand down at Current directorships/business interests: the conclusion of the next AGM, due to be held on 13 May 2025. – Van Lanschot Kempen N.V., NED Committee membership: Audit & Risk (Chair) and Nomination & Governance. – Bank Nederlandse Gemeenten N.V., NED Current directorships/business interests: – University Medical Center Groningen, NED – Countrywide Assured plc, Chair of the Audit & Risk Committee – Bergstein Advies B.V., General Manager – Covea Insurance plc and Covea Life Limited, NED and Chair of the Audit Committee – Foundation for Continuity of NN Group, NED – Novia Financial plc, NED and Chair of the Audit Committee; and The Quanta Group (Holdings) – Foundation for Preference Shares Wereldhaven, NED Limited, NED – Brown & Brown (Europe) Holdco Limited, NED and Chair of the Risk & Compliance Committee and Brown & Brown Insurance Brokers (UK) Limited, NED TOM HOWARD EAMONN FLANAGAN GROUP CHIEF INDEPENDENT NON-EXECUTIVE DIRECTOR AND FINANCIAL OFFICER CHAIR OF THE REMUNERATION COMMITTEE Appointment to the Board: Appointed to the Chesnara Board on 15 April 2024. Appointment to the Board: Appointed to the Chesnara Board in July 2020 and as Chair of the Remuneration Committee in January 2022. Career, skills and experience: Tom joined Chesnara from Aviva plc where he was CFO and Executive Director of Aviva Investors, with oversight of the asset manager’s financial, capital Committee membership: Audit & Risk and Remuneration (Chair). management and corporate development functions. He also held executive responsibility for Aviva Current directorships/business interests: Investors’ North American operations and was a member of Aviva Group’s Finance Leadership Team. – Movestic Livförsäkring AB, Chair of the company and member of the Audit & Risk Committee He held a variety of senior leadership roles over a 14-year period in Aviva, including CFO of Aviva’s – AJ Bell, NED and Chair of the Audit and Disclosure committees Life and General Insurance businesses in Ireland and Director of Mergers and Acquisitions for Aviva Group. Tom is a fellow of the Institute and Faculty of Actuaries. GAIL TUCKER CAROL HAGH INDEPENDENT NONEXECUTIVE INDEPENDENT NONEXECUTIVE DIRECTOR, CHAIR OF THE NOMINATION DIRECTOR & GOVERNANCE COMMITTEE AND DESIGNATED WORKFORCE NED Appointment to the Board: Appointed to the Chesnara Board on 29 January 2025. Appointment to the Board: Appointed to the Chesnara Board on 14 February 2022. Committee membership: Audit & Risk and Nomination & Governance. Committee membership: Nomination & Governance (Chair) and Remuneration. Current directorships/business interests: Current directorships/business interests: – Countrywide Assured plc – Countrywide Assured plc, NED – Breast Cancer Now (Trustee) – Old Game New Rules Ltd, Director and Founder – ICAEW Financial Services Board (Member) – Direct Line Insurance Group plc, NED – UK Insurance Ltd and Churchill Insurance Company Ltd (part of Direct Line Insurance Group) CHESNARAANNUALREPORTANDACCOUNTS202495 GOVERNANCE OVERVIEW FROM THE CHAIR 96CHESNARAANNUALREPORTANDACCOUNTS2024 CORPORATE GOVERNANCE Our robust Governance Framework enables us to effectively manage risks and opportunities, Chesnara Board composition as well as to take appropriate steps to address relevant environmental and social issues in Current balance of executive and a proportionate manner. non-executive directors Dear Shareholder Following the completion of a nine-year tenure, Jane Dale will not seek re-election at the Company’s Annual General Meeting On behalf of the Chesnara Board, I am pleased to present 1 (‘AGM’) in May 2025 and will step down as Senior Independent our Corporate Governance Report for the year ended 2 Director and as a director of the Company at the conclusion of Non-executive 31 December 2024. that meeting. I would like to thank Jane for her significant contributions to the Group as a non-executive director and in Executive Chesnara’s Corporate Governance Framework underpins the delivery of sustainable value to our customers and shareholders particular as Chair of our Audit & Risk Committee. The Group has Chair through effective deployment of our staff and technology, and changed much over her time with us and Jane has overseen constructive engagement with our suppliers, partners and several key acquisitions and ensured timely reporting of strong 5 regulators. The Board drives the Group’s culture and values financial results irrespective of these and external changes to by assigning clear roles and responsibilities and setting high reporting regimes. expectations of business performance and ethical conduct. Gail Tucker joined the Board on 29 January 2025 and will chair Our robust Governance Framework enables us to effectively the Audit & Risk Committee upon Jane standing down. She Board tenure manage risks and opportunities, as well as to take appropriate brings with her a wealth of reporting expertise including from her steps to deliver our sustainability agenda. time as IFRS 17 Global Technical Lead for PwC. She has advised 1 insurance audit teams around the world and has sat on a number This section of the Annual Report and Accounts sets of technical committees. We are delighted to have attracted such out our governance policies and practices and includes talent into the Group. 0-6 years details of how the Company has applied the principles and complied with the provisions of the UK Corporate No NED chairs the Board as well as a Board committee Over 6 years Governance Code 2018 (the ‘Code’) during 2024. nor does any NED chair more than one Chesnara Board Committee. The principles and policies that support the The Board recognises that sustainability and stewardship Governance Framework outlined in the Group Corporate 7 is central to a Company’s ability to operate responsibly. Governance Framework are designed to encourage high The Board is also mindful of the critical importance of the standards of ethical and business conduct and consideration interests of its employees, customers and suppliers for the of matters such as diversity. Each of the businesses within the purposes of delivering sustainable performance, whilst engaging Group has continued to make further progress in ensuring that Current gender diversity of the Board constructively with regulators and shareholders to understand the governance arrangements remain effective, whilst also and meet their expectations. Details of how we have engaged integrating environmental and social factors within their risk with key stakeholders and performed our duties under s172 of assessment system. the Companies Act 2006 are set out on pages 32 to 39 within the Strategic Report. This report summarises the steps the Board and its committees Male have taken to fulfil their governance responsibilities. The Board agenda appropriately balances governance, strategy, 44 Female risk, financial performance and emerging matters in order to I look forward to having the opportunity to engage with our promote the success of the Company. Each member significantly shareholders at our AGM on 13 May 2025 as set out in our contributes to Board discussions and devotes sufficient time to Notice of AGM on page 253 of this report. the Board and the effective operation of its committees. There were a number of additional meetings required over the course of 2024 and I am grateful to my fellow Board members for making themselves available as and when required. Current ethnic diversity of the Board 1 White Luke Savage, Chair Ethnic minority 26 March 2025 7 CHESNARAANNUALREPORTANDACCOUNTS202497 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT The Group’s Governance Framework has continued to operate effectively in 2024, allowing the Company to respond to the needs of its stakeholders and the evolving market conditions in which it operates. The following statement, together with the Directors’ Remuneration Report on pages 110 to 126, the Nomination & Governance Committee Report on pages 104 to 107, and the Audit & Risk Committee Report on pages 127 to 134 describes how the principles set out in the UK Corporate Governance Code 2018 (the ‘Code’) have been applied by the Company and details the Company’s compliance with the Code’s provisions for the year ended 31 December 2024. Compliance with the Code The Company has applied the principles and complied throughout the year with all of the relevant The table below provides an overview of the Company’s compliance with each of the five sections provisions of the Code. The UK Corporate Governance Code is available at www.frc.org.uk. of the Code. Code section Question Board Leadership & Company Purpose Details of how the opportunities and risks to the future success of the business have been considered and addressed and the sustainability of the Company’s business model are set out in the Strategic Report (pages 26 to 91). Details of stakeholder engagement (including engagement with major investors and details of how investors’ interests are considered in Board discussions and decision making are set out on pages 32 to 39 of the Strategic Report. Details of how our Board monitors culture through our Workforce Engagement NED and details of our Whistleblowing Policy are set out on page 72 of the Strategic Report. Details of how potential conflicts of interest are managed are included on page 101 of this Corporate Governance Report. Division of Responsibilities The division of responsibilities on the Board and details of directors’ independence are set out on page 100 of this Corporate Governance Report. Time commitments of the Board and 2024 Board and committee meeting attendance is set out on page 102 of this Corporate Governance Report. Composition, Succession and Evaluation The composition and skills, experience and knowledge of the Board is detailed on page 94 of this Corporate Governance report. Details of the annual evaluation of the performance of the Board, its committees, the Chair and individual directors are set out on page 101 of this Corporate Governance Report. The composition, roles and responsibilities and activities of the Nomination & Governance Committee are set out on pages 104 to 107 of the Nomination & Governance Committee Report. Audit, Risk & Internal Control The composition, roles and responsibilities and activities of the Audit & Risk Committee are set out on pages 127 to 134 of the Audit & Risk Committee Report. The Board confirms that it has completed a robust assessment of the Company’s emerging and principal risks. Details of the Board’s assessment of the Company’s principal risks are set out on pages 61 to 67 of the Strategic Report and details of the Board’s assessment of the Company’s risk management and internal control system are set out on page 103 of this Corporate Governance Report. Please also see the Directors’ Report (including the Going Concern statement) (pages 135 to 138) and the Viability Statement (page 56) for details of the Board’s assessment of the Company’s position, business model, strategy, prospects. Remuneration The composition, roles and responsibilities and activities of the Remuneration Committee are set out on page 111 of the Directors’ Remuneration Report. Pages 110 to 126 of the Directors’ Remuneration Report sets out details of the Remuneration Policy as presented to shareholders at the 2023 AGM and how the policy has been applied in determining director and senior management remuneration. 98 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE The Board At 31 December 2024, the Board comprised of an independent non-executive Chair, four further Under local legislation or regulation for all divisions of the Group, the directors have responsibility for independent non-executive directors and two executive directors. maintenance and projections of solvency and for assessment of capital requirements, based on risk assessments, and for establishing the level of long-term business provisions, including Biographical details of current directors are given on pages 94 and 95 and a Board profile, which assesses the adoption of appropriate assumptions. The Prudential Regulation Authority is the Group supervisor the core competencies required to meet the Group’s strategic objectives, is provided on page 94. and maintains oversight of all divisions of the Group through the college of supervisors. The Board reviewed and updated the core competencies matrix, adding People & Reward and Regulatory competencies as key requirements. The Board, which plans to meet at least seven times over the course The responsibilities that the Board has delegated to the respective executive management teams of 2025, has a schedule of matters reserved for its consideration and approval. These matters include: of the UK, Dutch and Swedish businesses include: the implementation of the strategies and policies of the Group as determined by the Board; monitoring of operational and financial results against plans – implementation of the corporate strategy and business plan; and budget; prioritising the allocation of capital, technical and human resources and developing and – major acquisitions, investments and capital expenditure; managing Risk Management Systems. – financial reporting and controls; The roles of the Chair and Group Chief Executive – Dividend Policy; The division of responsibilities between the Chair of the Board and the Group Chief Executive is – capital structure; clearly defined and has been approved by the Board. The Chair leads the Board in the determination – Board and Board committee composition and appointments; of its strategy and in the achievement of its objectives and is responsible for organising the business of the Board and availability of timely information, ensuring its effectiveness, encouraging challenge – appointments to the Board and Board committee membership; from non-executive directors and setting its agenda. The Chair has no day-to-day involvement in the – appointment or removal of the Company Secretary; and management of the Group. The Group Chief Executive has direct charge of the Group on a day-to-day – of the Remuneration Policy for Board directors and senior executives. basis and is accountable to the Board for the strategic, financial and operational performance of the Group. To support effective escalation from the Company’s major regulated subsidiary Boards, members of the Company’s Board also serve on key subsidiary Boards and committees across Chesnara’s business Senior Independent Director divisions. Specifically: Jane Dale, who has been a non-executive Board member since May 2016, was appointed as the Senior Independent Director in October 2018. The Senior Independent Director supports the Chair in both the (i) three directors of the Company were also directors of Countrywide Assured plc during the year, those delivery of the Board’s objectives and in ensuring that the views of all shareholders and stakeholders being Jane Dale, Mark Hesketh (until 09 April) and Carol Hagh; are conveyed to the Board. Jane is available to meet shareholders on request and to ensure that the (ii) three directors of the Company were also directors of CASLP Ltd during the year, until CASLP Ltd was Board is aware of shareholder concerns not resolved through the existing mechanisms for shareholder dissolved on 16 January 2025, those being Jane Dale, Mark Hesketh (until 9 April) and Carol Hagh; communication. The Senior Independent Director also meets with the non-executive directors, without (iii) four directors of the Company, being Karin Bergstein (until 5 December), Eamonn Flanagan, Steve Murray the Chair present, at least annually, and conducts the annual appraisal of the Chair’s performance and and David Rimmington (until 16 May 2025), were also directors of Movestic Livförsäkring AB in 2024; and provides feedback to the Chair and the Board on the outputs of that appraisal. (iv) Steve Murray was also a director of the Scildon and Waard Supervisory Boards throughout the year. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 99 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT Directors and directors’ independence During 2024 a review was conducted to assess the independence of the Board as a whole when set against a matrix of key measures set out in the Code. The table below shows the results of that review under the Code Provisions 11, 12 and 17 and Principle G. Code consideration Question Provision 11 & 12 1. Are at least half the Board, excluding the Chair, NEDs whom the Board considers to be independent? YES 2. Has the Board appointed one of the independent NEDs to be the senior independent director (SID) to provide a sounding board for the Chair and serve as an intermediary for the other directors and shareholders? YES Principle-G 3. Does the Board include an appropriate combination of executive and non-executive (and, in particular, independent non-executive) directors, YES such that no one individual or small group of individuals dominates the Board’s decision making? 4. Is there a clear division of responsibilities between the leadership of the Board and the executive leadership of the Company’s business? YES Provision 17 5. Has the Board established a Nomination Committee to lead the process for appointments, ensure plans are in place for orderly succession to both the Board and senior management positions, and oversee the development of a diverse pipeline for succession? YES 6. Are a majority of members of the Nomination Committee independent NEDs? YES 7. Is the Nomination Committee chaired by an individual other than the Chair of the Board when it is dealing with the appointment of their successor? YES The review went further and, based on Code Provision 10, assessed each NED against a list of ten Yes/No questions, where, for each, a ‘No’ is determined to be a positive assessment of independence. The table below shows the results of that review: Questions: Has the non-executive director... LS JD EF GT CH KB 1. Been an employee of the Company or Group within the last five years? No No No No No No 2a. Had within the last three years, a material business relationship with the Company: Directly? No No No No No No 2b. Had within the last three years, a material business relationship with the Company: As a partner, shareholder, director or senior employee of a body No No No No No No that has such a relationship with the Company? 3. Received additional remuneration from the Company apart from a director’s fee? No No No No No No 4. Participated in the Company’s share option or performance-related pay scheme? No No No No No No 5. Been a member of the Company’s pension scheme? No No No No No No 6. Got close family ties with any of the Company’s advisors, directors or senior employees? No No No No No No 7. Held cross-directorships or had significant links with other directors through involvement in other companies or bodies? No No No No No No 8. Represented a significant shareholder? No No No No No No 9. Served on the Board for more than nine years from the date of their first appointment? No No No No No No 100 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE As a result of this review, the Board considers that all non-executive directors were independent In addition to these structured processes, the papers are supplemented by information which the during the year under review. The Board notes that Jane Dale will have served almost nine years directors require from time to time in connection with major events and developments, where critical on the Board by the date of the AGM, and as outlined on page 107, Ms Dale will not seek re- views and judgements are required of Board members outside the normal reporting cycle. election as a director of the Company at the 2025 AGM, concluding her tenure on the Board. Board effectiveness and performance evaluation The Board has no familial relationship with any other member of the Board or senior As part of the annual performance, an internal effectiveness evaluation of the Board and each of its management team. committees was undertaken in the latter part of 2024. Other than their fees, and reimbursement of taxable expenses, which are disclosed on page 113, This was through directors completing an anonymous questionnaire followed by individual meetings the non-executive directors received no remuneration from the Company during the year. between the Chair and each director to obtain their views on what was working well and what could The directors are given access to independent professional advice, at the Company’s expense, be improved. Individual director performance and time commitment to the Board was considered as when the directors deem it necessary in order for them to carry out their responsibilities. part of these meetings. Independent professional advice of this nature was drawn upon with regard remuneration matters. The questionnaire covered wide-ranging matters, including how well the Board operates, the process This has been disclosed on page 111 in the Remuneration Report. of decision making, the balance between the focus on risk, good customer outcomes and running The Board is satisfied that its overall balance continues to provide significant independence of mind the business, the culture and dynamics of the Board ensuring its composition and that of its and judgement and further considers that, taking the Board as a whole, the independent directors are committees are aligned. In addition, using similar methods to those described above, the non- of sufficient calibre, knowledge and number that they are able to challenge the executive directors, executive directors, led by Jane Dale as Senior Independent Director under a separate process, their views carry significant weight in the Company’s decision making and bring diverse cultural and contributed to a formal performance evaluation of the Chair. territory insight and skills. The outcome of the reviews of the Board and its committees indicated that they continue to be Professional development effective. The evaluation of directors’ performance concluded that each of the directors The directors were advised, on their appointment, of their legal and other duties and obligations as demonstrates commitment to his or her role and dedicates sufficient time to effectively discharge directors of a listed Company. This has been supplemented by the circulation to each director of their their responsibilities to the Company. responsibilities and duties as contained within the Group’s Corporate Governance & Responsibilities The review indicated that information provided to the Board is clear and focused and that the Board Map. Throughout their period in office, the directors have, through the conduct of business at operates in an open and constructive manner. Continuous progress on the Company’s long-term scheduled board meetings and training, been updated on the Group’s business and on the competitive strategy and ensuring appropriate time is allocated to this continues to be a focus for the Board in and regulatory environments in which it operates. The directors are committed to their own ongoing 2025. Similarly, having overseen a number of changes to the executive team in 2024 (detailed on professional development and the Chair discusses training with each non-executive director at page 105 of the Nomination and Governance Report), talent and succession planning remains a focus least annually. All directors are encouraged to suggest training topics of interest. In 2024, specific for 2025 in order to ensure the Group is well placed to meet its strategic ambitions. board awareness and deep-dive sessions took place on inside information and share dealing, tax considerations of Part VIIs, M&A and company structure, Artificial Intelligence, sustainability, and The evaluation findings were presented back to each committee and formally approved on that basis key jurisdictional market trends. Each member of the Board, except the Chair and the Group Chief before each committee then confirmed to the Board that it continued to operate effectively. Financial Officer, served on one or more subsidiary Board during the period under review, through Directors’ conflicts of interest which they have considerable knowledge and experience of the divisional businesses across the The Board has a policy and effective procedures in place for managing and, where appropriate, Group. The Chair regularly attends committee and subsidiary Board meetings by invitation. approving conflicts or potential conflicts of interest. This is a recurring agenda item at all Board Information meetings, giving directors the opportunity to raise any conflicts of interest they may have or to Regular reports and information are circulated to the directors in a timely manner in preparation for update the Board on any changes to previously lodged interests. A director may be required to leave Board and committee meetings. a Board meeting whilst such matters are discussed. As stated above, the Company’s directors are also members of various Boards of key subsidiaries The Company Secretary holds a register of interest, and a log of all potential conflicts raised is within the UK, Dutch and Swedish divisions. These Boards hold scheduled meetings, at least maintained and updated. The Board is empowered to authorise potential conflicts and agree what quarterly, which are serviced by regular reports and information, covering all of the key areas measures, if any, are required to mitigate or manage them. No material conflicts of interest were relevant to the direction and operation of those subsidiary entities, including business development, noted in 2024. key projects, financial performance and position, actuarial assumptions setting and results analysis, Whenever a director takes on additional external responsibilities, the Chair considers any potential compliance, investments, information technology and cyber security, operations, customer conflicts that may arise and whether or not the director continues to have sufficient time to fulfil his care and communication, internal audit, all aspects of the Risk function and own risk and or her duties. There were considered to be no such concerns in 2024. solvency assessment. Customer/third-party conflicts of interest Key divisional subsidiaries monitor risk management procedures, including the identification, The Board has a policy in place to manage customer and third-party conflicts of interest. This policy measurement and control of risks through the auspices of a Risk Committee. These committees sets out how the Company and its regulated subsidiaries manage conflicts of interest fairly, both are accountable to and report to their Boards on a quarterly basis. between the relevant Company and its customers, between groups of customers and between Annual reports are produced which cover an assessment of the capital requirements of the life customers, suppliers and shareholders. assurance subsidiaries, their financial condition and a review of risk management and internal No material conflicts of interest were noted in 2024. control systems. Furthermore, the divisions are required to submit a quarterly risk report and an annual report on risk management and internal control systems. CHESNARAANNUALREPORTANDACCOUNTS2024101 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT Employee engagement Hybrid working arrangements are in place across the Group to the extent appropriate to each territory appropriate. Shareholders are nonetheless encouraged to submit in advance any questions that they and business unit. This hybrid flexibility has enabled the Group to attract candidates to new roles that may have in order that the Chairs of the Board committees can answer them on the day. otherwise might not have considered its main office locations. Sustainability governance The Board has a standard agenda item at each of its meetings to cover culture and stakeholder Our third report covering the broad range of climate-related information to be disclosed under the engagement, including workforce engagement. This has helped highlight workforce and other four overarching pillars (Governance, Strategy, Risk Management and Metrics & Targets) of the stakeholder matters as part of Board discussion and decision making. In addition, the designated Taskforce for Climate-Related Financial Disclosure (TCFD) is contained on pages 68 to 91. This details Workforce NED supports the Board’s ability to engage with the wider workforce as a two-way the governance information required in accordance with recommendations of TCFD. communications channel. The Group Chief Executive Officer takes overall accountability for sustainability at group level, with A full description of our employee engagement and well-being is provided in our corporate and social the support of divisional CEOs, other executive management and a Group Sustainability Committee, responsibility section on pages 70 to 72. currently chaired by the Company’s senior independent NED. The Board sets the overall vision and approach of the Group in regards to sustainability and has approved its sustainability commitments Customer/supplier engagement and targets. The Board receives regular reporting on sustainability, including with regards to progress The Board remains vigilant to ensure the importance of customer- and supplier- engagement remains towards our targets and consideration of the Group climate change risk assessment (with support high on the Group’s agendas. from the Audit & Risk Committee). Further details of how we are embedding sustainability into our Relations with shareholders Governance Framework are included in our Annual Sustainability Report. The Group Chief Executive and the Group Chief Financial Officer meet with institutional shareholders Company Secretary and are available for additional meetings when required. Should they consider it appropriate, The directors had access to the advice and services of the Company Secretary throughout the year. institutional shareholders are able to meet with the Chair, the Senior Independent Director and any The Company Secretary is responsible for advising the Board on all governance matters. other director. The Chair is responsible for ensuring that appropriate channels of communication are established with shareholders through the Group Chief Executive and the Group Chief Financial Remuneration Committee Officer and, with support from the Senior Independent Director as appropriate, is responsible for Full details of the composition and work of the Remuneration Committee are provided on page 111. ensuring that the views of shareholders are known to the Board. This includes twice yearly feedback Audit & Risk Committee prepared by the Company’s brokers on meetings that the executive directors have held with Full details of the composition and work of the Audit & Risk Committee are provided on pages institutional shareholders. 127 to 134. The Company’s full year and interim results presentations are available as a webcast for all Nomination & Governance Committee shareholders and provides opportunities for investors to ask questions directly to senior management. Full details of the composition and work of the Nomination & Governance Committee are provided The Company also has a programme of meetings with its larger shareholders as managed by the on pages 105 to 107. Head of Strategic Development & Investor Relations, which provides an opportunity to discuss the progress of the business on the basis of publicly available information. This investor relations The attendance record of each of the directors at scheduled board and committee meetings for the programme continued during 2024, with meetings held both in person and virtually, as well as period under review is: engagement with prospective new investors and private client wealth managers. The Company Nomination & also meets with existing and prospective debt investors. These include specific meetings for the Scheduled Governance Remuneration Audit & Risk debt investor community as well as ad hoc meetings arranged either directly or through investor Board 1 Committee Committee Committee conferences. A significant proportion of the Company’s shareholders are retail investors and, in order to ensure that they have access to relevant information, the Company maintains a detailed webpage Luke Savage Non-Executive Chair 11 (11) 4 (4) 5 (5) n/a for investors which includes access to equity research. Management also undertake webinars on the Steve Murray Executive Director 11 (11) n/a n/a n/a Company’s prospects that are publicly available to private investors. David Rimmington Executive 3 (3) n/a n/a n/a Director Annual and interim reports are published and those reports, together with a wide range of information of interest to existing and potential shareholders, are made available on the Company’s Jane Dale Non-Executive Director 11 (11) 4 (4) n/a 6 (6) website, www.chesnara.co.uk. Mark Hesketh Non-Executive 2 (2) 1 (1) n/a 2 (2) Director All shareholders are encouraged to attend the Annual General Meeting (‘AGM’) at which the results Eamonn Flanagan Non-Executive are explained and an opportunity is provided to ask questions on each proposed resolution. 11 (11) n/a 5 (5) 6 (6) Director At our AGM on 14 May 2024, all resolutions were passed, with votes for ranging from 92.74% Karin Bergstein Non-Executive 11 (11) 4 (4) n/a 6 (6) to 99.99% (votes against ranging from 0.01% to 7.26%). The lowest support (92.74%) was for Director Resolution 17, which authorises the directors to disapply pre-emption rights on share issuances Carol Hagh Non-Executive 11 (11) 4 (4) 5 (5) n/a relating to acquisition or other capital investments. Although there are currently no plans or intentions Director to issue shares in relation to acquisitions or other capital investments, the Board considers the Tom Howard Executive Director 9 (9) n/a n/a n/a resolution to seek such authority common market practice and it offers the Company flexibility Gail Tucker non-executive director – (–) – (–) n/a – (–) should the authority be required. The figures in brackets indicate the maximum number of scheduled meetings in the period during which the Our next AGM is to be held on 13 May 2025 and details of the resolutions to be proposed can be individual was a Board or committee member. found in the Notice of the Meeting on pages 253 to 259. It is intended that the meeting be held in Note: person, with the chairs of the Board and its committees available to answer such questions as 1. The number of scheduled Board meetings includes 3 meetings that were called at short notice to discuss ad hoc/ subject specific matters. 102 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Internal control The Board is ultimately responsible for the Group’s system of internal control and for reviewing its The Board is satisfied that the overall internal control framework has remained effective during the effectiveness. In establishing the system of internal control, the directors have regard to the year, that the group has responded appropriately to any risks or issues which have arisen, and that significance of relevant risks, the likelihood of risks occurring and the methods and costs of mitigating any control deficiencies identified are being appropriately addressed. Additionally, there are a number risks. It is, therefore, designed to manage rather than eliminate the risks, which might prevent the of live change programmes that exist across the Group. These include the planned migrations for Company meeting its objectives and, accordingly, only provides reasonable, but not absolute, the majority of the UK’s outsourced operations to SS&C and potential merger of our Dutch businesses. assurance against the risk of material misstatement or loss. There are also planned advancements in IT, operational risk management and controls being made as a result of major regulatory driven operational resilience programmes across the Group. This includes In accordance with the FRC’s guidance on Risk Management, Internal Control and Related Financial UK Operational Resilience, UK Third Party Risk Management and DORA. and Business Reporting, the Board confirms that there is an on-going process for identifying, evaluating and managing the significant risks faced by the Group. This process has been in place Financial reporting for the year under review and up to the date of approval of the Annual Report and Accounts. Management is responsible for establishing and maintaining adequate internal controls over financial The process is regularly reviewed by the Board and accords with the guidance. reporting. These controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes. In accordance with the regulatory requirements of the PRA, local regulators and SII, the relevant business divisions have maintained and enhanced their risk and responsibility regime. This ensures The Group has comprehensive planning, budgeting, forecasting and reporting processes in place. that the identification, assessment and control of risk are firmly embedded within the organisation A summary of the Group’s financial results supported by commentary and performance measures and that there are procedures for monitoring and update of the same. The Audit & Risk Committee is provided to the Board on a quarterly basis. regularly reviews and reports quarterly on risks to the Board. In relation to the preparation of the Group financial statements, the controls in place include: The Group also maintains a principal risk register, which ensures identification, assessment and – reviewing new developments in reporting requirements and standards to ensure that these are control of the significant risks subsisting within the Company and its business units CA, Waard reflected in group accounting policies; and Group, Movestic and Scildon. The principal risks and uncertainties of the Group can be found on – developing the Group’s financial control processes and procedures which are implemented across pages 61 to 67. the Group. The maintenance of principal risk registers is the responsibility of senior management, who report The reporting process is supported by transactional and consolidation finance software. Reviews on them quarterly to the respective divisional Audit & Risk Committees and to each Chesnara Audit of the application of controls for external reporting purposes are carried out by senior finance & Risk Committee meeting. management. The results of these reviews are considered by the Board as part of its monitoring The divisions maintain a risk and responsibility regime, which ensures that: of the performance of controls around financial reporting. The Audit & Risk Committee reviews the application of financial reporting standards and any significant accounting judgements made – the Boards and Group Chief Executive have responsibility for ensuring that the organisation and by management. management of the operation are characterised by sound internal control, which is responsive to internal and external risks and to changes in them; Going Concern and Viability Statement – the Boards have responsibility for the satisfactory management and control of risks through the The Statement on Going Concern is included in the Directors’ Report on page 138 and the specification of internal procedures; Long-Term Viability Statement is set out on page 56. – there is an explicit Risk function, which is supported by compliance; and Financial crime and whistleblowing – the Internal Audit functions provide independent assurance that the risk management, governance Amongst others, the Company operates policies for anti-bribery & corruption as well as anti-fraud and internal control processes are operating effectively. in order to manage risks such as financial crime, money laundering, fraud, corruption and terrorist financing. Related to this, a Whistleblowing Policy is also operated to facilitate the communication At least quarterly principal and emerging risks are reported to the Board, assessing their proximity, of wrongdoing or suspected wrongdoing with clear communication lines highlighted to enable probability and potential impact. This has enabled the Board to carry out a robust assessment of individuals to advise of their concerns in a safe and confidential manner; in this regard, an external the Company’s emerging and principal risks. whistleblowing line was established during the year. No instances of whistleblowing or financial As an integral part of this regime, detailed risk registers are maintained to identify, monitor and crime were noted during the year. These policies are all reviewed annually and staff are asked to attest assess risk under appropriate classifications. It includes climate change risk. to their embedding and understanding. A Gifts & Hospitality Register is maintained and no breaches were recorded during the year. With regards to Countrywide Assured plc, Waard Group, Scildon and Movestic, the Group ensures that effective oversight is maintained, by way of the membership of Chesnara directors on their local Boards and quarterly reporting to the Chesnara plc Audit & Risk Committee. In addition, the Chesnara Board confirms that it has undertaken a formal annual review of the effectiveness of the system of internal control for the year ended 31 December 2024, and that it has considered material developments between that date and the date of approval of the Annual Report and Accounts. The Board confirms that these reviews took account of the findings by the Internal Audit and Compliance functions on the operation of controls, internal financial controls, as well as management assurance on the maintenance of controls, and reports from the external auditor on matters identified in the course of statutory audit work. Conclusions of the Audit & Risk Committee’s annual review of effectiveness of the Group’s risk management and internal control systems are reported in more detail in the Audit & Risk Committee Report as set out on pages 127 to 134. CHESNARAANNUALREPORTANDACCOUNTS2024103 NOMINA TION & GOVERNANCE COMMITTEE REPORT 104CHESNARAANNUALREPORTANDACCOUNTS2024 CORPORATE GOVERNANCE The Nomination & Governance Committee considers the mix of skills and experience The composition of the Board that the Board requires to be effective and reviews talent development and succession The committee has continued to focus on succession planning, with a view to maintaining an planning across the Group. appropriate composition for the Board and its committees to support the continued development of the Group. The review also identified areas where the Board should evolve to meet any expected Nomination & Governance Committee future business and strategic direction of the Group. During the period under review, the committee comprised Carol Hagh, who also served as Chair During 2024 the committee finalised the process that led to Tom Howard’s appointment as the of the committee from 9 April, Jane Dale, Luke Savage, and Karin Bergstein. Mark Hesketh served Group’s Chief Financial Officer and as a director of the Company. It also determined the approach as Chair of the committee until his resignation on 9 April 2024 to become Chair of our UK business to allocating Company Secretary responsibilities upon the resignation of the Group General Counsel unit, Countrywide Assured. No individual participated in discussion or decision making when the & Company Secretary. matter under consideration related to themselves. The committee approved the appointment of Pauline Derkman as Chief Executive Officer and Edwin The committee Chair reports material findings and recommendations from each meeting at the Bekkering as Chief Financial & Risk Officer, of what will become the combined Scildon & Waard next Board meeting. business, subject to regulatory approval. The Terms of Reference for the committee can be found on the Company website The development of talent below Board level is vital. The Company continues to build an internal www.chesnara.co.uk leadership pipeline for senior roles to ensure that the necessary skills and experience exist within the business. The role of the Nomination & Governance Committee is to: – keep under review the balance, structure, size, diversity and composition of the Board and its Board appointment process committees, ensuring that they remain appropriate; The committee adopts a formal and transparent procedure for the appointment of new directors to the Board. – assess the independence of each NED and any circumstances that are likely to impair, or could impair, their independence; The Board’s typical process may include the use of independent external search firms for appointing – be responsible for overseeing the Board’s succession planning requirements including the directors. As part of the appointment process, these external advisors would be asked to provide identification and assessment of potential Board candidates and making recommendations candidates from a diverse range of backgrounds, from which we select a short list of candidates to the Board for its approval; who best meet the selection criteria. Interviews are conducted by a selection of Board members and executive management, as relevant to the role, with a recommendation to the committee as to the – scrutinise and hold to account the performance of the executive directors against agreed preferred candidate. Any candidate deemed suitable for appointment will provide references and, performance objectives and advise the Remuneration Committee of their assessments; if necessary, undergo the fit and proper assessment process as outlined in the FCA Senior Managers – keep under review the leadership needs of, and succession planning for, the Group in relation & Certification Regime (SMCR) prior to appointment. to both its executive directors and other senior management; The Board engaged the services of Teneo in its appointment of Tom Howard as a director of the – identify and nominate, for the approval of the Board, candidates to fill Board vacancies as and Company on 15 April 2024 and as Chief Financial Officer following the 2024 AGM. when they arise; – oversee the search process for new directors, recommending appointments to the Board; and Jane Dale will step down as a director of Chesnara at the conclusion of the 2025 AGM after nine years on the Board. On behalf of the Board, we thank Jane for her extensive and invaluable – evaluate the balance of skills, knowledge, experience and diversity of the Board. contribution to the Company during her tenure. We are delighted to have announced Gail Tucker as This includes consideration of recommendations made by the Group Chief Executive for changes a new appointee to the Board and she brings a wealth of experience to the Group from her previous to the executive membership of the Board. role at PwC. The Board engaged the independent services of executive search firm, Lygon Group, in Gail’s appointment. During the period, the committee met four times and attendance at those meetings is shown on page 102. By invitation, the Group CEO and Group Chief of Staff & Company Secretary attend the Nomination & Governance Committee but neither were present when matters relating to their own performance were discussed. CHESNARAANNUALREPORTANDACCOUNTS2024105 CORPORATE GOVERNANCE NOMINATION & GOVERNANCE COMMITTEE REPORT Diversity The committee is mindful of the corporate governance developments in the areas of diversity In accordance with Listing Rule 6.6.6R(10), the following tables set out numerical data on the sex and gender balance, including the requirements under the Disclosure and Transparency Rules. and ethnic background of the Board and executive management as at 31 December 2024, with the data collected from the individuals. a) Gender reporting table Number of Number of senior Number in % of Board % of positions on the Board executive executive Gender members Board (CEO, CFO, SID or Chair) management management Men (including those self-identifying as men) 4 57.1% 3 2 100% Women (including those self-identifying as women) 3 42.9% 1 n/a n/a Non-binary n/a n/a n/a n/a n/a Not-specific/prefer not to say n/a n/a n/a n/a n/a b) Ethnicity reporting table Number of Number of senior Number in % of ONS ethnicity Board % of positions on the Board executive executive category members Board (CEO, CFO, SID or Chair) management management White British or White Other 6 86% 4 2 100% Mixed/Multiple Ethnic Groups n/a n/a n/a n/a n/a Asian/Asian British 1 14% n/a n/a n/a Black/African/Caribbean/Black British n/a n/a n/a n/a n/a Not specified/prefer not to say n/a n/a n/a n/a n/a 106 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Review of effectiveness Directors standing for re-election The Board recognises the benefits of having diversity across all The Board and its committees undertook annual effectiveness Jane Dale will stand down as a director at the Company’s AGM areas of the Group – please see the equal opportunities section reviews and the respective chairs discussed the findings in each on 13 May 2025, at which time Gail Tucker will be put forward for on page 70 for further detail. When considering the make-up of forum. Other standard processes were also undertaken, including election. In accordance with the Code, all other directors will the Board, the benefits of diversity are reviewed and balanced Fit & Proper assessments, Board Diversity Policy review, NED offer themselves for re-election at that time. Following the annual where possible and appropriate, along with the breadth of skills, succession planning and the review of the effectiveness of the Board effectiveness reviews of individual directors, as applicable sector experience, gender, race, disability, age, nationality and Chair. The evaluations did not identify any additional changes and subject to re-election/election, the Chair considers that other contributions that individuals may make. In identifying needed to Board composition over and above those that had each director: suitable candidates, the committee seeks individuals from a range been initiated. – continues to operate as an effective member of the Board; of backgrounds, with the final decision being based on merit Areas where increased focus and/or action was considered to – has the necessary skills, knowledge and experience to enable against the role criteria set. Through its Board Diversity Policy, be of potential value have either been addressed in 2024 or will them to discharge their duties and contribute to the continued the Board maintains its practice of embracing diversity and be taken into account in 2025. The 2024 Board effectiveness effectiveness of the Board; and operates a measurable gender-based target of having at least reviews were internally facilitated having been last led by an 40% representation of both male and female membership – has sufficient time available to fulfil their duties. external third party (Nasdaq Governance Solutions) in 2022. on the Board by 31 December 2025 in recognition of the The Board, on the advice of the Nomination & Governance recommendations of the FTSE Women Leaders Review. We are Succession planning Committee, recommends the election- or re-election of each pleased to report that during 2024 we met this target and, in Succession planning is an important element of good governance, director so proposed at the 2025 AGM. The full 2025 AGM addition, have met the requirements under Listing Rule 9.8.6R ensuring that Chesnara is fully prepared for planned or sudden Notice can be found on page 253. of having at least 40% female directors and we remain committed departures from key positions throughout the Group. The to continuous review and improvement of diversifying the Board, committee, in the year, has reviewed the succession plans senior management and the wider workforce. Since April 2024 for the Board and senior executives across the Group. and throughout the majority of the financial year, the Board Mindful of the need for effectiveness and engagement, the comprised 42.9% female: 57.1% males in line with the Hampton- committee through its ongoing review of Board and committee Alexander Review target of 33% for FTSE 100 companies though memberships determined that a number of changes were a voluntary target for FTSE 350 organisations. In addition, the appropriate as noted above. And the committee will continue Company will target having a female appointee to at least one of to also have efficiency and value in mind when determining the key senior roles of Chair; Senior Independent Non-Executive Carol Hagh board membership and giving optionality for its longer-term Director; Group CEO or Group CFO by 31 December 2025 and Chair of the Nomination & Governance Committee composition as the Group continues to change and succession has met this target for a number of years. Actual levels of gender 26 March 2025 plans are effected. diversity will be monitored and be reported in the Annual Report and Accounts. The Board currently comprises four men and four Non-executive director engagement women with the role of Senior Independent Non-Executive It is important to the Board that non-executive directors are Director held by Jane Dale. It will comprise four men and three provided with training and development both within the women upon Jane Dale standing down after the 2025 AGM. business and at a group level. The Board believes that on-going Further details of our board’s diversity, including our approach training is essential to maintaining an effective and knowledgeable to collecting data, can be found on page 71 of the Strategic board. The Company Secretary supports the Chair in ensuring Report. that all new directors receive a tailored and comprehensive induction programme on joining the Board. Continuing education Further, Chesnara has determined that it will ensure that it and development opportunities are made available to all board continues to meet the measurable target of having at least one members throughout the year. In 2024, a number of development director from an ethnic minority on the Board in line with the initiatives have continued, these included one-to-one sessions Parker Review. In consideration of the longer term, the Board with key members of the senior management team and training has discussed increasing its range of knowledge and experience sessions given by external providers. from outside financial services and also a broader geographical experience base but is satisfied with its current composition. The business operates to principles for other roles and is mindful that it has a small workforce and therefore considers that it needs to take associated staff turnover expectations into account. The diversity of the Senior Leadership Team is reported on page 106. CHESNARAANNUALREPORTANDACCOUNTS2024107 We seek to achieve strong alignment between the interests of stakeholders and executive directors. EAMONN FLANAGAN, CHAIR REMUNERA TION COMMITTEE ANNUAL STATEMENT 108CHESNARAANNUALREPORTANDACCOUNTS2024 CORPORATE GOVERNANCE Dear Investor Executive performance in 2024 On behalf of the Board and its Remuneration Committee (‘committee’), I am pleased to present Executive director remuneration outcomes for 2024 the Directors’ Remuneration Report for the year ended 31 December 2024, for which we seek In light of the performance of the executive team relative to the financial targets and strategic shareholder support at our forthcoming Annual General Meeting. objectives set at the start of the year, the Remuneration Committee is satisfied that the reward outcomes are appropriate and that our Remuneration Policy worked as intended. Additional details, Summary of the year including a full description of targets and performance outcomes, can be found on page 114 for the STIS and on page 117 for the 2022 LTIP awards. Chesnara has a very clear strategic focus across three key areas: 1. Maximising value from our existing business; The impact of acquisitions is excluded from the cash generation and EcV results for STIS award purposes given that their funding can have a distorting impact on short-term results. Although the 2. Acquiring life and pension businesses that meet the strategic criteria of the Company; and acquisition strategy created £11m of incremental Economic Value during the year, the committee has 3. Enhancing value through profitable new business generation. applied no discretion in its assessment of the STIS outcome. These three strategic objectives are underpinned by the culture, values and risk appetite of the The committee has reviewed the position of the 2022 LTIP ahead of vesting and is satisfied that no Group, which looks to deliver positive investment returns and value for money for our customers. windfall gains have occurred and that no adjustment is required on vesting. Further, the committee From a remuneration perspective, we seek to achieve strong alignment between the interests reviewed underlying financial, operational and risk performance of the business over the relevant of stakeholders and executive directors and continue to operate two executive incentive schemes: performance periods and was satisfied that outcomes were a fair reflection of performance achieved the Short-Term Incentive Scheme (STIS) and Long-Term Incentive Plan (LTIP). and therefore applied no further adjustment to the formulaic outcomes. As covered in the financial report, we have seen further excellent delivery on our key performance New Group Chief Financial Officer (‘Group CFO’) metrics in the year: In December 2023, we announced that David Rimmington had agreed with the Board that he would † 1. Commercial Cash Generation of £60m, showing that the Group continues to deliver cash not seek re-election at the Company’s Annual General Meeting (‘AGM’) in 2024 and that he would generation through a wide variety of market conditions. step down as Group Finance Director and as a director of Chesnara plc at the conclusion of that † meeting. David oversaw the 2023 year end reporting process and supported an orderly transition to 2. EcV increased by £43m before the impact of dividend distributions of £37m, demonstrating incoming Group Chief Financial Officer Tom Howard. that the Group continues to generate sources of long-term future value. 3. Strong solvency ratio of 203%, significantly above our usual operating range, leaving us As set out in last year’s Directors’ Remuneration Report, David has been treated as a good leaver in well placed to execute M&A as opportunities are created or emerge. line with the definitions set out in our Remuneration Policy and was not eligible for a salary increase or to receive an LTIP award in 2024. His 2024 STIS and inflight LTIP awards have been pro-rated for 4. New Business Contribution of £9m, further supplementing the Group’s EcV and the period of the year David worked. Awards will continue to be subject to the original performance demonstrating a recurring and sustainable source of value to the Group. targets and there will be no acceleration of vesting. 5. Acquisition strategy saw the completion of the second Canada Life transaction in December 2024. Tom Howard joined as an Executive Director on Monday 15 April 2024 as Group Chief Financial Officer designate subject to regulatory approval and was elected by shareholders at the subsequent 6. An increase in dividend of 3% retaining our track record of growing the full year dividend AGM. The structure of Tom’s remuneration is the same as that provided to his predecessor, with an every year for the last 20 years. STIS and LTIP opportunity of 100% of salary each. As set out in last year’s Directors’ Remuneration Report, we agreed to compensate Tom for awards which he forfeited on leaving Aviva Investors to join Chesnara. These are in line with the typical approach of companies in this scenario and further details are disclosed in the report and are in compliance with Listing Rules 9.3.2. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 109 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • REMUNERATION COMMITTEE CHAIR’S ANNUAL STATEMENT Implementation of pay in 2025 Shareholder engagement In line with our Remuneration Policy, it is our normal practice to award executive directors, The Directors’ Remuneration Report for the year ended 31 December 2024 comprises my Annual and indeed all employees, an annual salary increase broadly in line with inflation. In 2025, UK Statement as Chair of the Remuneration Committee and our Annual Remuneration Report, which employees below executive level received an average salary increase of 2.5%. The Group CEO together are subject to an advisory shareholder vote at the AGM in May 2025. was awarded a 2.1% increase and the Group Chief Financial Officer a 2.0% increase. The voting outcome at the 2024 AGM in respect of the Directors’ Remuneration Report for the year It is intended that the grants be made in the STIS and LTIP schemes and that quantums and ended 31 December 2023 and the Remuneration Policy is set out on page 126 and reflects the performance measures remain unchanged from those of 2024. In line with the approved support of both private and institutional shareholders. The committee will continue to be mindful Remuneration Policy, the CEO and CFO will be eligible for an STIS opportunity of 100% of salary. to the interests of shareholders. The metrics (cash generation, EcV and personal strategic measures) and weightings will be I hope that my annual statement, together with our Remuneration Report, provides a clear unchanged from 2024, with the committee of the view that the metrics remain well aligned account of the operation of the Remuneration Committee during 2024 and how we have put our to Chesnara’s key strategic aims. Similarly, the LTIP too will remain consistent with that of 2024 Remuneration Policy into practice. As Chair of the Remuneration Committee, I look forward to and the Group CEO will be awarded a 125% of salary grant and the Group CFO a 100% grant. engaging with you on our activities and decisions. As this year progresses, we will commence The executive directors’ remuneration for 2025 can be found on page 123. our review of our Remuneration Policy ahead of our requirement to submit a policy for shareholder approval at the 2026 AGM. This will provide me with an additional chance to engage with Non-executive director fees shareholders, as we consult on any material changes that we determine to be appropriate. In line with policy, Chair and NED fees are periodically reviewed. The Board took into account individual NEDs’ updated responsibilities and wider benchmarks for NED pay when determining increases to their fees. The Chair’s fee was raised by 2.5% as with the general staff award, and the Chair’s positioning remains around the lower quartile of the companies in the FTSE Small Cap. The fees for other NEDs increased by 2.5% on average. Directors’ fees are set out on page 124. Employee engagement The management teams in each of the businesses are responsible for ensuring that employees Eamonn Flanagan are kept informed and their views are considered on key subject matters. The committee engaged Chair of the Remuneration Committee with staff sitting in both Chesnara plc and our UK business unit on the components of the Group’s 26 March 2025 remuneration offering and the alignment of directors’ pay with that of UK employees. Specifically, we held a meeting between myself and the Group CEO alongside our UK CEO and UK HR Director with representatives from across the UK team. 110 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT This section sets out how the Remuneration Committee has implemented its Remuneration Policy for executive directors during 2024. Other than the single total figure of remuneration for each director tables on page 112, statement of directors’ shareholding and share interests on page 119, the information contained within this report has not been subject to audit. Composition and activities of the Remuneration Committee In accordance with its Terms of Reference, which can be viewed on the Company’s website, the Remuneration Committee considered matters relating to directors’ remuneration and that of other senior managers at each of its meetings in 2024. Members of the Remuneration Committee during the course of the year were: Committee Role on the Committee Attendance Maximum possible members 1 committee member since in 2024 meetings in 2024 Luke Savage Committee member February 2020 5 5 Notes. 1. By invitation, the Group CEO and Group Chief of Staff attended the Remuneration Committee, as under their Eamonn Flanagan 2 Committee Chair July 2020 5 5 role did the Group General Counsel & Company Secretary but none were present when matters relating to their own remuneration were discussed. Carol Hagh Committee member February 2022 5 5 2. Eamonn Flanagan joined the committee in July 2020, and was appointed Chair on 15 January 2022. The committee appointed PricewaterhouseCoopers LLP (‘PwC’) as its independent advisor from 10 October 2022 following a competitive tender process. During 2024, the committee incurred external advisor fees totalling £111,915 excluding VAT. PwC is a member of the Remuneration Consultants Group and a signatory to its Code of Conduct and the committee is therefore satisfied that the advice PwC provided was objective and independent. Highlights 2024 In 2024, the committee met five times and dealt with the following matters: Area of focus Matter considered Executive director Assessed and recommended to the Board, approval of the outcome of awards made in 2023 under the STIS and in 2022 under the LTIP having given due consideration to the risk remuneration report provided by the Audit & Risk Committee. The committee also approved the outcomes of buyout awards made to Steve Murray as Group CEO on appointment. and reward Approved the targets and the grant of awards to executives in 2024 under the STIS and LTIP and undertook a half-year evaluation. Also considered whether the share price at the time of making the LTIP award was likely to give rise to a ‘windfall’ for directors and determined that this was not the case. Approved the final terms offered to the incoming Group CFO for awards to compensate him for inflight benefits otherwise to be forfeited upon leaving his previous employer. All employee and Reviewed the UK employee general salary increase of 2.5%, mindful of economic considerations, staff turnover and the ability to attract new talent in a competitive recruitment market. executive remuneration Approved LTIP grants to a broader participation group of targeted senior leaders and key talent who are able to materially influence the delivery of group strategy, ensuring that this critical group of executives are aligned to our long-term goals. Terms of Reference The committee’s Terms of Reference were reviewed. A number of minor modifications were made in consultations with our advisors, PwC, but no material revisions were made to the scope of committee duties as they were felt to continue to be appropriate and provide adequate scope to cater for the expectations set by the Code. Review of the The Remuneration Policy, most recently presented to and approved by shareholders at the AGM in May 2023 with 96.25% support, was again reviewed for continued Remuneration Policy appropriateness. No changes were considered necessary ahead of the triennial review in 2025 and vote in the 2026 AGM. Committee evaluation An evaluation of the committee’s performance by way of an internal questionnaire suggested that the committee continued to operate well. Annual salary review The committee reviewed the salaries of the executive directors and senior management and made changes in line with its Remuneration Policy and with due reference to staff salaries and economic conditions generally. Directors’ Remuneration The committee reviewed the draft Directors’ Remuneration Report for the 2023 Report and Accounts and recommended its approval by the Chesnara Board. Reporting Performance against The committee reviewed the executive directors’ performance against objectives set. strategic objectives Shareholder The committee Chair wrote to shareholders in Spring 2024 setting out updates in the proposed approach to remuneration, reflecting feedback which had been received following engagement the 2023 AGM. Employee engagement The committee engaged with staff on the alignment of directors’ pay with UK employees through a meeting held between the committee Chair, the Group CEO and a cross section of the UK workforce. Chair’s fees The committee reviewed the level of fees payable to the Board chair. Remuneration principles The committee reviewed the Group Remuneration Principles, which guide the remuneration policies throughout the Group. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 111 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT Single total figure of remuneration for each director (audited information) The remuneration of the executive directors for the years ended 31 December 2024 and 31 December 2023 is made up as follows: Executive directors’ remuneration as a single figure – year ended 31 December 2024 Salary All taxable Non-taxable Total for and fees Pension 3 benefits 1 benefits STIS LTIP 2+4 Buy-out 2024 Fixed Variable Name of director £000 £000 £000 £000 £000 £000 awards 8 £000 £000 £000 Steve Murray 5 525 45 21 5 501 280 – 1,377 596 781 Tom Howard 6 253 19 1 1 238 – 665 1,177 274 903 David Rimmington 7 118 11 20 2 111 – – 262 151 111 Total 896 75 42 8 850 280 665 2,816 1,021 1,795 Executive directors’ remuneration as a single figure – year ended 31 December 2023 Salary All taxable Non-taxable Total for and fees Pension 3 benefits 1 benefits STIS LTIP 2+4 Buy-out 2023 Fixed Variable Name of director £000 £000 £000 £000 £000 £000 awards 8 £000 £000 £000 Steve Murray 5 458 39 21 8 439 217 – 1,182 526 656 Tom Howard 6 – – – – – – – – – – David Rimmington 7 315 30 41 8 299 102 – 795 394 401 Total 773 69 62 16 738 319 – 1,977 920 1,057 Notes: 1. Includes amounts paid in lieu of accrued dividends and interest arising upon the exercise of share options under 4. No portion of the LTIP single figure value in relation to the 2022 LTIP award is attributable to share price growth. the 2014 STIS. 5. This vesting outcome of the 2022 LTIP award has been applied to the average share price between 1 October 2. Includes amounts paid in lieu of accrued dividends and interest arising upon the exercise of share options under 2024 and 31 December 2024 (255.5p) to produce the estimated LTIP figures shown for 2024 above. There will the 2014 LTIP. be a true-up based on the actual share price on the day of vesting which will be shown in the 2025 Annual Report 3. The pension component in the single figure table represents employer contributions. No directors were members and Accounts. of a defined benefit scheme. The executives can participate in a defined contribution pension scheme at the same 6. Tom Howard joined as an executive director on 15 April. level as all employees with employer contributions currently being 9.5% of basic salary. If pension limits are 7. David Rimmington stood down as a director on 14 May 2024. reached, the executive may elect to receive the balance of the contribution as cash. 8. The buy-out awards were granted to Tom Howard, to compensate him for the schemes that he held with his previous employer and which he forfeited upon accepting his new role with Chesnara. 112 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE The remuneration of the non-executive directors for the years ended 31 December 2024 and 31 December 2023 is made up as follows, with the fee element being fixed and the benefits being variable in nature: Non-executive directors’ remuneration as a single figure – year ended 31 December 2024 and 2023 2024 2023 Fees Benefits Total Fees Benefits Total Name of director £000 £000 £000 £000 £000 £000 Luke Savage 147 – 147 135 – 135 Eamonn Flanagan 75 – 75 70 – 70 Jane Dale 83 – 83 75 – 75 Mark Hesketh 1 19 – 19 70 – 70 Carol Hagh 74 – 74 65 – 65 Karin Bergstein 67 – 67 65 – 65 Total 465 – 465 480 – 480 Notes. 1. Mark Hesketh stood down as a director on 9 April 2024. Salary and fees The Remuneration Committee usually reviews basic salaries annually. Assessments are made UK employee share ownership is encouraged and facilitated through participation in the giving full regard to external factors such as earnings inflation and industry benchmarks and SAYE Scheme. to internal factors such as changes to the role by way of either structural reorganisations or The committee engaged directly with employees on the alignment of directors’ pay with UK enlargement of the Group. In addition, basic pay levels reflect levels of experience. The single employees, including with regard to the proposed 2025 salary increase. earnings figures demonstrate the application of this assessment process. Taxable benefits The Remuneration Policy for the executive directors is designed with regard to the policy for The taxable benefits for executive directors relate to the provision of a car, fuel allowance and employees across the Group as a whole. Our ability to meet our growth expectations and medical insurance. For non-executive directors, the taxable benefits represent the reimbursement compete effectively is dependent on the skills, experience and performance of all our employees. of travelling expenses incurred in attending board meetings at the Preston head office. These Our employment policies, remuneration and benefit packages for employees are regularly amounts also include an amount to compensate for the personal tax burden incurred. reviewed. There are some differences in the structure of the Remuneration Policy for the executive directors and senior management team compared to other employees, reflecting their differing responsibilities, with the principal difference being the increased emphasis on performance related pay for the more senior employees within the organisation. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 113 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT Short-Term Incentive Scheme The amounts reported as STIS in 2024 derive from awards made under the 2023 STIS. The amounts awarded to the executive directors under this scheme are based on performance against † † three core measures; cash generation , total EcV Earnings and group strategic objectives. The table below shows the outcome of each measure, the target set and the resulting award. Actual Percentage Percentage Percentage percentage award for award for award for Actual award, as Threshold threshold On target on target Maximum maximum Actual percentage percentage Total performance performance performance performance performance performance result total award of salary award (£) Steve Murray 1 £15.6m 0% £19.5m 1 Cash generation 25.0% £25.4m 35.0% £66.4m 1 35.0% 35.0% 183,750 Total EcV Earnings 2 £14.5m 0% £20.8m 25.0% £31.2m 35.0% £82.4m 35.0% 35.0% 183,750 Group strategic 75% 0% 100% 15.0% 125% 30.0% 85.0% 25.5% 25.5% 133,696 objectives of max Total 65.0% 100.0% 95.5% 95.50% 501,196 Tom Howard 3 Cash generation 1&3 £15.6m 0% £19.5m 1 25.0% £25.4m 35.0% £66.4m 1 35.0% 35.0% 86,771 Total EcV Earnings 2&3 £14.5m 0% £20.8m 25.0% £31.2m 35.0% £82.4m 35.0% 35.0% 86,771 Group strategic 75% 0% 100% 15.0% 125% 30.0% 87.3% 26.2% 26.2% 64,820 objectives of max Total 65.0% 100.0% 96.2% 96.2% 238,362 David Rimmington 4 Cash generation 1&4 £15.6m 0% £19.5m¹ 25.0% £25.4m 35.0% £66.4m¹ 35.0% 35.0% 45,984 Total EcV Earnings 2&4 £14.5m 0% £20.8m 25.0% £31.2m 35.0% £82.4m 35.0% 35.0% 45,984 Group strategic 75% 0% 100% 15.0% 125% 30.0% 80.5% 24.1% 24.1% 31,672 objectives of max Total 65.0% 100.0% 94.1% 94.1% 123,640 For results between the performance thresholds, a straight-line basis applies. Notes: 1. This is stated after certain adjustments, such as consolidation adjustments. The actual results are also adjusted 3. The award is pro-rata to the number of months in the role from the date of appointment on 15 April 2024. in the same manner. 4. The award is pro-rata to the number of months in the role up to the date of termination on 31 May 2024. 2. The total EcV Earnings before exceptional items on page 51 has been adjusted in line with the basis of the target. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. 114 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE The following table details the requirements for delivery of the strategic objectives for 2024 and actual outcomes: Objectives area Objectives and performance Outcome Steve Murray Customer & operational Set clear direction for, and ensure efficient delivery UK Consumer Duty July deadline met with fully-funded plan in place. Regulatory relationships remain positive delivery (25%) by, business units across Chesnara. with additional engagement on M&A and other projects. Netherland merger progressed with local Management Boards and Supervisory Boards signing off relevant regulatory submissions. Delivery of requirements for DORA was significant across the European divisions plus Operational Resilience in the UK. Positive Canada Life migration oversight. Movestic strategy execution with sales performance the strongest since COVID-19. Communication Improve external and internal communications Further simplification of investor presentation including more focus on smaller range of metrics with positive and culture (10%) with key stakeholders. feedback from investors. Significant number of investors meetings above previous year levels including European and North American ‘roadshows’ and continued focus outside our main shareholder base with private client groups plus new relationships with Berenberg leading to further analyst coverage. Sessions held with wider Group SLT and various groups of employees. M&A pipeline reporting to each Board meeting and more formally in the business planning document. Further improvement in executive reporting at plc level. Set the tone across the Group on greater transparency and a growth mindset. Strategic activity inc Proactively identify and execute value A busy year of opportunity assessment and further development of relationships with potential partners. M&A (35%) enhancing M&A. View of pipeline across the next 3 years now established and discussed with the Chesnara Board and local LTs and Boards. Proactive mapping of potential connections to make this happen. No material acquisitions in the year despite significant effort. More engagement with local parties across the territories. Proactive approach on management actions with UK mass lapse delivered, re-risking of part of Waard asset portfolio and extension of FX hedge. People (10%) Development of direct reports and improve Further action taken across the wider Group SLT including responding to leavers. New Group CFO onboarded and the talent pool across Chesnara. well established. Appointments for potential merged Dutch entities also made, subject to regulatory approvals. Well established BUs successions plans. CEO forum established. Cross group HR forum also established. Local CEOs now regular attendees at the Chesnara Board, when appropriate. All parts of the Group have staff survey results including eNPS. ESG (20%) Continued development of appropriate ISS governance score improved materially. Further work conducted to improve wider sustainability ratings. environmental/climate, people and sustainability Targets published and CEO sustainability group formed with transition plans tabled for 2025. On track to meet policies and practices, for the benefit of our external targets. customers, shareholders, staff, suppliers and other stakeholders, which respond to regulatory and ESG assessment formally part of M&A process with MSCI tooling used. non-regulatory guidance and industry practice. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 115 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT Short-Term Incentive Scheme continued The following table details the requirements for delivery of the strategic objectives for 2024 and actual outcomes: Objectives area Objectives and performance Outcome Tom Howard Transition of Group FD Complete a smooth and measured transition Successful handover and a smooth transition into the Chesnara Group CFO. responsibilities to Group of Group FD responsibilities. Onboarding plan met in full with meetings held with individual SLT members, divisional ExCo members, Board, CFO (15%) AR&C members and external audit partners. Developed understanding of Group strategy and broader operational issues quickly and effectively. Business planning & Planning and leading delivery of 2025 business 2024 H1 results delivered in line with planned timelines. performance and 2024 plan and the HY 2024 year end across Group Improvement in the timeliness of the HY reporting process versus 2023. interim reporting (30%) and divisions including associated investor communication. Improved the clarity of messaging at HY with positive feedback from Board, banks and some investors. IFRS 17 projections fully embedded in the Plan process and signed off by the Board in December. Balance sheet (20%) Proactive management of the Group’s balance Proactive approach to capital management across the BUs, mainly through the inclusion of management actions sheet including in support of M&A. within the Plan process. Planned 2024 management actions were executed across the Group with further actions available (but unused). People (20%) Review finance Target Operating Model and Improved ways of working across the Group Finance team and successful separation of the Group Financial improve ways of working with divisions. Controller and UK CFO roles. Separation of the UK and Group Centre Finance teams, giving colleagues clearer role profiles and responsibilities within the broader Chesnara Group Finance function. Improved collaboration between the BUs and Group Centre and role-modelled a collaborative and transparent approach with the BUs and Board. ESG (15%) Support the continued development of appropriate ESG requirements included within M&A assessments and TCFD reporting requirements. environmental/climate, people and sustainability Investment considerations included with the Group Investment Committee TORs. policies and practices, for the benefit of our customers, shareholders, staff, suppliers and other ESG reporting requirements embedded withing TCFD processes. stakeholders, which respond to regulatory and non-regulatory guidance and industry practice. David Rimmington Transition of Group FD Proactively support a smooth and measured Helped support transition of CFO responsibilities in a timely manner including facilitation of meetings with responsibilities (20%) transition of GFD responsibilities. appropriate team members and wider stakeholders. Full, effective and appropriate engagement with team through transition. 2024 financial year end Planning and leading delivery of 2024 year end FY 2023 results delivered in line with plans. (40%) including associated investor communication. Strong support provided for investor roadshow. Balance sheet (15%) Proactive management of the Group’s balance Supported early year work on management actions which has ultimately led to FX hedge and mass lapse in the UK sheet including in support of M&A. being implemented. Supported financial assessment of transactions including on balance sheet impacts and financing options. People (10%) Enhance the Finance function talent pool. Supported retention of key finance talent. ESG (15%) Support the continued development of appropriate Annual Sustainability Report delivered to a high standard. environmental/climate, people and sustainability Good progress made regarding disclosure with a strong continuous improvement philosophy adopted. policies and practices, for the benefit of our customers, shareholders, staff, suppliers and other stakeholders, which respond to regulatory and non-regulatory guidance and industry practice. 116 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE In converting performance against the measures assessed for 2024 set out in the previous tables, the directors’ STIS awards are specified below. The committee did not apply discretion in determining the final outcome: Name of Salary on which award is based Maximum potential award Actual award Total value of award director £ as % of salary as % of salary £ Steve Murray 525,000 100.00% 95.47% 501,196 Tom Howard 247,906 100.00% 96.15% 238,362 David Rimmington 131,378 100.00% 94.11% 123,640 Total 863,198 35% of the above awards are granted as deferred share awards that will vest at the end of a three-year deferred period. Long-Term Incentive Plan awards The following table sets out the amounts that are due to vest on 28 April 2025 under the 2014 LTIP, for which performance conditions were satisfied during the year. In aggregate, the LTIP awards vested at 38.2% of maximum for both executive directors . Individual Measure Weight Ranges and targets Actual outcome Performance % of award Value of Threshold Maximum achieved vesting award £ Steve Murray Award 1 Personal performance 100% n/a n/a n/a 100.0% 83,054 Award 2 TSR 50% 0.0% 23.0% 17.4% 38.2% 144,284 Award 2 EcV † 50% £639.3m £656.0m £531.0m 0.0% nil David Rimmington TSR 50% 0.0% 23.0% 17.4% 38.2% 100,299 † EcV 50% £639.3m £656.0m £531.0m 0.0% nil † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 117 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT The table below sets out potential LTIP interests that have accrued during the year, and each directors’ interest in that scheme: Face value on the % of award Length of vesting Name of Date award Amount of date of grant 2 vesting for minimum period – 3 years executive director Name of scheme was granted options awarded 1 (based on share price) performance Date of vesting Steve Murray 202 3 LTIP 02 April 2024 249,525 £525,000 (263.00p) 10.4% 02 April 2027 3 2023 LTIP 06 July 2023 210,386 £457,800 (272.00p) 10.4% 06 July 2026 3 2014 LTIP 28 April 2022 147,627 £420,000 (284.50p) 10.4% 28 April 2025 3 Tom Howard 2023 LTIP 16 April 2024 135,135 £350,000 (259.00p) 10.4% 16 April 2027 3 Buy-out 15 May 2025 75,397 £188,493 (250.00p) nil 15 May 2027 Buy-out 15 May 2025 99,206 £248,015 (250.00p) nil 15 May 2026 Buy-out 15 May 2025 188,492 £471,230 (250.00p) nil 15 May 2025 David 2014 LTIP 06 July 2023 115,927 £315,321 (272.00p) 8.3% 06 July 2026 3 Rimmington 2014 LTIP 28 April 2022 105,556 £300,306 (284.50p) 10.0% 28 April 2025 3 2014 LTIP 28 April 2021 94,502 £259,882 (275.00p) 10.0% 28 April 2024 3 2014 LTIP 28 April 2020 81,213 £259,882 (320.00p) 10.0% 28 April 2023 3 2014 LTIP 28 April 2019 71,070 £254,785 (358.50p) 10.0% 28 April 2022 3 2014 LTIP 28 April 2018 60,805 £249,300 (410.00p) 10.0% 28 April 2021 2014 LTIP 28 April 2017 61,996 £237,600 (383.25p) 12.5% 28 April 2020 2014 LTIP 28 April 2016 71,259 £222,328 (312.00p) 12.5% 28 April 2019 Notes. 1. No awards are made if performance is below the minimum criteria. 2. The face value is reported as an estimate of the maximum potential value 3. LTIP awards from 2019 onwards are subject to a two-year holding period on vesting. in addition to the three-year performance period. Basis of awards and summary of performance measures Awards granted under the 2023 LTIP: 33.3% will vest at EcV growth target and targets 2014 LTIP and 2023 LTIP: maximum for TSR performance 6% per annum higher than the Awards granted under the 2014 LTIP: 50% of the award Share options awarded are based on the share price at close of median Company in the comparator group over the performance will vest subject to the EcV outcome being within a certain business on date of award and a percentage of basic salary, that period with this calibration aiming to ensure that a maximum range of its target. being Steve Murray 100% in 2022 and 125% in both 2023 and 2024; pay-out is achieved for performance comparable to the upper Awards granted under the 2023 LTIP: 33.3% of the award and David Rimmington 75% in 2014 and 2015, 90% in 2016 to 2021 quartile of life insurance peer companies. The calibration of will vest subject to the EcV outcome being within a certain range and 100% in 2022 and 2023. Options have a nil exercise price. threshold is unchanged such that Chesnara must perform as of its target. a minimum at the median of the comparator group for any payout Total Shareholder Return to be achieved subject to the TSR target being in a certain range, Commercial Cash Generation Awards granted under the 2014 LTIP: 50% of the awards will with the range being the ranking of the TSR of Chesnara against 2023 Awards granted under the 2023 LTIP: 33.3% of the vest subject to the TSR target being in a certain range, with the the TSR of the individual companies in the FTSE 350 Higher Yield award will vest subject to the Commercial Cash outcome range being the ranking of the TSR of Chesnara against the TSR Index at the start of the performance period. The award will be being within a certain range of its target. of the individual companies in the FTSE 350 Higher Yield Index. made on a sliding scale from nil if the Chesnara TSR is below the The award will be made on a sliding scale from nil if the Chesnara median to full if the Chesnara TSR is in the upper quartile. TSR is below the median to full if the Chesnara TSR is in the upper quartile. 118 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Core Surplus Emergence Payments to past directors (audited information) 2024 Awards granted under the 2023 LTIP: 33.3% of the No payments were made during the year to past directors. on 15 April 2024. When the minimum holding level has not been award will vest subject to Core Surplus Emergence outcome achieved, directors may only dispose of shares where funds are Statement of directors’ shareholding and share interests being within a certain range of its target. Core Surplus Emergence required to discharge any income tax and National Insurance (audited information) is defined as the absolute surplus movement of the divisions liabilities arising from awards received from a Chesnara incentive The Remuneration Policy requires executive directors to including Chesnara entity but adjustments will be made for the plan. The Chair and non-executive directors are encouraged to build up a shareholding through the retention of shares. For impact of items such as FX, T2/T3 restrictions, acquisition hold shares in the Company but are not subject to a formal executives who joined Chesnara before 1 May 2021 (i.e. David impacts and shareholder dividends as deemed appropriate. shareholding guideline. Rimmington), their minimum is 100% of basic salary but with Payments for loss of office (audited information) a 200% of salary shareholding requirement (including a provision The following table shows, in relation to each director, the total The following payments were made to Dave Rimmington during for this to be held for the full 2 years in a post-employment number of share interests with and without performance the year for loss of office: scenario) applying to all future awards granted from 2023 onward. conditions, the total number of share options with and without For executives joining from 1 May 2021 (i.e. Steve Murray and performance measures, those vested but unexercised and those Tom Howard) the minimum is 200% of salary. Steve Murray who exercised at 31 December 2024 or the date of resignation. Remuneration type Amount (£000) joined on 2 August 2021 has not yet met this requirement albeit No changes took place in the interests of the directors between has continued to acquire shares in 2024 outside the LTIP Salary and fees 195 31 December 2024 and 26 March 2025. programme. Similarly, nor has Tom Howard who joined Chesnara Pension 17 Shares held Options Taxable benefits 9 With Without Exercised Percentage of Non-taxable benefits 4 Name of 1 January 31 December performance performance Vested but during shareholding director 2024 2024 measures measures 1 unexercised the year target held 2 Annual bonus 13 Steve Murray 147,248 219,946 607, 538 106,603 29,525 80,420 146.5% 2022 LTIP award 125 Tom Howard – 10,000 498,230 9,084 – – 14.4% Total payments for loss of office 363 David 140,919 167,754 221,483 99,249 – 51,737 186.5% Notes. Rimmington 1. No awards are made if performance is below the minimum criteria. 2. The face value is reported as an estimate of the maximum potential Luke Savage 30,000 30,000 – – – – – value on vesting. 3. LTIP awards from 2019 onwards are subject to a two-year holding period Jane Dale 3,333 3,333 – – – – – in addition to the three-year performance period. For all of the above items of remuneration, with the exception Eamonn 30,000 30,000 – – – – – Flanagan of the LTIP award, the figures represent the amounts paid to Dave Rimmington from the point he stood down as a director Carol Hagh 10,000 30,000 – – – – – (14 May 2024) to his final termination date (5 December 2024). The amount awarded under the 2022 LTIP is based upon Dave Karin – – – – – – – Rimmington being classed as a ‘good leaver’ under the rules of Bergstein 3 the scheme and is pro-rated based upon the percentage of the performance period in which Dave held the office of director. Gail Tucker 4 – – – – – – – This includes the period from 1 January 2022 to 14 May 2024, the date upon which he stood down as acting director. Total 361,500 491,033 1,327,251 214,936 29,525 132,157 – Notes. 1. The ‘options without performance measures’ column in the table does 2. Calculated using the share price of 264.50p at 31 December 2024. not include the share options that will be awarded as part of the 3. As a Netherlands national, Karin Bergstein is not permitted by the Dutch mandatory deferral rules under the 2023 STIS in respect of awards made Central Bank (‘De Nederlandsche Bank’) to hold shares in a Company in relation to the 2023 financial year, which equate to 35% of the cash of which she is a director. award under this scheme. The timetable for the administration of the 4. Gail Tucker became a director on 29 January 2025. scheme means that these will be reported in the 2025 Annual Report and Accounts. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. CHESNARAANNUALREPORTANDACCOUNTS2024119 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT Outstanding share options and share awards Below are details of outstanding share options and awards for the current executive directors, Steve Murray and Tom Howard. For completeness, we have also included those in relation to David Rimmington, who stood down as Group Finance Director in the year. Number of Number of shares Number shares under under Number Number waived/ option and Name of Steve Murray Tom Howard option at granted exercised lapsed unexercised at End of Date of executive David Rimmington Grant Exercise 1 January during during during 31 December performance Performance expiry of director Scheme date price (p) 2024 year year year 2024 period Vesting date period option 2023 LTIP 02/04/24 Nil – 249,525 – – 249,525 31/12/26 02/04/27 3 Years 02/04/34 (2024 award) 2023 LTIP 06/07/23 Nil 210,386 – – – 210,386 31/12/25 06/07/26 3 Years 06/07/33 (2023 award) 2014 LTIP 28/04/22 Nil 147,627 – – – 147,627 31/12/24 28/04/25 3 Years 28/04/32 (2022 award) 2014 LTIP 26/11/21 Nil 140,105 – (46,795) (93,310) – 31/12/23 28/04/24 3 Years 26/11/31 (2021 award) 2014 LTIP 26/11/21 Nil 33,625 – (33,625) – – 31/12/23 30/06/24 3 Years 26/11/31 (2021 award) 2023 STIS 02/04/24 Nil – 58,484 – – 58,484 n/a 02/04/27 n/a 02/04/34 (2024 award) 2023 STIS 31/05/23 Nil 39,953 – – – 39,953 n/a 31/05/26 n/a 31/05/33 (2023 award) 2014 STIS 28/04/22 Nil 29,525 – – – 29,525 n/a 28/04/25 n/a 28/04/32 (2022 award) Share save 01/12/22 220.40 8,166 – – – 8,166 n/a 01/12/25 n/a 01/06/26 609,387 308,009 (80,420) (93,310) 743,666 2023 LTIP 16/04/24 Nil – 135,135 – – 135,135 31/12/26 16/04/27 3 Years 16/04/34 (2024 award) Buy-out plan 15/05/24 Nil – 75,397 – – 75,397 15/05/27 15/05/27 3 Years 15/05/34 Buy-out plan 15/05/24 Nil – 99,206 – – 99,206 15/05/26 15/05/26 2 Years 15/05/34 Buy-out plan 15/05/24 Nil – 188,492 – – 188,492 15/05/25 15/05/25 1 Years 15/05/34 Share save 25/10/24 204.20 – 9,084 – – 9,084 n/a 01/12/27 n/a 01/06/28 – 507,314 – – 507,314 2023 LTIP 06/07/23 Nil 115,927 – – (41,863) 74,064 31/12/25 06/07/26 3 Years 06/07/33 (2023 award) 2014 LTIP 28/04/22 Nil 105,556 – – (2,933) 102,623 31/12/24 28/04/25 3 Years 28/04/32 (2022 award) 2014 LTIP 28/04/21 Nil 94,502 – (32,934) (61,568) – 31/12/23 28/04/24 3 Years 28/04/31 (2021 award) 2023 STIS 02/04/24 Nil – 39,807 – – 39,807 n/a 02/04/27 n/a 02/04/34 (2024 award) 2023 STIS 31/05/23 Nil 28,115 – – – 28,115 n/a 31/05/26 n/a 31/05/33 (2023 award) 2014 STIS 28/04/22 Nil 31,327 – – – 31,327 n/a 28/04/25 n/a 28/04/32 (2022 award) 2014 STIS 28/04/21 Nil 18,803 – (18,803) – – n/a 28/04/24 n/a 28/04/31 (2021 award) 394,230 39,807 (51,737) (106,364) (275,936) 120 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Performance graph and CEO 120 Chesnara – Total Shareholder Return, rebased remuneration table FTSE 350 Higher Yield – Total Return Index, rebased The following graph shows the 100 FTSE UK Life Insurance – Total Return Index, rebased Company’s performance compared 80 with the performance of the FTSE 350 Higher Yield Index and the 60 FTSE UK Life Insurance Index. The FTSE 350 Higher Yield Index 40 has been selected since 2014 as a comparison because it is the 20 index used by the Company for the performance criterion for 0 its LTIP, and the FTSE UK Life Insurance Index has been selected -20 due to Chesnara’s inclusion within -40 this Index. -50 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 The table sets out the details for the director undertaking the role of Group CEO: Group CEO single figure Long-term incentive Individual performing of total remuneration STIS pay-out vesting rates against Year Group CEO role £000 against maximum maximum opportunity Note 2024 Steve Murray 1,377 95.47% 49.71 % 5 2023 Steve Murray 1,182 96.00% 52.01% 1 & 4 2022 Steve Murray 1,094 76.37% 60.42% 1 & 3 2021 Steve Murray 721 57.00% 58.42% 1 2021 John Deane 978 95.57% – 2 2020 John Deane 782 53.38% – 2 2019 John Deane 1,111 98.79% 19.93% 2 2018 John Deane 965 31.08% 67.99% 2 2017 John Deane 1,142 86.96% 80.95% 2 2016 John Deane 902 98.33% – 2 2015 John Deane 596 81.96% – 2 Notes. 1. Steve Murray joined Chesnara on 2 August 2021 and was appointed TSR Index 4. During 2023, Steve Murray had two LTIP awards that vested, with one Group CEO on 19 October 2021. vesting at 100% and the other vesting at 43.65%. The figure reported 2. John Deane was appointed Group CEO on 1 January 2015 and stood above is a combined percentage, based upon the total number of shares down on 18 October 2021. vesting under both grants. 3. During 2022, Steve Murray had two LTIP awards that vested, one 5. During 2024, Steve Murray had two LTIP awards that vested, with one at 100% and the other at 33.40%. The figure reported above is a vesting at 100% and the other vesting at 38.25%. The figure reported combined percentage, based upon the total number of shares vesting above is a combined percentage, based upon the total number of shares under both grants. vesting under both grants. CHESNARAANNUALREPORTANDACCOUNTS2024121 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT Rolling 5-year percentage change in remuneration for the executive and non-executive directors and group employees The table below shows the percentage change in remuneration for the executive and non-executive directors and the Company’s employees as a whole between the years 2024 and 2020. In future years, this analysis will be repeated on a rolling 5-year comparison basis. Percentage change David Tom in remuneration Group Rimmington Howard Luke Jane Eamonn Mark Carol Karin Group CEO (Group FD) (Group CFO) 2 Savage Dale Flanagan Hesketh Hagh Bergstein employees % % % % % % % % % % 2024 compared with 2023 Salary and fees 14.7 – n/a 8.9 10.7 7.1 n/a 4.9 3.1 6.0 1 All taxable benefits – (29.3) n/a – – – – – – – STIS 15.2 (58.5) n/a n/a n/a n/a n/a n/a n/a 1.2 2023 compared with 2022 Salary and fees 9.0 5.0 n/a 5.9 5.8 6.1 6.1 4.9 4.9 6.0 All taxable benefits – 173.4 1 n/a – – – – – – (5.2) STIS 37.0 32.5 n/a n/a n/a n/a n/a n/a n/a 42.0 2022 compared with 2021 Salary and fees – 4.0 n/a 3.7 6.8 7.4 7.4 n/a n/a 4.0 All taxable benefits 162.5 1 (75.0) n/a – – – – n/a n/a 6.6 STIS 33.7 (11.4) n/a n/a n/a n/a n/a n/a n/a (22.8) 2021 compared with 2020 Salary and fees – – n/a – – – – n/a n/a – All taxable benefits – 300.0 1 n/a – – – – n/a n/a (1.1) STIS 80.0 72.4 n/a n/a n/a n/a n/a n/a n/a 2.9 2020 compared with 2019 Salary and fees 2.0 2.0 n/a n/a – n/a – n/a n/a 2.0 All taxable benefits (39.1) 1 20.3 1 n/a n/a n/a n/a n/a n/a n/a 13.3 STIS (44.9) (41.0) n/a n/a n/a n/a n/a n/a n/a n/a Notes 1. All taxable benefits include amounts paid in lieu of accrued dividends and interest arising upon the exercise 2. The title Group Finance Director was updated to the title of Group Chief Financial Officer with the appointment of share options under the 2014 and 2023 STIS for the Group CEO and Group FD/CFO. For the non-executive of Tom Howard in 2024. The title has been retrospectively updated for prior years to aid comparison. directors, these relate to expenses grossed up for income tax, which is settled by the Company for travel to Chesnara’s head office in Preston, which, for tax purposes, is deemed to be the non-executive director’s normal place of work. Comparison of total remuneration for the Group CEO and UK employees We set out here our analysis on CEO pay ratio reporting as required by The Companies The analysis is then presented to show the ratio of the Group CEO’s 2024 single total figure (Miscellaneous Reporting) Regulations 2018. This analysis has been conducted using of remuneration to the: ‘Option A’ as set out in the Regulations, consistent with prior years, and has consisted of: – Median (i.e. 50th percentile) FTE remuneration of our UK employees; – Determining the total FTE remuneration of all UK employees for the 2024 financial year; – 25th percentile FTE remuneration of our UK employees; and – Ranking all those employees based on their total FTE remuneration from low to high; and – 75th percentile FTE remuneration of our UK employees. – Identifying the employees whose remuneration places them at the 25th, 50th (median) and 75th percentile points of this ranking. 122 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Comparison Group CEO 25th percentile Median pay ratio 75th percentile pay +7% of total pay ratio (FTE UK (FTE UK ratio (FTE UK 174.6 remuneration employees total employees total employees total 162.5 remuneration) remuneration) remuneration) 2024 2023 £ £ Ratio £ Ratio £ Ratio 2024 1,377,000 76,950 17.9 : 1 106,881 12.9 : 1 169,659 8.1 : 1 2023 15.7 : 1 10.2 : 1 7.1 : 1 2022 14.5 : 1 10.4 : 1 6.4 : 1 2021 13.7 : 1 9.7 : 1 5.4 : 1 2020 11.3 : 1 8.2 : 1 4.8 : 1 2019 15.7 : 1 11.8 : 1 6.6 : 1 +4% +3% 36.9 37. 3 35.4 36.1 The Remuneration Committee considers that the ratio is consistent with our Remuneration Policy and that no actions arise from this analysis. Base salaries of all employees, including our executive directors, are set with reference to a range of factors including market practice, experience and performance in role. Total employee pay BusinessacquisitionandDividends Over the longer term, the Group CEO pay ratios have moved broadly in line with the Group CEO’s maintenance expenditure single figure of remuneration. The committee notes that the pay ratios for 2024 reflect the nature of the Group CEO’s package being more heavily weighted towards variable pay compared to more Statement of Implementation of Remuneration Policy in the following financial year junior colleagues (consistent with our reward policies), and this means the ratio is likely to fluctuate The following states how remuneration will be implemented for the executive and non-executive depending on the performance of the business and associated outcomes of incentive plans and directors in 2025. historically buy-out awards in each year. Salaries and fees Furthermore, the committee is satisfied that our pay and broader people policies drive the right Will be set in accordance with the Company’s policy. behaviours and reinforce the Group’s values which in turn drive our culture. For these reasons, the committee believes that the ratios are consistent with these policies. Executive directors Steve Murray (Group CEO) received a 2.1%. Tom Howard received a 2.0% uplift. UK employees Relative importance of spend on pay below executive level received an average salary increase of 2.5%. The following graph shows the actual expenditure of the Group and change between the current and previous years. Non-executive directors The Chair’s fee has been increased by 2.5%, with positioning remaining around the lower quartile The graph shows a comparison of total employee pay and shareholder dividends with the Group’s of the FTSE Small Cap and as decided by the other non-executive directors. The fee level for other total acquisition and maintenance expenditure (which consists of administration expenses and costs non-executive directors reflects an unchanged base fee and then role-specific uplifts and have been associated with the acquisition of new business). This has been chosen as a comparator to give an set by the Chair in discussion with the Group CEO and increased by different levels in parallel with indication of the employee pay relative to the overall cost base. As can be seen, the total employee a review of individual responsibilities. Individual non-executives have received fee increases of pay is a relatively small component. between 2.3%-2.5% other than Eamonn Flanagan whose fee was increased by 2.8% in recognition of his responsibilities as the Chair of the Remuneration Committee as well as his appointment to Chair the Movestic Livförsäkring AB board from May 2024. CHESNARAANNUALREPORTANDACCOUNTS2024123 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT The table below sets out the anticipated payments for 2025: Notes Fees Benefits 1 Total 1. Benefits shown here mainly relate to expenses grossed up for income tax, which is settled by the Company for £000 £000 £000 travel to Chesnara’s head office in Preston, which, for tax purposes, is deemed to be the non-executive director’s normal place of work. The figure for Karin Bergstein represents amounts payable to the Dutch tax authorities by the Company, under Dutch social security legislation to otherwise avoid Karin incurring double taxation. Luke Savage 150.7 1.0 151.7 2. Jane Dale’s fee is shown proportionately to the point she stands down as a director at the 2025 AGM. Eamonn Flanagan 77. 5 1.0 78.5 Jane Dale 2 31.9 0.5 32.4 Carol Hagh 75.6 1.0 76.6 Karin Bergstein 69.0 10.0 79.0 Gail Tucker 73.0 1.0 74.0 Total 477.7 14.5 492.2 2025 award under the 2023 Short-Term Incentive Scheme The Remuneration Committee proposes to grant awards to the executive directors under the 2023 Short-Term Incentive Scheme. The table below and accompanying notes set out the performance measures, weightings and the potential outcomes for achieving minimum, on-target and maximum performance. The actual targets for each measure are deemed to be commercially sensitive and whilst they are not disclosed at this stage, they will be disclosed in next year’s Directors’ Remuneration Report together with the performance outcome relative to these targets. Individual Measures Weighting Ranges and targets Potential outcomes in terms of % of basic salary Minimum Target Maximum achievement (as achievement achievement (as % Minimum Target Maximum % of target) (as % of target) of target) achievement achievement achievement Steve Murray & Cash generation 35.0% 70.0% 100.0% 130.0% nil 25.0% 35.0% Tom Howard EcV Earnings 35.0% 70.0% 100.0% 150.0% nil 25.0% 35.0% Strategic Scorecard Activity 30.0% 75.0% 100.0% 125.0% nil 15.0% 30.0% of which ESG is 5% The STIS will be implemented and operated by the Remuneration Committee as set out within The objectives assigned to each executive director are relevant to their roles and include major the policy. regulatory or business development initiatives that the committee considers key to delivery of the Company’s business plan. Each individual development objective is assigned a ‘significance Measures weighting’ influenced by factors such as business criticality, scale, complexity and level of executive Following review by the Remuneration Committee, changes were approved for 2019 onwards director influence. Developments with a higher significance are weighted more heavily when to remove the IFRS component used in prior years and base performance assessment on cash establishing the overall performance target. † generation and EcV earnings metrics both with appropriate adjustments and group strategic objectives. The two financial measures were deemed to be complementary when operated together, Targets to encourage sensible executive behaviour and better reflect an overall assessment of Company The cash generation and EcV Earnings targets are initially based on the latest budget which is financial performance. For 2023, group strategic objectives remained weighted 30% of the total to produced annually as part of the Group business planning process. The Group business plan is ensure that a sufficient proportion of the bonus potential was attributed to good strategic outcomes, subject to rigorous Chesnara Board scrutiny and approval. The Remuneration Committee can make including 55 in relation to ESG. Our assessment measures continued to ensure there was a balance discretionary adjustments to either the targets or to the actual results for the year if it considers between aligning executive director remuneration to shareholder returns whilst also recognising this to be appropriate, in accordance with the scheme rules. measures over which the directors can exercise more immediate and direct influence. The financial Malus and clawback measures are recognised outputs from the audited year end financial statements, although it should The 2023 Scheme includes malus and clawback provisions covering a material misstatement of the be noted that the Remuneration Committee is, in accordance with the policy, able to make Company’s results, regulatory breach, gross misconduct on the part of the participant, reputational discretionary adjustments if deemed necessary. As agreed in advance by the Remuneration damage to the Company, a material failure of risk management, insolvency or corporate failure if this Committee, the financial results for the year are adjusted to look through any impact of the symmetric arises within two years of an award vesting and it is a precondition that the executive accepts such adjustment and WP transfers/restrictions, be they negative or positive. Successful acquisitions are provisions at the time of the award. rewarded primarily through the LTIP scheme. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs can be found in the additional information section of this Annual Report and Accounts. 124 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE 2025 award made under the 2023 LTIP In 2025, the Remuneration Committee proposes to grant awards to the executive directors under the Chesnara 2023 Long-Term Incentive Plan. The table below and accompanying notes set out the performance measures, weightings and the potential outcomes relative to achieving minimum, on-target and maximum performance for the executive directors. Individual Share award Measures Weighting Ranges and targets Vesting rates in terms of % of basic salary Minimum Maximum % of basic achievement Target achievement Minimum Target Maximum salary (as % of target) achievement (as % of target) achievement achievement achievement Steve 125% TSR 33.3% <Median Median +6% p.a. above nil 10.4% 41.7% Murray EcV 33.3% the median nil 10.4% 41.7% Core Surplus 33.3% nil 10.4% 41.7% Emergence Tom 100% TSR 33.3% <Median Median +6% p.a. above nil 8.3% 33.3% Howard EcV 33.3% the median nil 8.3% 33.3% Core Surplus 33.3% nil 8.3% 33.3% Emergence The two 2025 awards under the 2023 LTIP will be implemented and operated by the Remuneration Targets Committee as set out within the policy. Targets for the 2025 LTIP are set out in the table below. In the case of the Economic Value and Core Surplus Emergence metrics, targets have been set with reference to the Group’s business plan for Measures the period as set at the start of 2025. The relative TSR metric has been calibrated on a consistent The three performance measures for the 2025 LTIP award use performance against the constituents basis as the 2023 LTIP. For all targets, straight line interpolation applies between threshold and of an index and internal targets. maximum to determine vesting. The external measure compares the 3-year TSR of Chesnara plc with the TSR of the companies Performance target Rationale Threshold Maximum comprising the FTSE 350 Higher Yield Index with averaging over the 3 months prior to the start target (25% of target (100% of and end of the performance period. maximum vests) maximum vests) The first internal measure will be Core Surplus Emergence. It will be the absolute surplus Relative Total Relative TSR against Median Median plus 6% movement of the divisions including the Chesnara entity but adjustments will be made for the Shareholder Return the constituents per annum impact of items such as FX, T2/T3 restrictions, acquisition impacts and shareholder dividends, of the FTSE 350 as deemed appropriate. Higher Yield Index The other internal measure assesses Economic Value growth. Both the EcV and Core Surplus Economic Value Measures 2027 £120.8m before £170.8m before Emergence targets are set with due regard to the Board approved business plan. All measures (EcV) growth EcV against a 2024 dividends and dividends and seek to ensure an alignment between executive director reward and shareholder value, with EcV baseline debt costs debt costs one assessing relative performance to other investment opportunities and the others assessing absolute performance. Core Surplus Aggregate Core £116.3m £128.0m Emergence Surplus Emergence The Plan includes Change of Control provisions covering takeover, reconstruction, amalgamation over 2025 to 2027 or winding-up of the Company and it is a precondition that the executive accepts such provisions at the time of the award. * Targets based on 2024 forecast outturn as set in January 2025. Weightings For the 2025 award the three measures have been assigned equal weighting. Holding period A two-year holding period was introduced to the LTIP for awards made from 2019, to follow the three-year performance period. CHESNARAANNUALREPORTANDACCOUNTS2024125 CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT • ANNUAL REMUNERATION REPORT The Remuneration Committee can make discretionary adjustments to either the target or to the actual result for the year if it considers this to be appropriate, in accordance with the scheme rules and the policy. Malus and Clawback The 2023 Plan includes malus and clawback provisions covering a material misstatement of the Company’s results, regulatory breach, gross misconduct on the part of the participant, reputational damage to the Company, a material failure of risk management, insolvency or corporate failure if this arises within two years of an award vesting and it is a precondition that the executive accepts such provisions at the time of the award. The following table sets out the voting in respect of the Directors’ Remuneration Report at the 2024 AGM: Report Number of votes Percentage of Number of votes Percentage of votes Total votes Number of votes cast for votes cast for cast against cast against cast withheld Remuneration Report 87,088,647 98.42% 1,397,455 1.58% 88,486,102 44,346 The following table sets out the voting in respect of the directors’ Remuneration Policy at the 2023 AGM: Report Number of votes Percentage of Number of votes Percentage of votes Total votes Number of votes cast for votes cast for cast against cast against cast withheld Remuneration Policy 87,638,247 96.2% 3,416,902 3.75% 91,055,149 70,635 Approval This report was approved by the Board of Directors on 27 March 2025 and signed on its behalf by: Eamonn Flanagan Chair of the Remuneration Committee 26 March 2025 126 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Our focus in the year has included embedding IFRS 17, climate change reporting, acquisitions, consumer regulatory developments and operational resilience. JANE DALE, CHAIR AUDIT & RISK COMMITTEE REPORT CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 127 CORPORATE GOVERNANCE AUDIT & RISK COMMITTEE REPORT Sustainability NUMBER OF MEETINGS DURING YEAR: 6 The committee’s role in the Group’s sustainability programme is to oversee any reporting made by the Group in this area, as well as understanding the sustainability-related risk exposures of the Group. MEMBERS: The committee oversees the production of the Group’s Annual Sustainability Report (ASR). The 2024 Jane Dale, Chair year end ASR has been published alongside this Annual Report and Accounts. Our ASR provides an Eamonn Flanagan, member update on our progress over the course of the year against our sustainability targets and commitments. As well as our ASR, this Annual Report and Accounts includes a section covering the Group’s Mark Hesketh, member (from 9 April 2024) Corporate and Social Responsibility. Karin Bergstein, member The committee has paid close attention to the reporting developments that are included in this The requirements for the composition of the Audit & Risk Committee are detailed within its year’s report on pages 68 to 91. This has included developments in our Task Force on Climate- Terms of Reference. The composition of the committee in accordance with the requirements of Related Financial Disclosures (‘TCFD’) report, which provides information on the key climate-related the UK Corporate Governance Code and with DTR 7.1.1AR and committee member biographies risks and opportunities facing the Group’s business. The Group enhanced its climate risk analysis are detailed on pages 94 to 95. during 2024, as documented on page 84 and the committee oversaw this work, reviewing and challenging its conclusion through its oversight of the Group’s annual ORSA (Own Risk and Solvency Chair’s introduction Assessment) process. The committee has also kept updated on progress for potential forthcoming reporting frameworks which are expected to be relevant to the Group, such as that being developed Welcome to the Audit & Risk Committee Report of the 2024 Annual Report and Accounts. It has by the International Sustainability Standards Boards (‘ISSB’) and the recommendations of the been another busy year for the committee, with a packed agenda which has covered not only our Taskforce for Nature-related Financial Disclosures (‘TNFD’), as well as how the business is business-as-usual activities, but a number of other key areas of focus. These have arisen from progressing with the development of a group-level inaugural climate transition plan. The committee various internal and external factors and include the embedding of IFRS 17 Insurance Contracts; has also overseen the progress of the implementation of the Corporate Sustainability Reporting sustainability; risk management and reporting; considering a number of key accounting judgements, Directive (‘CSRD’) in the Dutch and Swedish divisions. We are considering the impact of the EU not least in relation to the one acquisition that completed in the year; and risk oversight over a Omnibus proposals announced in February 2025, which would mean we would no longer have to number of key operational changes across the Group. Further detail on these, and more, has been implement CSRD across the Group. provided below. Operational change and operational resilience IFRS 17 The Group has seen a reasonable level of operational change during the course of the year; the UK The Group applied the new accounting standard IFRS 17 ‘Insurance contracts’ for the first time in division continues to make good progress with its programme to migrate its outsourced operations its 2023 interim results and full year audited financial statements. IFRS 17 is a complex accounting to one strategic partner; and early preparation and operational planning commenced after the standard and significantly changes both the profit profile of the Group’s insurance business and the announcement of the proposed merger, subject to regulatory approval, of the two Netherlands presentation and disclosure in the financial statements. Over the course of the year, the committee businesses in the last quarter of 2024. The committee’s role has been to ensure that the risks has monitored the embedding of the new standard through the 2024 interim results and the full year associated with these changes are appropriately captured and managed. Detailed risk reporting audited financial statements. I’m happy to report that we have a robust control environment in place and analysis is managed at a local level, and the committee has had full sight of this through a to monitor the controls around the reporting routines associated with the standard. combination of direct interactions with local Audit Committees coupled with coverage through the Group’s Risk Reporting processes, via the quarterly Chief Risk Officer’s risk report. Other accounting and financial reporting matters As well as the embedding of IFRS 17, the committee has considered a number of key accounting From an operational resilience perspective, the committee has continued to ensure that it is matters pertinent to this year’s Annual Report and Accounts. This has included the accounting for the appropriately appraised regarding the Group’s operational resilience. This has included obtaining one acquisition in the year, and the disclosures required around the OECD’s new Pillar 2 Global updates regarding the status of the UK’s operational resilience programme, in line with regulatory Anti-Base Erosion (GloBE) rules (BEPS 2.0), which are designed to address tax avoidance, ensure requirements. Alongside this, the committee oversaw the embedding and testing of the Group’s coherence of international tax rules, and, ultimately deliver a more transparent tax environment. Cyber Response Framework, which is designed to ensure that the Group is appropriately positioned These have been covered in more detail on pages 132 to 133. to respond to any cyber incidents. The 2024 testing included a cross-group cyber attack simulation and was facilitated by an external firm. Corporate governance reform In January 2024 the Financial Reporting Council (‘FRC’) announced its revisions to the Corporate Acquisitions Governance Code. One of the main changes to the Code extends the disclosures that are expected The Company has agreed a deal to acquire a second book of business from Canada Life UK on regarding the Board’s role in annually reviewing the effectiveness of the Company’s Risk 23 December 2024 with a view that a Part VII will take place before the end of 2025. In the Management and Internal Controls Framework. The 2024 code requests that boards explain through meantime, a reinsurance arrangement with Canada Life has been agreed for the portfolio with effect a declaration in their annual reports how they have done this and their conclusions from this work. from 31 December 2024. The committee’s role is to focus on ensuring that the acquisition diligence These new disclosures will apply from periods beginning on or after 1 January 2025, with the process has been delivered in line with the Group’s risk-based acquisition process; that all key exception of Provision 29, which is effective from 1 January 2026. During 2024, a new Internal benefits and risks are appropriately understood; and that the accounting and associated judgements Control Framework document has been developed to support the Board in its risk management for the transaction are in compliance with accounting standards. The committee fully discharged responsibilities and as additional documentation to evidence compliance with the updated Code. its responsibilities regarding the oversight of the diligence and deal benefit assessment processes for these two transactions. Further information on the accounting for these transactions is included Over the course of 2025 and beyond, the committee will work with the Group Risk function and the on page 132. Board in developing current policies and processes to embed the Internal Control Framework to align to the New Code and applying these new disclosures. 128CHESNARAANNUALREPORTANDACCOUNTS2024 CORPORATE GOVERNANCE Regulatory matters The committee has a role in overseeing key compliance matters of the Group. This has included the – Tax oversight: As the Group becomes more complex, with more complex transactions and UK’s Consumer Duty implementation programme; and the new EU legislation, Digital Operational arrangements in place, the committee’s role will be to ensure that tax risks around the Group Resilience Act (DORA) which applies from January 2025. The committee has had full sight of all are being appropriately identified and managed. This includes the implementation of the new these areas of focus over the course of the year and was kept appraised of any emerging issues. BEPS 2.0 requirements. It is pleasing to report that the UK’s Consumer Duty programme met the July 2024 milestone – Financial reporting controls: From a financial controls perspective, it remains critical that for its closed book of products and has developed a framework and implementation plans for future the committee has good oversight over any financial reporting control risks across the Group. required developments. The overseas divisions have broadly implemented DORA in time and in In particular the committee will focus on areas of operational change such as acquisitions; the line with peers; however, further work will continue in 2025. The committee will continue to monitor bedding in of new controls in relation to IFRS 17 and finalising the implementation of the Group’s the progress of the Consumer Duty programme and the continued DORA work. new financial and solvency reporting consolidation tool. Governance This is my final report after nine years and I wish to thank all my colleagues at Chesnara for their The committee has continued to oversee some of the Group’s core governance processes. dedication and professionalism over those nine years which has made my role as the Audit & Risk This has included: Committee Chair so much easier. There has been so much going on over that period, not least the – monitoring the risk management and internal control system: the annual Risk Management introduction of Solvency II, followed by IFRS 17, plus a number of significant acquisitions and more and Internal Control Report was reviewed and challenged by the committee during the year. recently the addition of sustainability reporting, all of which required our oversight. We also had to This concluded that the controls across the Group were operating appropriately over the course contend with a global pandemic and its aftermath as well as the changing economic, technological of the year. and political landscape; I did not envisage nine years ago that risk management would be so interesting! We have safely navigated through these different challenges and I am very pleased to – systems of governance effectiveness: the committee oversaw the Group’s annual assessment be handing over to Gail Tucker, who brings a wealth of experience and will continue to provide strong of the effectiveness of its systems of governance. This concluded that there were no major areas scrutiny and oversight. I wish her and the entire Chesnara team every success for the future. of concern. – committee evaluation process: the committee performed its own evaluation process during the year and concluded that it has operated effectively during the year. The evaluation also highlighted areas the committee members wish to focus on in the year ahead, as set out below. Looking forward As ever, there is a full agenda ahead, much of which reflects a continuation of work that is currently in train. As well as the committee’s business as usual activities particular focus will be given to: Jane Dale – Sustainability reporting: This is developing rapidly, and different regimes apply in the UK and Chair of the Audit & Risk Committee Europe. The committee will need to ensure all regulatory and public reporting is delivered on time 26 March 2025 and to a good standard. – Corporate governance code: This new UK legislation is to formalise the monitoring of the Role of the Audit & Risk Committee internal Risk Management and Internal Control Framework effectiveness which comes into effect The role of the Audit & Risk Committee includes assisting the Board in discharging its duties and on 1 January 2026. The committee will need to follow the progress of the plan to ensure that the responsibilities for financial reporting, corporate governance and internal control. The scope of its Board is ready to report in 2026. responsibilities also includes focus on risk management: accordingly, it also assists the Board in – Operational change: There are a number of operational change programmes across the Group, fulfilling its obligations in this regard. The committee is also responsible for making recommendations including the UK’s transformation programme as well as the merger of the Dutch division. to the Board in relation to the appointment, re-appointment and removal of the external auditor. The committee will ensure that it maintains a close eye on risks around operational change across The committee’s duties include keeping under review the scope and results of the audit work, its the Group. cost effectiveness and the independence and objectivity of the external auditor. The full Terms of – Group operational resilience: The committee will be focusing on ensuring that it is satisfied that Reference of the Audit & Risk Committee are available on our website www.chesnara.co.uk. the Group remains materially operationally resilient, with appropriate recovery plans in place. This will include monitoring emerging regulation and industry practice. A particular focus will be on ensuring the requirements of the Digital Operational Resilience Act (‘DORA’) are embedded in our European businesses, and that the UK delivers the regulatory Operational Resilience requirements to the required deadline. – Consumer Duty: The committee will be paying close attention to the ongoing delivery of the UK’s Consumer Duty programme. It will also be mindful of the impact that the Consumer Duty has regarding any associated risks for future UK-based acquisitions. – Acquisitions: Should the Group enter into any acquisition processes over the course of 2025 the committee will ensure that it has the appropriate oversight over the process, commensurate with the size and complexity of the target, mindful of any industry developments that will need to be considered in any future acquisition diligence process. Any associated benefits and risk analysis will be scrutinised by the committee. CHESNARAANNUALREPORTANDACCOUNTS2024129 CORPORATE GOVERNANCE This section of the report includes the following: 1. Activities during 2024: A summary of the work performed by the Audit & Risk Committee during 4. Significant issues: Provides some insight into the significant issues that the committee has considered during the year in relation to the financial statements, and how these were addressed. 130 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 Other External audit Internal audit Financial reporting AUDIT & RISK COMMITTEE REPORT The Chesnara Audit & Risk Committee has responsibilities over a combination of both risk and audit matters. An update against each of these two key obligations has been provided below. Audit responsibilities 1. Activities during 2024 The committee’s work is driven by a combination of business as usual (‘BAU’) activities and non-standard areas that have required attention during the year. The committee has focused on the following non-BAU areas during 2024 and subsequent transformation programme, the the year. Group’s operational resilience programme; climate change and sustainability reporting; and any 2. External audit: Further detail of how the committee has overseen various aspects of the external conduct regulatory developments, including the UK’s Consumer Duty. A summary of all the audit process. activities performed by the committee during 2024 in relation to its audit responsibilities is 3. Internal audit: The work performed by the committee in overseeing the Internal Audit function summarised below: of Chesnara. Annual Report and Accounts: Reviewed the Annual Report and Accounts, including; Solvency II narrative reporting: Reviewed the Chesnara Group Solvency and Financial compliance with accounting standards, Accounting Policy appropriateness; consideration Condition Report, which is published annually on the Chesnara website and sent to the of any other financial reporting changes and emerging practice; whether they are fair, Prudential Regulation Authority. balanced and understandable; and disclosures surrounding going concern, prospects and Financial performance: Monitored and scrutinised the financial performance of the Group, longer-term viability. See the significant issues section on pages 132 to 133 for further details covering IFRS, Solvency, EcV, cash generation and expenses. on certain aspects of this year’s accounts. IFRS 17: Monitored the embedding of the Group’s IFRS 17 application, which included the Half year report: Reviewed and challenged the Chesnara half year report for the six oversight of any residual key matters to be resolved, close monitoring of the audit process and months ended 30 June 2024, which included the Group’s second reporting at the half year an ongoing committee education programme. under IFRS 17 Insurance Contracts. FRC updates: Actively monitored and reviewed any key publications issued by the Financial Actuarial assumptions: Reviewed and challenged the actuarial assumptions underpinning Reporting Council regarding financial reporting matters during the year. This has included, the quarterly financial reporting process, covering IFRS, Solvency II and EcV. See the amongst other things, a review of our Annual Report and Accounts’ IFRS 17 disclosure as part significant issues section on pages 132 to 133 for further detail. of the FRC’s sample thematic review. As a result of the review no questions or queries were raise by the FRC which was a positive outcome. External audit plans: Reviewed the groupwide plans of the external auditor, including External audit reporting and feedback: Reviewed key findings reported by the Group consideration of the key audit risks. external auditor on the Annual Report and Accounts, including key judgements and control matters. As part of its interactions with the external auditor, the committee met with the External audit quality: Assessed the quality of the external auditor during the year. external auditor without the presence of executive directors. This has included, amongst other things, consideration of feedback from management, coupled with reviewing the FRC report entitled ‘Deloitte LLP Audit Quality Inspection External audit independence: Reviewed the assessment regarding the independence of the and Supervision Report’ which was published in July 2024. external auditor, with specific consideration given to audit fees and the nature and volume of the services delivered by the external auditor during the year. Oversight of Internal Audit function during the year: The committee reviewed the work Review of internal audit findings: Received regular updates from business unit Audit & Risk of the Internal Audit functions across the Group, via interactions with local Audit & Risk Committees regarding key findings from internal audits that have been performed during the Committees, and their subsequent delivery. See page 131 for more information. year. Reviewed the internal audit findings and management responses for Chesnara plc. Evaluation of Internal Audit effectiveness: The committee evaluates the effectiveness of Internal Audit on an annual basis and concluded that the function remains appropriate for the business. Feedback from divisional Audit & Risk Committees: Reviewed and challenged regular Performance evaluation: Conducted an evaluation of the committee’s performance during feedback provided by the Group’s divisional Audit & Risk Committees. The Audit & Risk the year, which was completed by members of the committee. The review showed that the Committee Chair of the Dutch divisions attended a Chesnara A&RC meeting during 2024; committee performed well across all aspects of the Assessment Framework. the Swedish and UK divisions are represented by plc directors who are also Chairs of the local Audit & Risk Committees. Committee Terms of Reference: Reviewed its Terms of Reference during the year and completed its annual assessment of compliance with its Terms of Reference. CORPORATE GOVERNANCE 2. External audit Audit services Quality and effectiveness of the audit process The fees charged for audit services have decreased when compared with 2023. The key reasons The quality and effectiveness of the external audit process is reviewed on an annual basis and had for the net decrease since the prior year are: regard to the following factors: – A decrease of c£1,556k in relation to the preparatory audit work and additional scope work – The quality of the background papers and verbal presentations to the committee on the audit associated with the implementation of IFRS 17; and planning process and final audit findings and compliance with independence criteria; – An increase of c£104k in relation to additional recurring scope work and inflation increase offset – This year has seen the change in the lead audit partner from Matt Perkins to Matt Bainbridge. The by a reduction in one-off audit work. committee concluded that Matt has the appropriate qualifications and experience to lead the audit; Audit fees of £1,012k (2023: £1,056k) were paid to EY during the year for the audits of Scildon, – The rationale put forward for the materiality limits established and the explanation given of the the Waard Group and Movestic. impact these have had on the work performed; Assurance services – The views of the executive on the way in which the audit has been conducted; Assurance services totalling £186k (2023: £259k) were provided by Deloitte in 2024 and consisted – The conclusion from the FRC’s publication entitled ‘Deloitte LLP Audit Quality Inspection and of £171k (2023: £244k) relating to an annual CASS audit of CASFS Limited, and £15k (2023: £15k) Supervision Report’ which was published in July 2024; and relating to assurance on the Group’s covenant compliance. Further assurance services were provided – The audit fees charged and the change in fees from the previous year. Changes in annual fees do, by EY to Scildon of EUR 12.5k (2023: nil), for the provision of assurance on the accuracy of the cost of course, need to reflect change in the nature of the Company’s business which has expanded pricing model published on the entity’s website for its disability products, which is required by law/ over time. regulation every 3 years. It was concluded that the audit process was effective. The Company is committed to putting its Non-audit services audit out to tender at least every ten years, having completed its last external audit tender during Non-audit services totalling £nil (2023: £71k) were delivered in 2024. The non-audit service in 2023 2017. The next audit tendering process will need to take place at the latest during 2027, following was in relation to market analysis and strategic planning work delivered by EY to Movestic. the 2026 audit. In the prior year, a component auditor (EY Sweden) provided market analysis and strategic planning Provision of non-audit services and independence services totalling £71k to the Movestic division. These services were permitted under the component The committee has in place a policy on the engagement of the audit firm for non-audit services. auditor’s local ethical standard, however not the FRC’s Ethical Standard, and were approved by those Approval is granted where the service is clearly related to the process of audit services, including charged with governance at Movestic. We are satisfied that the independence and objectivity of the regulatory returns (‘assurance services’). In other cases, the approval of the committee is required Group and component auditor was not impaired as a result of this service being provided and have and documented governance processes are followed. implemented processes to ensure that FRC independence policies are applied by component auditors within the Group. The committee regularly monitors the level of fees paid for non-audit services to ensure, over a period of years, that these represent a low proportion of total fees paid. Reports from the auditor on 3. Internal audit independence are also reviewed annually and discussed with the auditor. It should be noted that Within Chesnara, Internal Audit operates as separate functions within each of its businesses and total fees paid by the Company are not material in the context of the overall business of the auditor. these report into their own Audit & Risk Committee who have the primary oversight and supervisory responsibility. This includes determining how the local Internal Audit function will be resourced and Details of the fees paid to Deloitte, and its associates, for both audit and non-audit services during as a result these are a mix of outsourced and in-house capabilities. the year have been provided below: At a Group level, the Chesnara Audit & Risk Committee sets three high level principles which must Audit fees 2024 % 2023 % be followed by each of the businesses. This committee then receives periodic reports from each £000 proportion £000 proportion business on matters such as the make-up of the audit plan, progress against this plan and any significant issues identified/reported. Audit services 2,077 92 3,456 93 Assurance services 186 8 259 7 The remit of the UK based Internal Audit team also covers Chesnara plc and consequently the committee gets similar periodic reports to the local committees on its own audit plan throughout Total 2,263 3,715 the year. Across the Group, Internal Audit covered a broad range of topics including Remuneration, Reinsurance, Business Continuity planning, Outsourcing, Change Programme, Governance, Claims Handling, CASS, Information Security, Operational Resilience and Consumer Duty. No significant issues have been identified through the delivery of the internal audit programme during the year. CHESNARAANNUALREPORTANDACCOUNTS2024131 CORPORATE GOVERNANCE AUDIT & RISK COMMITTEE REPORT 4. Significant issues The table below provides information regarding the significant issues that the committee has considered in relation to the preparation of the Annual Report and Accounts. This includes consideration of matters communicated by the auditors. Area of focus Reporting issue Role of the committee Conclusion/action taken IFRS accounting The accounting approach applied to the Canada Life acquisition in 2023 has The committee’s role is to review and challenge The committee is satisfied that the new for the Canada been reassessed in these financial statements following consultation with the change in accounting approach. accounting approach is appropriate. The IFRS Life acquisitions the external auditor. comparatives have been restated accordingly throughout this report and the new accounting A long contract boundary had previously been applied in valuing the future approach has been applied in the year end 2024 cash flows. This approach has been revised so that only the cash flows within financial statements. the boundary of the initial reinsurance contract are valued. Valuation of Chesnara plc’s solo balance sheet includes the value of its investment in its The committee’s role is to review and As a result of the annual impairment process, Chesnara plc’s various subsidiaries. These are typically carried at cost and are reviewed at challenge management’s paper covering the it was concluded that the carrying value of investment least annually for impairment. As a result of dividend payments over time, assessment of the carrying value of Chesnara’s Chesnara plc’s investment in Countrywide in CA plc at some point the underlying value of the Group’s closed-book subsidiaries investment in its subsidiaries. This includes Assured plc required writing down by £4.0m. will become lower than the carrying value that it is held at in the Chesnara plc scrutinising the underlying assumptions This reflects that the underlying value of balance sheet, resulting in a need to write down the carrying value. underpinning the ‘value in use’ assessment Countrywide Assured has reduced, largely and the conclusions made. because of its continued dividend streams up to Chesnara plc. Further detail can be found on page 167. Impairment The Group IFRS balance sheet includes intangible assets (the ‘AVIF’ assets), The committee is required to review the work The review concluded that no impairment of the assessment representing the acquired value of the in-force policies at the point of performed by management in assessing the net of tax AVIF should be made. of AVIF previous acquisitions, which is amortised over the estimated profit profile carrying value of the AVIF intangible assets, intangible of the associated polices that were acquired. An impairment test of these including scrutinising the assumptions made, assets intangible assets is required on an annual basis. and conclusions drawn. BEPS 2.0 The Group has determined the impact of the OECD’s Pillar 2 Global Anti-Base The committee’s role is to review and The committee has reviewed the IAS 12 Erosion (GloBE) rules (BEPS 2.0). An impact assessment has been carried out challenge the assessment performed by disclosures that have been made within these in conjunction with KPMG UK and Sweden, and it is noted that: management, including the latest impact financial statements and concluded that they assessment provided by KPMG. reflect our current view of the impact of BEPS HMRC has released draft guidance for the insurance sector stating that 2.0 on the Group. unit-linked returns are out of scope when determining a group’s eligibility for BEPS 2.0 Pillar Two (EUR 750 million revenue threshold). As a result, the Group is out of scope for the financial year ending 2024; and The Swedish government has initiated a consultation stating that insurance entities should be able to make a transparency election regarding their investment funds. This would effectively remove any risk of policyholder returns being subject to the top-up tax and mitigate any material risks of BEPS applying to Movestic (under their domestic application of the rules). UK expense The actuarial reserving process for the UK division includes an assumption The responsibility of the committee The committee is satisfied that the expense assumptions on the future expenses that are required to run the business. This includes is to satisfy itself that the judgements assumptions included in the valuation of the used in making judgements on both the future outsourcer and non-outsourcer costs, underpinning the projected future expenses insurance contract liabilities of the UK division determining and any associated transition costs that might be incurred in achieving the required to the run UK life insurance on 31 December 2024 are appropriate and insurance longer-term expense assumptions. operations are appropriate, and to ensure that they are suitably described in note A6(m) contract these judgements are appropriately reflected on page 167. provisions in the year end 2024 financial statements. 132 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE Area of focus Reporting issue Role of the committee Conclusion/action taken Actuarial A key aspect of the Audit & Risk Committee’s role is to review and challenge The committee’s role is to review and The committee concluded that the actuarial assumptions the actuarial assumptions that underpin the valuation of the policyholder challenge the actuarial assumptions assumptions were appropriate. Disclosures liabilities in the financial statements. The assumptions are inherently report which underpins the valuation over key judgements are included in note 5 judgemental and are updated at least annually to reflect the facts and of insurance liabilities. of the IFRS financial statements. circumstances available at the time. The assumptions are underpinned by a combination of internally observed experience coupled with data that is available at a market level. The key assumptions include estimates over: – future mortality and morbidity rates; – future lapse assumptions; – future expense required to manage the policies in force; and – policyholder options and guarantees. Risk responsibilities Focused activities performed during the year This section of the report provides information regarding the risk oversight responsibilities The below provides some information regarding the more focused activities that the committee of the Audit & Risk Committee. has performed during the year in discharging its risk oversight responsibilities. Acquisitions General responsibilities The Audit & Risk Committee has overseen the due diligence for the acquisition of a second book Overall, the committee is responsible for: of business from Canada Life, ensuring that the Board is aware of all material associated risks, in – the Group’s risk management and internal control systems and their effectiveness; particular the implications for the risk appetite and tolerance of the Company, taking independent – overseeing the Group’s risk profile in the context of its current and future strategy; external advice where appropriate and available. The committee was satisfied that the risk – discussing and recommending to the Board for approval, the Group’s risk appetite statement, reporting surrounding these activities has been appropriate and that management has responded reverse stress testing and scenario stress testing; to any associated risks as they emerge. – advising the Board on proposed changes to the Group’s risk appetite statement where this UK transition and transformation is deemed appropriate; The Audit & Risk Committee has continued to be updated on the multi-year programme to migrate – monitoring risk exposures across the Group and advising the Board where such exposures our policy administration services and newly acquired books of business to SS&C Technologies. do not appear to accord with the Group’s risk appetite statement; The committee is satisfied that there is appropriate visibility of the key strategic risks and that appropriate mitigants have been in place, with regular and transparent reporting on programme – reviewing the Group’s capability to identify and manage emerging and new risk types; progress. – challenging the regular stress and scenario testing of the Group’s business; IT/data security and cyber risk – determining whether there is a sufficient level of risk mitigation in place; The committee’s risk responsibilities include overseeing management’s plans to continue to – overseeing due diligence of a major strategic transaction, including any proposed acquisition or ensure the Group remains resilient to IT risks. This includes monitoring results from various disposal, prior to the Board taking a decision to proceed with a view to ensuring that the Board initiatives such as the Group’s ‘phishing’ tests, cyber-attack simulations and penetration testing is aware of all material risks associated with the transaction; and the implementation of the EU legislation, Digital Operational Resilience Act (DORA) which – considering the adequacy and effectiveness of the technology infrastructure and supporting came into force on January 1 2025. Chesnara has embedded a groupwide Cyber Response documentation in the Risk Management System and framework; Framework to guide the Group in preparing and responding effectively to a cyber-attack which includes an updated policy on ransomware. The committee was satisfied that the Group’s IT – considering and approving the remit of the Risk function and ensuring it has adequate resources risk programme continues to focus on the right priorities and this ever-evolving area. and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards; – providing qualitative and quantitative advice to the Remuneration Committee on risk weightings to be applied to any performance objectives; and – considering and recommending to the Board for approval, the Group’s risk related regulatory submissions, including the ORSA. CHESNARAANNUALREPORTANDACCOUNTS2024133 CORPORATE GOVERNANCE AUDIT & RISK COMMITTEE REPORT Global market instability Ongoing global conflict and economic uncertainty remains a prominent emerging risk for the – Risk appetite: Reviewed and re-approved the Group’s Risk Appetite Framework, including Group, with potential for inflation driven expense risk and future investment returns being the reviewing and challenging the key risk indicators/tolerance limits and key business affected key areas with greatest potential impact. As a result of these observations the committee performance measures. has obtained regular updates from management on potential impacts. This has included – Review divisional Audit & Risk Committee progress: Received and challenged updates consideration of the following: provided by divisional Audit & Risk Committees. – Financial results volatility; – Continuous solvency monitoring: Reviewed the output from the Group’s continuous solvency – Increased expense base with wage inflation and increasing supplier costs; and monitoring activities. There were no issues arising from this process during the year. – 3rd party/supplier failure risks. – Standard formula assessment: As part of its annual cycle the Actuarial function performs an assessment of the appropriateness of the standard formula for the purposes of calculating the The committee is satisfied that management is monitoring these risks closely, and that the Group’s capital requirements under Solvency II. The work and associated findings was reviewed Group’s ORSA process suitably examines these scenarios. and challenged by the committee as part of the ORSA process. Operational and regulatory change Assurance There are a number of operational and regulatory change projects across the Group, and as Taken together, the Group’s Risk function and Internal Audit function ensure that the committee a result the committee has been monitoring these closely. Activity across the Group includes: is provided with appropriate assurance throughout each year. The second-line Risk function – integration and Part VII activity for the acquisitions of Canada Life; ensures independent review and challenge of business performance and activities with the – the UK Transition and Transformation project including moving to a new outsourced admin opportunity to influence areas of review to be undertaken by the independent third-line Internal provider, SS&C; Audit function. The committee can direct the activity of either function as circumstances require, amending work plans to accommodate deep dives if felt appropriate to do so. The committee – the ongoing policy administration IT upgrade programme in Scildon; leverages these functions within the Group’s proportionate three lines of defence model in – the merger of our Dutch entities into one combined insurer; addition to engaging with and having Board representation on the business unit Audit & Risk – operational resilience and Digital Operational Resilience Act (DORA); Committees which themselves have local Risk and Internal Audit functions. In this way, and through receiving assurance reports from each business unit on a quarterly basis, the committee – Consumer Duty; and satisfies itself with regard to the assurance it obtains on the Group’s activities and performance. – climate change risk and sustainability. The committee was satisfied that the risk reporting surrounding these programmes has been appropriate and that management has responded to any associated risks as they emerge. Regular activities performed during the year The below provides some further information regarding the ‘business as usual’ activities that the committee has performed during the year in discharging its risk oversight responsibilities: – Quarterly risk reporting: During the year the committee reviewed the quarterly group and divisional risk reports on the identification, evaluation and management of principal risks across Jane Dale the Group, including any emerging risks. The quarterly risk reporting included ‘in focus’ topics Chair of the Audit & Risk Committee as required and reports against the Group’s ‘watchlist’ of items. 26 March 2025 – Principal risk definition: Reviewed and challenged the Group’s definition of principal risks for the purpose of reporting and monitoring against these risks, including how they are mitigated through the Group’s Internal Control Framework. – Dividend proposal: The committee considered the final dividend proposal review document prepared by the Group Chief Risk Officer. – Risk plan review and sign off: The committee reviewed and approved the Group and divisional risk plans and associated resourcing needs. – Internal control report: The committee reviewed and approved the annual internal controls assessment report, which concluded that the controls across the Group are operating effectively. – Systems of governance review: An annual review of the effectiveness of the systems of governance review was facilitated by the Risk function. This considered a number of areas of the overall system of governance including its completeness, effectiveness, its use and the overall culture. This concluded there were no major areas of concern. Any areas for improvement have been built into future plans, with suitable priorities attached. – ORSA review: The committee reviewed the 2024 Group ORSA and made a formal recommendation to the Board to approve it. The ORSA includes the outcome of the Group’s stress and scenario testing. The stresses that are modelled are reviewed and approved as part of the ORSA planning process, and the results are included in the final ORSA report. 134 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE DIRECTORS’ REPORT The directors present their annual report and the audited consolidated financial statements of Chesnara plc for the year ended 31 December 2024. The Corporate Governance Report on pages 98 to 103 forms part of the Directors’ Report. Chesnara plc – Company No. 4947166 Director appointments The following information, that has been included by way of a cross reference to other areas With regard to the appointment and replacement of directors, the Company followed the UK of the Annual Report and Accounts, is required by the Companies Act to be included within the Corporate Governance Code 2018 during the financial year ending 31 December 2024 and is Directors’ Report: governed by its Articles of Association, the Companies Act 2006 and related legislation. The Articles of Association may be amended by special resolution of the shareholders. The Company follows the UK Corporate Governance Code 2024 since 1 January 2025. Requirements/reference Financial risk management objectives and policies Share capital The financial management section on pages 55 to 56 and the risk management section on Details of the issued share capital, together with details of movements in the issued share capital pages 57 to 67. of Chesnara plc during the year are shown in note H1 to the IFRS Financial Statements which is incorporated by reference and deemed to be part of this report. Exposure to price risk, credit risk, liquidity risk and cash flow risk Note B3 Financial Risk to the IFRS Financial Statements. The Company has one class of ordinary share which carries no right to fixed income. Each share Likely future developments carries the right to one vote at general meetings of the Company. The ordinary shares are listed on The business review section on pages 40 to 46. the Official List and traded on the London Stock Exchange. As at 31 December 2024, the Company had 150,991,019 ordinary shares in issue, of which none were held as treasury shares. During the Greenhouse gas reporting year, no treasury shares were held or traded. The corporate and social responsibility section on pages 68 to 91. Environmental, employee and social community matters In order to retain maximum flexibility, the Company proposes to renew the authority granted by The corporate and social responsibility section on pages 68 to 91. ordinary shareholders at the Annual General Meeting in 2024, to repurchase up to 10% of its issued share capital. Further details are provided in the Notice of this year’s Annual General Meeting. At the Annual General Meeting in 2024, shareholders approved resolutions to allot shares up to an Directors aggregate nominal value of £5,028,520 and to allot shares for cash other than pro rata to existing Full information of the directors who served in 2024 is detailed in the Corporate Governance Report shareholders. Resolutions will be proposed at this year’s Annual General Meeting to renew these on pages 98 to 103. authorities. Detail of the non-executive directors who served as Chairs and members of the Board committees No person has any special rights of control over the Company’s share capital and all issued shares are of the Board are set out in the Corporate Governance Report on pages 98 to 103. Information in fully paid. There are no specific restrictions on the size of holding nor on the transfer of shares which respect of the Chair and members of the Remuneration Committee and in respect of directors’ are both governed by the general provisions of the Articles of Association and prevailing legislation. service contracts is included in the Remuneration Report on pages 110 to 126, which also includes The directors are not aware of any agreements between holders of the Company’s shares that may details of directors’ interests in shares and share options. The Chair and all the non-executive result in restrictions on the transfer of securities or voting rights. The directors have no current plans directors will retire at the Annual General Meeting and, with the exception of Jane Dale, who has to issue shares. completed a nine-year tenure, offer themselves for election or re-election as appropriate. All of the executive directors have service contracts with the Company of no more than one year’s duration Articles of Association and will offer themselves for re-election at least every three-years. The Company’s Articles of Association may only be amended by special resolution of the Company at a general meeting of its shareholders. The service contracts of all the directors are retained at the Company’s office and will be available for inspection for 15 minutes prior to the Annual General Meeting. No director had any material interest Conflicts of interest in any significant contract with the Company or with any of the subsidiary companies during the year. Procedures are in place to ensure compliance with the directors’ conflict of interest duties as set out in the Companies Act 2006. The Company has complied with these procedures during the year and The directors benefitted from qualifying third party indemnity provisions in place during the years the Board considers that the procedures operated effectively. During the year, details of any new ended 31 December 2023 and 31 December 2024 and the period to 27 March 2025. conflicts or potential conflicts were advised and submitted to the Board for consideration, and where Director evaluations appropriate, approved. During the year, the Chair evaluated the performance of all appointed directors in one to one There were no material conflicts of interest noted in 2024. meetings and the Senior Independent Director evaluated the performance of the Chair. It was confirmed that each director continued to make effective contributions in their role and to the Board as a whole. CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 135 CORPORATE GOVERNANCE DIRECTORS’ REPORT Results and dividends The consolidated statement of comprehensive income for the year ended 31 December 2024, The Group IFRS results are reported under IFRS 17 in the annual financial statements. prepared in accordance with United Kingdom adopted international accounting standards and An interim dividend of 8.61p (2023: 8.36p) per ordinary share was paid by Chesnara on 1 November set out on page 148 shows: 2024. The Board recommends payment of a final dividend of 16.08p (2023: 15.61p) per ordinary share on 20 May 2025 to shareholders on the register at the close of business on 4 April 2025. Restated 2024 2023 The Chesnara Dividend Policy is directly influenced by two key factors. We recognise that our shares £m £m are predominantly held as a source of predictable and sustainable income. Our primary aim is therefore to provide an attractive yield with steady growth where possible. Post-tax profit for year attributable to shareholders 3.9 18.6 Our aim to satisfy investor expectations cannot and will not be delivered at the expense of financial security and solvency. As such, dividend capacity is assessed giving full regard to our Group Capital Management Policy which currently prohibits dividends to be declared that would result in Chesnara having a solvency ratio below 110%. Total dividend as a ratio of cash generated Considerations Cash Historic and projected cash generation levels need to generation support any dividend payment although there is no explicit Dividend growth requirement for the current year’s cash generation to cover the dividend. £37.3m Solvency The Company’s risk appetite solvency level is 140% of SCR, £36.1m however, the Board is prepared to approve dividend distributions £35.0m £33.9m £32.9m such that, post payment of the dividend, the solvency position of the Group is at least 120% of SCR. Acquisition The Chesnara business model is based upon making future strategy acquisitions and any dividend payments consider the financial requirements to continue to deliver our acquisition strategy. 0.84 1.56 1.33 1.47 1.60 Investor In addition to a stable and attractive dividend yield our investors expectations value predictability and sustainability of earnings. As such, under 2023 normal circumstances, ‘special dividends’ are unlikely. 20202021202220232024 The chart above shows the coverage of Commercial Cash generated over the dividend paid in each respective year. Over the past 5 years, £175m of dividends have been paid at an average annual yield of 8.4% (based on average annual share prices) representing a Commercial Cash Generation coverage of 1.37 against dividends paid. 136 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE The Board makes dividend decisions with reference to a range of management information, Subsequent to 31 December 2024 there have been changes to this position and the holdings as reports and policies including the Group ORSA, Group business plan, solvency analysis including at 5 March 2025 are shown below. No other person holds a notifiable interest in the issued share sensitivities, analysis of historic financial results and the Group Capital Management Policy. capital of the Company. Substantial shareholdings Name of substantial Total Percentage of Information provided to the Company by major shareholders pursuant to the FCA’s Disclosure and shareholder number the issued share Transparency Rules (DTR), is published via a Regulatory Information Service and is available on of ordinary capital as at the Company’s website. The Company had been notified under Rule 5 of the DTR of the following shares held 5 March 2025 interests in voting rights in its shares. Columbia Threadneedle Investments 17,778, 343 11.71% Name of substantial Total Percentage of abrdn 14,592,272 9.66% shareholder number the issued share of ordinary capital as at Hargreaves Lansdown Asset Mgt 13,437,650 8.90% shares held 31 December Interactive Investor 12,544,702 8.31% 2024 M&G Investments 8,700,317 5.76% Columbia Threadneedle Investments 17,936,775 11.88% Royal London Asset Mgt 5,608,635 3.71% abrdn 14,735,716 9.76% Janus Henderson Investors 5,225,612 3.46% Hargreaves Lansdown Asset Mgt 13,399,131 8.87% Canaccord Genuity Wealth Mgt 4,935,113 3.27% Interactive Investor 12,499,492 8.28% M&G Investments 8,751,254 5.80% Chesnara plc has no multiple voting rights or voting certificates relative to total voting rights and no Canaccord Genuity Wealth Mgt 5,656,703 3.75% issued share capital is composed of non-voting shares. Depositary receipts represent 0% of voting rights and our free float percentage of voting rights exceeds 98%. Royal London Asset Mgt 5,549,225 3.68% Related party transactions and significant contracts Janus Henderson Investors 5,227,132 3.46% During the year ended 31 December 2024, the Company did not have any material transactions or transactions of an unusual nature with, and did not make loans to, related parties in which any director has or had a material interest. There were no significant contracts with substantial shareholders during the year. Post balance sheet events There have been no post balance sheet events that either require adjustment to the financial statements or are important in the understanding of the Company’s current position, financial performance or results. Charitable donations Charitable donations made by Group companies during the year ended 31 December 2024 were £9,491 (2023: £36,285). We have provided financial and non-financial assistance to charitable organisations including UNICEF, Sherpa, Just Diggit and Safenet. UK colleagues also can donate through a Give as You Earn scheme, supported by the Charities Aid Foundation. No political contributions were made during the year ended 31 December 2024 (2023: £nil). Employees The average number of employees during 2024 was 355 (2023: 387). CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 137 CORPORATE GOVERNANCE DIRECTORS’ REPORT Employee involvement Disclosure of information to the auditor The Group believes that employee communication and consultation is important in enhancing The directors who held office at the date of approval of this Directors’ Report confirm that, the Company culture and connectivity, and in motivating and retaining employees. An open so far as they are each aware, there is no relevant audit information of which the Company’s communications programme enables all employees to understand key strategies and other matters Auditor is unaware; and each director has taken all the steps that they ought to have taken of interest and importance, quickly and efficiently. The communication includes face-to-face as a director to make themselves aware of any relevant audit information and to establish that briefings, open discussion forums with executive and senior management and updates via email. the Company’s Auditor is aware of that information. This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Business relationships Throughout the year the directors have had regard for the need to foster the Company’s business Auditor relationships with suppliers, customers and stakeholders, including on the principal decisions taken A resolution for the re-appointment of Deloitte LLP as Auditor of the Company is to be proposed by the Company during the financial year. Information supporting this is provided in the Section 172 at the forthcoming Annual General Meeting. Chesnara is satisfied that it adheres to the rules that disclosures on pages 32 to 39. are imposed on UK listed companies to perform a tender after 10 years and with a mandatory change of auditors after 20 years. Going concern statement After making appropriate enquiries, including consideration of the economic uncertainty in the Approved by the Board on 26 March 2025 and signed on its behalf by: wake of a high-inflation environment on the Group’s operations, financial position and prospects, the directors confirm that they are satisfied that the Company and the Group have adequate resources to continue in business for the foreseeable future. Accordingly, they continue to adopt the going concern basis in the preparation of the financial statements. Further details can be found within the financial management section on page 56. Viability Statement In accordance with provision 30 of the 2018 UK Corporate Governance Code, the directors Tom Howard have assessed the prospects of the Group over a period longer than the 12 months required Group Chief Financial Officer by the ‘going concern’ provision. The viability statement, aligned with Provision 31 of the 2018 UK Corporate Governance Code, is included in the Strategic Report on page 56. 138 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 CORPORATE GOVERNANCE DIRECTORS’ RESPONSIBILITIES STATEMENT Directors’ responsibilities The directors are responsible for preparing the Annual Report and the Group and Company The directors are responsible for keeping adequate accounting records that are sufficient to show financial statements in accordance with applicable law and regulations. and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply Company law requires the directors to prepare financial statements for each financial year. with the Companies Act 2006. They are also responsible for safeguarding the assets of the Under that law, the directors are required to prepare the Group financial statements in accordance Company and hence for taking reasonable steps for the prevention and detection of fraud and with UK-adopted international accounting standards and have elected to prepare the Company other irregularities. financial statements on the same basis. The directors are responsible for the maintenance and integrity of the corporate and financial In preparing the financial statements, International Accounting Standard 1 requires that directors: information included on the Company’s website. Legislation in the United Kingdom governing the – properly select and apply accounting policies; preparation and dissemination of financial statements may differ from legislation in other – present information, including accounting policies, in a manner that provides relevant, reliable, jurisdictions. comparable and understandable information; Details of the Company’s greenhouse gas emissions, energy consumption and energy efficiency – provide additional disclosures when compliance with the specific requirements in IFRS Standards can be found in the Climate-Related Financial Disclosures within section B, on pages 86 to 90. are insufficient to enable users to understand the impact of particular transactions, other events Disclosures under Listing Rule 9.8.4R and conditions on the entity’s financial position and financial performance; and For the purposes of Listing Rule 9.8.4C, the information required to be disclosed under Listing – make an assessment of the Company’s ability to continue as a going concern. Rule 9.8.4R can be found within the following sections of the Annual Report and Accounts: Section Requirement Location Section Requirement Location 1 Statement of interest capitalised Not applicable 8 As per 7, but for major subsidiary undertakings Not applicable 2 Publication of unaudited financial information Not applicable 9 Parent participation in any placing of a subsidiary Not applicable 3 Deleted Not applicable 10 Contracts of significance Not applicable 4 Details of long-term incentive schemes Directors’ Remuneration Report 11 Controlling shareholder provision of services Not applicable 5 Waiver of emoluments by a director Not applicable 12 Shareholder dividend waiver Not applicable 6 Waiver of any future emoluments by a director Not applicable 13 Shareholder dividend waiver – future periods Not applicable 7 Non pre-emptive issue of equity for cash Not applicable 14 Controlling shareholder agreements Not applicable Responsibility statement Approved by the Board on 26 March 2025 and signed on its behalf by: The directors whose names and functions are listed in the Board profile and Board of Directors section on pages 94 and 95, confirm that to the best of our knowledge: – the Group and Company financial statements, prepared in accordance with the relevant Financial Reporting Framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; – the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and – the annual report and the Group and Company financial statements, taken as a whole, are fair, Luke Savage Steve Murray balanced and understandable and provide the information necessary for shareholders to assess the Chair Chief Executive Officer Company’s position, performance, business model and strategy. 26 March 2025 26 March 2025 CHESNARAANNUALREPORTANDACCOUNTS2024139 IFRS FINANCIAL STATEMENTS 140 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 142 Independent Auditor’s Report to the Parent Company Financial Statements members of Chesnara plc 244 Company Balance Sheet 245 Company Statement of Cash Flows IFRS Consolidated Financial Statements 246 Company Statement of Changes in Equity 148 Consolidated Statement of Comprehensive Income Notes to the Parent Company Financial Statements 149 Consolidated Balance Sheet 247 Section J – Company notes to the 150 Consolidated Statement of Cash Flows financial statements 151 Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements 152 Section A – General information and accounting policies and judgements 168 Section B – Risk and capital management 182 Section C – Segmental information 185 Section D – Performance in the year 193 Section E – Balance sheet assets 199 Section F – Insurance and reinsurance contracts 230 Section G – Balance sheet liabilities 235 Section H – Shareholder equity 236 Section I – Additional disclosures CHESNARAANNUALREPORTANDACCOUNTS2024141 IFRS FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHESNARA PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS In the prior year, a component auditor (Ernst & Young Sweden AB, EY Sweden) provided market analysis and strategic planning services totalling £71k to the Movestic division. These services were Opinion permitted under the component auditor’s local ethical standard, however not the FRC’s Ethical Standard, and were approved by those charged with governance at Movestic. No similar, prohibited In our opinion: services have been provided to the Group in the current year. In assessing the impact on our independence, firstly, there was no self-review threat identified as the team providing the work was – the financial statements of Chesnara plc (the Parent Company, the Company) and its not involved in the component audit, and further, the service provided did not affect balances subsidiaries (the Group) give a true and fair view of the state of the Group’s and of audited by the component audit team. Secondly, we also considered that the fees for the work, the Parent Company’s affairs as at 31 December 2024 and of the Group’s profit for the year £71,000, were not material to the Group or EY Sweden or of a level that would give rise to a then ended; significant self-interest threat. Based on the lack of self-review and insignificant self-interest threats, – the Group financial statements have been properly prepared in accordance with United we believe an objective, reasonable and informed third party would agree that our independence Kingdom adopted international accounting standards; was not impaired. – the Company financial statements have been properly prepared in accordance with We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis United Kingdom adopted international accounting standards and as applied in accordance for our opinion. with the provisions of the Companies Act 2006; and Summary of our audit approach – the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Key audit The key audit matters that we identified in the current year were: matters We have audited the financial statements, which comprise: – Expense assumptions used in the valuation of insurance contract liabilities; and – the Consolidated Statement of Comprehensive Income; – Valuation of Chesnara plc’s investment in Countrywide Assured plc (CA) – the Consolidated and Company Balance Sheets; Within this report, key audit matters are identified as follows: – the Consolidated and Company Statements of Changes in Equity; – the Consolidated and Company Statement of Cash Flows; and Similar level of risk – the related Notes A1 to J9, excluding the Capital Management disclosures calculated in accordance with the Solvency II regime in Note B4, which are labelled as ‘unaudited’. Materiality The materiality that we used for the Group financial statements was £9,900,000 which was determined on the basis of 2% of adjusted The Financial Reporting Framework that has been applied in their preparation is applicable law and net assets. In line with the previous year, we defined ‘adjusted net assets’ United Kingdom adopted international accounting standards and, as regards the Parent Company as net assets plus contractual service margin. financial statements, as applied in accordance with the provisions of the Companies Act 2006. Scoping We scoped our audit at the significant account balance level, scoping in Basis of opinion 4 components (2023: 4 components) for audit procedures on one or more classes of transactions, account balances and disclosures that together We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) represent 99% of the Group’s net insurance and investment results, 98% and applicable law. Our responsibilities under those standards are further described in the Auditor’s of the Group’s profit before tax and 100% of the Group’s insurance and Responsibilities for the Audit of the Financial Statements section of our report. investment contract liabilities. This involved the performance of procedures for the CA division directly by the Group audit team, as well as the We are independent of the Group and the Parent Company in accordance with the ethical involvement of component auditors for the Movestic (Sweden), Scildon requirements that are relevant to our audit of the financial statements in the UK, including the Financial (Netherlands) and Waard (Netherlands) divisions. Reporting Council’s (the FRC’s) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit Significant In the previous year, we included a key audit matter in relation to the services provided to the Group and Parent Company for the year are disclosed in Note D4 to the changes in our Group’s first-time adoption of IFRS 17 ‘Insurance Contracts’ given the financial statements. We confirm that we have not provided any non-audit services prohibited by approach significance and complexity of judgements made when transitioning the FRC’s Ethical Standard to the Group or the Parent Company, with the exception of the matter to IFRS 17. As the year ended 31 December 2024 represents the second described in the following paragraph. year that the Group has applied IFRS 17, we no longer consider this to represent a key audit matter. 142 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 IFRS FINANCIAL STATEMENTS Conclusions relating to going concern Expenses assumptions used in the valuation of insurance contract liabilities In auditing the financial statements, we have concluded that the directors’ use of the going concern Key audit matter description basis of accounting in the preparation of the financial statements is appropriate. The Group’s insurance contract liabilities are one of the largest balances on the balance sheet, held at £4.1bn (2023: £4.2bn) at 31 December 2024. The valuation of insurance contract liabilities Our evaluation of the directors’ assessment of the Group’s and Parent Company’s ability to continue is determined using actuarial assumptions that require complex judgements and forward-looking to adopt the going concern basis of accounting included: estimates to be made by management. A number of the assumptions, such as mortality and – obtaining an understanding of relevant controls in place over management’s going concern morbidity, economic assumptions, and lapse rates, are made with reference to industry tables assessment process; and actual experience, and hence market benchmarking highlights material deviations from industry practices. – evaluating the key assumptions underpinning the Group’s forecast liquidity and capital, including those determined for each of its significant business units; The expense assumptions require management to make significant judgements and estimates relating to the future expenses attributable to insurance contracts. The risk associated with the – evaluating the adequacy and completeness of stress testing performed within the Group’s Own expense assumptions is higher than other actuarial assumptions as a result of: Risk and Solvency Assessment (ORSA), with reference to our understanding of its internal and external environment, including the impacts on the Group’s forecast liquidity and Solvency Capital – planned changes to the policy administration outsourcing arrangements of CA, including the Requirements, considering the Group’s principal risks and uncertainties as outlined on page 61 anticipated project costs of migration and termination; to 67; and – the impact of inflation on future expenses in the short- and long-term, particularly given recent – assessing the appropriateness of the going concern disclosures in the financial statements, based changes in the Group’s macroeconomic environments; and on our knowledge gained throughout the audit. – uncertainties in the costs of maintaining insurance portfolios in run-off, particularly where variable Based on the work we have performed, we have not identified any material uncertainties relating cost assumptions are used. to events or conditions that, individually or collectively, may cast significant doubt on the Group’s Given the significance of the insurance contract liabilities held within CA (£1.3bn), Scildon (£1.9bn) and Parent Company’s ability to continue as a going concern for a period of at least 12 months from and Waard (£0.7bn), our key audit matter was pinpointed to the expense assumptions within these when the financial statements are authorised for issue. divisions. As the expense assumptions are susceptible to manipulation by management, impacting In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we its reported profit before taxation, we determined that there was a risk of material misstatement have nothing material to add or draw attention to in relation to the directors’ statement in the due to fraud and therefore identified this area as a key audit matter. financial statements about whether the directors considered it appropriate to adopt the going concern The Group’s accounting policy relating to its insurance contract liabilities has been presented in basis of accounting. Note A4, with details of the balance and movement from 31 December 2023 set out within Notes Our responsibilities and the responsibilities of the directors with respect to going concern are F2 to F5. The expense assumptions used in determining insurance contracts liabilities are also described in the relevant sections of this report. referred to in the Audit & Risk Committee Report on page 127. Key audit matters How the scope of our audit responded to the key audit matter In respect of the expense assumptions used in the valuation of insurance contract liabilities, we Key audit matters are those matters that, in our professional judgement, were of most significance performed the following procedures: in our audit of the financial statements of the current period and include the most significant assessed – obtained an understanding of relevant controls in place around management’s assumption setting risks of material misstatement (whether or not due to fraud) that we identified. These matters processes at the Group and divisional level; included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. – with the involvement of actuarial specialists, evaluated the appropriateness of expense assumptions and methodology. Our assessment considered the reasonableness of forecasts for These matters were addressed in the context of our audit of the financial statements as a whole, future periods with reference to the Group’s internal and external business environments, the and in forming our opinion thereon, and we do not provide a separate opinion on these matters. impacts of any planned management actions, and whether the assumptions have been subject to management bias; – tested actual expenses in the year ended 31 December 2024 and compared these to management’s previous forecasts to understand the predictive accuracy of management’s process; – assessed the mechanical accuracy of management’s underlying expense calculations, verifying that management’s selected methodology had been applied correctly; and – assessed the appropriateness of the disclosures within the financial statements in relation to expense assumptions used in the valuation of the underlying insurance contract liabilities. Key observations Based on the procedures performed, we consider the expense assumptions used in the valuation of insurance contract liabilities and related disclosures to be appropriate. CHESNARAANNUALREPORTANDACCOUNTS2024143 IFRS FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHESNARA PLC Valuation of Chesnara plc’s investment in CA Our application of materiality Key audit matter description Materiality Chesnara plc holds investments in subsidiaries totalling £389.9m (2023: £399.6m) on its Company We define materiality as the magnitude of misstatement in the financial statements that makes it balance sheet, measured at cost less cumulative impairment losses. probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the In line with IAS 36 ‘Impairment of Assets’, management are required to carry out an impairment results of our work. assessment if there is indication of impairment loss at the balance sheet date. Through its assessment, management evaluated whether the investment in CA was carried at more or less Based on our professional judgement, we determined materiality for the financial statements as than its recoverable amount, which is the higher of fair value less costs of disposal and value a whole as follows: in use, and therefore whether an impairment is required. Management have historically deemed Economic Value (EcV) to be an appropriate proxy for recoverable amount, with management’s Group financial statements Parent Company definition of EcV included on page 260. financial statements In recent years, the CA EcV has been on a downwards trend as dividends paid to the Parent Materiality £9.9m (2023: £10.3m) £9.2m (2023: £9.0m) Company have exceeded EcV growth, with this dynamic being a function of CA being a closed book insurer. The impairment assessment performed by management at the balance sheet Basis for 2% of adjusted net assets 3% of net assets date highlighted £4.0m (2023: £14.4m) of impairment over the carrying value of the investment. determining (2023: 2% of adjusted net assets) (2023: 3% of net assets) materiality Due to the potential for management to introduce inappropriate bias to judgements made in the In line with the prior year, adjusted The performance materiality impairment assessment when determining the EcV, with impairment losses impacting the net assets is defined as net applied to the Parent Company for Parent Company income statement and balance sheet, we determined that there was a risk of assets plus Contractual Service the purposes of the Group audit material misstatement due to fraud and therefore identified this area as a key audit matter. Margin (CSM). opinion is discussed on page 145. The Parent Company’s accounting policy relating to its subsidiary investments has been presented in Note A4, with details of the impairment sensitivities included in Note A5. The carrying value Rationale for The Group’s key stakeholders A net assets or equity measure of Chesnara plc’s investment in CA is also referred to in the Audit & Risk Committee Report on the benchmark are focused on the management is closely aligned to the objectives page 127. applied of capital under Solvency II of the Parent Company, in and therefore we consider the making dividend payments from its How the scope of our audit responded to the key audit matter most relevant and equivalent distributable reserves, with the In respect of the valuation of Chesnara plc’s investment in CA, we performed the metric to be net assets. benchmark representing a stable following procedures : long-term measure of the IFRS 17 introduced the concept Company’s financial position. – obtained an understanding of relevant controls in place around management’s impairment of CSM, which reflects the assessment and EcV valuation processes; estimated deferred profit that is expected to be realised within – evaluated management’s methodology for determining the recoverable amount of CA in accordance net assets in future reporting with IAS 36 ‘Impairment of Assets’, including the appropriateness of using EcV as a proxy for periods. We deem it appropriate recoverable amount; to adjust net assets by adding – with the involvement of actuarial specialists, evaluated the accuracy and completeness of CSM to the benchmark, reflecting adjustments made to CA’s IFRS balance sheet in order to determine the EcV and considered the future value of the Group. whether the adjustments have been subject to management bias; As permitted by FRC Practice Note 20 ‘The Audit of Insurers in the United Kingdom’, we applied – performed a stand-back assessment of management’s impairment assessment against our a separate testing threshold of £24.5m (2023: £24.0m) when performing our testing over knowledge and understanding of changes in CA internal and external business environment; CA unit-linked insurance assets and the related notes. This was determined with reference to – evaluated management’s impairment assessment by performing benchmarking against other recent 1% of unit-linked assets (2023: 1% of unit-linked assets). industry transactions to gain corroborative and contradictory evidence; and – evaluated the appropriateness of disclosures included in Note J1 of the financial statements. Group materiality £9.9m Key observations Based on the procedures performed, we consider the carrying value of Chesnara plc’s investment Component performance Net Assets in CA to be appropriate. materiality range £3.2m + CSM £495m to £5.6m Audit & Risk Committee reporting threshold £0.49m Net assets + CSM Group materiality 144 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 IFRS FINANCIAL STATEMENTS Performance materiality An overview of the scope of our audit (continued) We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial Our consideration of the control environment statements as a whole. We focused our assessment of relevant controls around each of the key audit matters detailed above, as well as significant account balances and business processes such as revenue, claims paid, Parent Company actuarial reserving, investments and financial reporting. With the assistance of IT specialists, we Group financial statements financial statements also performed walkthroughs to gain an understanding of the Group’s key IT systems in each of its significant business divisions. The extent of controls assessment and testing performed varied Performance 65% (2023: 65%) of £5.6m (2023: £5.8m), which depending on the maturity of the IT systems and controls in place. materiality Group materiality equates to 61% (2023: 65%) Where, through the process of understanding the systems and controls in place, we identified of Parent Company materiality deficiencies or found that previously identified deficiencies had not been remediated, we did not Basis and In determining performance materiality, we considered the quality of the seek to rely on those controls in the current year. We shared observations arising from our rationale for Group and Parent Company’s control environment and whether we procedures with management and the Audit & Risk Committee. Where improvements to controls determining were able to rely on controls, our understanding of changes in the Group’s have been identified, management are remediating the deficiencies in response to provision 29. performance internal and external business environment, the nature of the Group’s The Board of Directors’ assessment of the Group’s control environment set out on page 103. materiality significant account balances and our past experience of the audit, which In line with previous years, we relied on controls in place over the Movestic division’s has indicated a low number of corrected and uncorrected misstatements investments process. identified in prior periods. Our consideration of climate-related risks In planning our audit, we considered the potential impact of climate-related risks on the Group’s Error reporting threshold business and its financial statements. The Group’s Risk Management Policy and Framework We agreed with the Audit & Risk Committee that we would report to the committee all audit encompass the potential impacts and opportunities of environmental, social and governance differences in excess of £495,000 (2023: £500,000), as well as differences below that threshold factors (ESG) and climate change as explained in the Strategic Report on pages 58 to 60. that, in our view, warranted reporting on qualitative grounds. We also report to the Audit & Risk As set out in Note A4, management does not consider that climate change risk is currently a key Committee on disclosure matters that we identified when assessing the overall presentation of the source of estimation uncertainty nor that it presents a material impact to the judgements made financial statements. in the financial statements. An overview of the scope of our audit We held discussions with management to understand the approach for identifying climate-related risks, as well as their impact on the financial statements. This included obtaining an understanding Identification and scoping of components of governance controls in place over the Group’s risk assessment process, which includes the We scoped our audit by obtaining an understanding of the Group and its environment, including consideration of climate-related risks. We also obtained an understanding of the Group’s long-term groupwide controls, and identifying significant account balances and related risks of material strategy to respond to climate-related risks as they evolve, including the potential impact on the misstatement at the Group level. Group’s forecasts for future periods. We scoped our audit at the significant account balance level, scoping in 4 components (2023: 4 Our audit work has included assessing the conclusions reached by management regarding the components) for audit procedures on one or more classes of transactions, account balances and impact of climate-related risks on the Group’s financial statements in the current year and reading disclosures that together represent 99% of the Group’s net insurance and investment results, the disclosures in the Strategic Report, with the involvement of ESG specialists, to consider 98% of the Group’s profit before tax and 100% of the Group’s insurance and investment contract whether they are materially consistent with the financial statements and our knowledge obtained liabilities. This involved the performance of procedures for the CA division directly by the Group in the audit. We also evaluated the appropriateness of disclosures included in the financial audit team, as well as the involvement of component auditors for the Movestic (Sweden), Scildon statements in Note A4. (Netherlands) and Waard (Netherlands) divisions. Working with other auditors For the Parent Company component, we applied a component performance materiality equal to Referral instructions were provided to each of the component auditors of the Movestic, Scildon and £5.6m; for the other components, we used individual component performance materiality levels Waard divisions, outlining the procedures to be performed to support the Group audit opinion. determined on the basis of their individual financial statements, which ranged from £3.2m to £5.6m. The Group audit team directed and supervised the work performed by component auditors on its At the Group level, we performed audit procedures over the consolidation process and analytical behalf, which included: procedures over account balances where no audit procedures had been performed, in order to assess – involving the component audit teams in our groupwide fraud and planning discussions; whether there were any additional risks of material misstatement at the Group level. – holding regular meetings throughout the audit in order to monitor and challenge the nature and extent of each component auditor’s planned audit procedures; and – performing in-person file reviews of each component auditor’s risk assessment and audit work, assessing the appropriateness of the conclusions reached. In addition to reviewing the audit files of each component auditor, the Group audit team also evaluated the formal responses provided to our referral instructions, assessing whether the planned procedures had been performed appropriately. CHESNARAANNUALREPORTANDACCOUNTS2024145 IFRS FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHESNARA PLC Identifying and assessing potential risks related to irregularities Other information In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: The other information comprises the information included in the Annual Report and Accounts, other than the financial statements and our auditor’s report thereon. The directors are responsible – the nature of the industry and sector, control environment and business performance including the for the other information contained within the Annual Report and Accounts. design of the Group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets; Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance – the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or conclusion thereon. error that was approved by the Board; Our responsibility is to read the other information and, in doing so, consider whether the other – results of our enquiries of management, internal audit, the directors and the Audit & Risk Committee information is materially inconsistent with the financial statements, or our knowledge obtained about their own identification and assessment of the risks of irregularities, including those that in the course of the audit, or otherwise appears to be materially misstated. are specific to the Group’s sector; If we identify such material inconsistencies or apparent material misstatements, we are required – any matters we identified having obtained and reviewed the Group’s documentation of their policies to determine whether this gives rise to a material misstatement in the financial statements and procedures relating to: themselves. If, based on the work we have performed, we conclude that there is a material – identifying, evaluating and complying with laws and regulations and whether they were aware misstatement of this other information, we are required to report that fact. of any instances of non-compliance; We have nothing to report in this regard – detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; Responsibilities of directors – the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible – the matters discussed among the audit engagement team, including significant component audit for the preparation of the financial statements and for being satisfied that they give a true and fair teams, and relevant internal specialists, including tax, actuarial, IT and ESG specialists regarding view, and for such internal control as the directors determine is necessary to enable the preparation how and where fraud might occur in the financial statements and any potential indicators of fraud. of financial statements that are free from material misstatement, whether due to fraud or error. As a result of these procedures, we considered the opportunities and incentives that may exist In preparing the financial statements, the directors are responsible for assessing the Group’s and within the organisation for fraud and identified the greatest potential for fraud in the following areas: the Parent Company’s ability to continue as a going concern, disclosing as applicable, matters expense assumptions used in the valuation of insurance contract liabilities and the valuation of related to going concern and using the going concern basis of accounting unless the directors either Chesnara plc’s investment in CA. In common with all audits under ISAs (UK), we are also required intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic to perform specific procedures to respond to the risk of management override. alternative but to do so. We also obtained an understanding of the legal and regulatory frameworks that the Group operates Auditor’s responsibilities for the audit of the financial statements in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations Our objectives are to obtain reasonable assurance about whether the financial statements as a we considered in this context included the UK Companies Act, Listing Rules, and tax legislation. whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s In addition, we considered provisions of other laws and regulations that do not have a direct effect report that includes our opinion. Reasonable assurance is a high level of assurance but is not a on the financial statements but compliance with which may be fundamental to the Group’s ability guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material to operate or to avoid a material penalty. These included the Group’s regulatory solvency requirements misstatement when it exists. Misstatements can arise from fraud or error and are considered and compliance with the requirements of the Financial Conduct Authority (FCA), Prudential material if, individually or in the aggregate, they could reasonably be expected to influence the Regulatory Authority (PRA), De Nederlandsche Bank (DNB) and the Swedish Financial Services economic decisions of users taken on the basis of these financial statements. Authority (FSA). A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities This description forms part of our Audit response to risks identified auditor’s report. As a result of performing the above, we identified expense assumptions used in the valuation of insurance contract liabilities and the valuation of Chesnara plc’s investment in CA as key audit Extent to which the audit was considered capable of detecting irregularities, including fraud matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design those key audit matters. procedures in line with our responsibilities, outlined above, to detect material misstatements in In addition to the above, our procedures to respond to risks identified included the following: respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. – reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements; 146 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 IFRS FINANCIAL STATEMENTS – enquiring of management, the Audit & Risk Committee and in-house legal counsel concerning actual Matters on which we are required to report by exception and potential litigation and claims; – performing analytical procedures to identify any unusual or unexpected relationships that may indicate Adequacy of explanations received and accounting records risks of material misstatement due to fraud; Under the Companies Act 2006 we are required to report to you if, in our opinion: – reading minutes of meetings of those charged with governance, reviewing internal audit reports and – we have not received all the information and explanations we require for our audit; or reviewing correspondence with the FCA, PRA, DNB and FSA; and – adequate accounting records have not been kept by the Parent Company, or returns adequate for – in addressing the risk of fraud through management override of controls, testing the appropriateness our audit have not been received from branches not visited by us; or of journal entries and other adjustments; assessing whether the judgements made in making – the Parent Company financial statements are not in agreement with the accounting records accounting estimates are indicative of a potential bias; and evaluating the business rationale of any and returns. significant transactions that are unusual or outside the normal course of business. We have nothing to report in respect of these matters. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and component audit teams, and remained Directors’ remuneration alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the part of the Directors’ Remuneration Report Report on other legal and regulatory requirements to be audited is not in agreement with the accounting records and returns. Opinions on other matters prescribed by the Companies Act 2006 We have nothing to report in respect of these matters. In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other matters which we are required to address In our opinion, based on the work undertaken in the course of the audit: – the information given in the Strategic Report and the Directors’ Report for the financial year for which Auditor tenure the financial statements are prepared is consistent with the financial statements; and Following the recommendation of the Audit & Risk Committee, we were appointed by the Group Board of Directors on 1 October 2009 to audit the financial statements for the year ending – the Strategic Report and the Directors’ Report have been prepared in accordance with applicable 31 December 2009 and subsequent financial periods. The period of total uninterrupted engagement legal requirements. including previous renewals and reappointments of the firm is 16 years, covering the years ending In the light of the knowledge and understanding of the Group and the Parent Company and their 31 December 2009 to 31 December 2024. environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report. Consistency of the audit report with the additional report to the Audit & Risk Committee Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are Corporate Governance Statement required to provide in accordance with ISAs (UK). The Listing Rules require us to review the directors’ statement in relation to going concern, Use of our report longer-term viability and that part of the Corporate Governance Report relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might Based on the work undertaken as part of our audit, we have concluded that each of the following state to the Company’s members those matters we are required to state to them in an auditor’s elements of the Corporate Governance Statement is materially consistent with the financial report and for no other purpose. To the fullest extent permitted by law, we do not accept or statements and our knowledge obtained during the audit: assume responsibility to anyone other than the Company and the Company’s members as a body, – the directors’ statement with regards to the appropriateness of adopting the going concern basis for our audit work, for this report, or for the opinions we have formed. of accounting and any material uncertainties identified, set out on page 138; As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule – the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment (DTR) 4.1.15R – DTR 4.1.18R, these financial statements form part of the Electronic Format Annual covers and why the period is appropriate, set out on page 138; Financial Report filed on the National Storage Mechanism of the FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the Electronic Format – the directors’ statement on fair, balanced and understandable, set out on page 139; Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R. – the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks, set out on page 58; – the section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal control systems, set out on page 103; and Matthew Bainbridge (Senior Statutory Auditor) for and on behalf of Deloitte LLP – the section describing the work of the Audit & Risk Committee, set out on page 128. Statutory Auditor Leeds, United Kingdom 26 March 2025 CHESNARAANNUALREPORTANDACCOUNTS2024147 IFRS FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2024 2023 Note £m £m Insurance revenue D1 261.9 228.0 Insurance service expense D1 (244.1 ) (224.8 ) Net expenses from reinsurance contracts held D1 (9.2 ) (8 .4 ) Insurance service result 8 . 6 (5 . 2 ) Net investment return D2 1,286.1 1,023.5 Net finance (expenses)/income from insurance contracts issued D2 (334.8 ) (314.9 ) Net finance income/(expenses) from reinsurance contracts held D2 2.6 6.7 Net change in investment contract liabilities D2 (7 40.4 ) (529.6 ) Change in liabilities relating to policyholders’ funds held by the Group D2 ( 160.8 ) (1 14 .0 ) Net investment result 52.7 71 .7 Fee, commission and other operating income D3 104.2 89.4 Total revenue net of investment result 1 6 5 . 5 1 5 5 . 9 Other operating expenses D4 (133.6 ) (149.9 ) Total income less expenses 31 . 9 6 .0 Financing costs D5 (1 1.1 ) (1 1.0 ) Profit arising on business combinations and portfolio acquisitions I7 – 6 .7 Profit/(loss) before income taxes C2 20 . 8 1 .7 Income tax credit D6 (16.9 ) 16.9 Profit/(loss) for the period C2 3. 9 1 8 . 6 Items that may be reclassified subsequently to profit and loss: Foreign exchange translation differences arising on the revaluation of foreign operations (15. 3 ) (7.8 ) Revaluation of land and building 0.4 0.1 Items that will not be reclassified to profit and loss: Revaluation of pension obligations after tax – (0.7 ) Other comprehensive (expense)/income for the period, net of tax (14 . 9 ) (8 . 4 ) Total comprehensive income/(expense) for the period (1 1 . 0 ) 1 0. 2 Basic earnings per share (based on profit or loss for the period) I3 2 .56 p 12.36 p Diluted earnings per share (based on profit or loss for the period) I3 2.52 p 12.24 p The Notes and information on pages 152 to 243 form part of these financial statements. 148 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 IFRS FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET 31 December 2024 Restated 2023 Note £m £m Assets Intangible assets E1 87 .2 96.4 Property and equipment E2 7 .8 8.4 Investment properties E3 91.7 88.1 Deferred tax assets G4 38.9 54.6 Insurance contract assets F1 1.8 3.9 Reinsurance contract assets F1 169.9 185.7 Amounts deposited with reinsurers 34. 3 32 .5 Financial investments E4 1 2,1 16 .7 1 1,45 6.1 Derivative financial instruments E5 0.1 0.3 Other assets E6 68 .7 57.7 Cash and cash equivalents E7 138.0 146.0 Total assets 12 ,75 5 .1 12 ,12 9 .7 Liabilities Insurance contract liabilities F1 4 ,099.1 4,203.0 Reinsurance contract liabilities F1 16.6 17 .1 Other provisions G1 20.3 23. 2 Investment contracts at fair value through profit or loss 6,1 1 6.7 5,872 .3 Liabilities relating to policyholders’ funds held by the Group 1, 825.5 1,28 1.8 Lease contract liabilities G2 0.6 1.2 Borrowings G3 204 .8 207 .9 Derivative financial instruments E5 0.6 4 .4 Deferred tax liabilities G4 24 .7 24 . 3 Deferred income G5 1.3 2.8 Other current liabilities G6 129.7 13 1.7 Bank overdrafts E7 0.8 0.2 Total liabilities 1 2 , 4 4 0.7 1 1 ,769.9 Net assets C2 314.4 359.9 Shareholders’ equity Share capital H1 7 .5 7.5 Merger reserve H1 36.3 36.3 Share premium H1 142.5 142.5 Other reserves H2 (8 .4 ) 6.5 Retained earnings H3 1 36.5 167.0 Total shareholders’ equity 314 . 4 3 5 9. 8 The Notes and information on pages 152 to 243 form part of these financial statements. Approved by the Board of Directors and authorised for issue on 26 March 2025 and signed on its behalf by: Luke Savage Steve Murray Chair Chief Executive Officer Company number: 04947166 CHESNARAANNUALREPORTANDACCOUNTS2024149 IFRS FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 December 2024 Restated 2023 Note £m £m Profit/(Loss) for the period 3 . 9 1 8 . 6 Adjustments for: Depreciation of property and equipment E2 0. 9 0.8 Depreciation on right-of-use assets 0.8 0.8 Amortisation of intangible assets E1 1 6 .1 1 7.1 Impairment of intangible assets – 21.0 Share-based payment 2 .0 0.7 Tax expense/(credit) 16.9 (16.9 ) Interest receivable (18.5 ) (5.6 ) Dividends receivable (34.9 ) (2. 3 ) Interest expense 1 0.5 10. 3 Fair value (gains)/losses on financial assets and investment properties (1,286.1 ) (1,02 3.5 ) Profit on business combinations and portfolio acquisitions – (6.7 ) Increase in intangible assets related to investment contracts (1 1. 3 ) (10.2 ) Adjustment total (1 , 30 3 . 6 ) (1 , 014 . 5 ) Interest received 18.1 7.5 Dividends received 35.2 1 9.6 Changes in operating assets and liabilities: Decrease/(increase) in financial assets and investment properties 15 1.3 327 .6 Decrease/(increase) in net reinsurers contract assets 14.8 7 .8 Decrease/(increase) in amounts deposited with reinsurers (1.8 ) 0.3 (Increase)/decrease in other assets 16. 2 (19.5 ) Increase/(decrease) in net insurance contract liabilities 35.7 93.8 Increase/(decrease) in investment contract liabilities 1 ,121.0 526.4 Increase/(decrease) in provisions (2. 2 ) 2 .3 Increase/(decrease) in other current liabilities (12 .9 ) 5.7 Cash generated/(utilised) by operations 75 .7 (24 . 4 ) Income tax paid (37 .1 ) (10.5 ) Net cash generated/(utilised) from operating activities 3 8 . 6 (3 4 . 9 ) Cash flows from investing activities Acquisition of subsidiary, net of cash acquired – 30.3 Capital contribution received from subsidiary 5.8 – Net proceeds/(purchases) of property and equipment (0.8 ) (0.8 ) Net cash (utilised)/generated by investing activities 5 . 0 2 9. 5 Cash flows from financing activities Net proceeds from the issue of share capital – 0.2 Repayment of borrowings (2.6 ) (3.9 ) Repayment of lease liabilities (0.3 ) (0.6 ) Dividends paid (36 .5 ) (35.4 ) Interest paid (10. 3 ) (1 0.1 ) Net cash utilised by financing activities (49.7 ) (49 . 8 ) Net decrease in cash and cash equivalents (6 .1 ) (55 . 2 ) Net cash and cash equivalents at beginning of period E7 145.9 204.6 Effect of exchange rate changes on net cash and cash equivalents (2 .6 ) (3.6 ) Net cash and cash equivalents at end of the period E7 137.2 1 45.8 Note. Net cash and cash equivalents includes overdrafts. The Notes and information on pages 152 to 243 form part of these financial statements. 150 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 IFRS FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2024 Share Share Merger Other Retained capital premium reserve reserves earnings Total £m £m £m £m £m £m Equity shareholders’ funds at 1 January 2024 7.5 14 2 . 5 36 . 3 6 . 5 1 6 7.0 3 5 9. 8 Profit for the year – – – – 3.9 3.9 Foreign exchange translation differences – – – (15.3 ) – (15.3 ) Other items of comprehensive income – – – 0. 4 – 0.4 Total comprehensive income – – – (14 . 9 ) 3 . 9 (1 1 .0 ) Dividends paid – – – – (36 .5 ) (36.5 ) Share-based payment – – – – 2.1 2.1 Equity shareholders’ funds at 31 December 2024 7.5 142 . 5 3 6 . 3 (8 . 4 ) 13 6 . 5 314 . 4 Year ended 31 December 2023 – restated Share Share Merger Other Retained capital premium reserve reserves earnings Total £m £m £m £m £m £m Equity shareholders’ funds at 1 January 2023 7. 5 14 2 . 3 3 6 . 3 14 . 9 1 83 . 1 38 4 .1 Profit for the year – – – – 18.6 18.6 Foreign exchange translation differences – – – (7.8 ) – (7.8 ) Other items of comprehensive income – – – (0.6 ) – (0.6 ) Total comprehensive income – – – (8 . 4 ) 18 . 6 1 0 . 2 Dividends paid – – – – (35.4 ) (35. 4 ) Issue of share premium – 0.2 – – – 0.2 Share-based payment – – – – 0. 7 0. 7 Equity shareholders’ funds at 31 December 2023 7.5 1 42 . 5 3 6 . 3 6 . 5 1 67.0 3 59 . 8 The Notes and information on pages 152 to 243 form part of these financial statements. CHESNARAANNUALREPORTANDACCOUNTS2024151 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A1 General information A3 Basis of preparation Chesnara plc (Registered number 4947166) (the Company) is a limited liability company, incorporated The consolidated and Parent Company financial statements have been prepared on a going concern in the United Kingdom and registered in England and Wales. The Company is limited by shares and basis. The directors believe that they have a reasonable expectation that the Group has adequate has a primary listing on the London Stock Exchange. The address of the registered office is 2nd Floor, resources to continue in operational existence for a minimum of 12 months from the date of signing. Building 4, West Strand Business Park, West Strand Road, Preston, England, PR1 8UY, UK. In making this assessment, the directors have taken into consideration the points as set out in the financial management section of the Annual Report and Accounts under the heading ‘Maintain The Company and its subsidiaries, together forming the Group, comprise UK, Swedish and Dutch life the Group as a going concern’. and pensions businesses. The financial statements are presented in pounds sterling, rounded to the nearest one hundred The UK segment comprises a number of legacy books consisting of a mix of unit-linked, with-profits thousand, and are prepared on the historical cost basis except for insurance and reinsurance contracts and non-linked business and is substantially closed to new business, such that new insurance which are stated at their fulfilment value in accordance with IFRS 17 and the following assets and contracts are only issued to existing customers, dependent on their changing needs. On 23 December liabilities which are stated at their fair value: derivative financial instruments; financial instruments 2024, Chesnara announced the acquisition of a block of unit-linked bond and pension business at fair value through profit or loss; investment property; and investment contract liabilities at fair from Canada Life Limited. Further details regarding this transaction are disclosed in Note I7. value through profit or loss. The Swedish segment comprises the Movestic business, as described in Note C1. Its activities are Assets and liabilities are presented in order of increasing liquidity in the balance sheet. In addition, performed predominantly in Sweden, where it underwrites life, accident and health risks and amounts expected to be recovered or settled within a year are classified as current in the notes to provides a portfolio of investment contracts. It is open to new business, distributing its products the accounts. If they are expected to be recovered or settled in more than 1 year, they are classified principally through independent financial advisors. as non-current in the notes to the accounts. Assets and liabilities are presented on a current and The Dutch segment comprises the Waard Group and Scildon businesses, as described in Note C1. non-current basis in the Company Balance Sheet. The Group’s Dutch life businesses contain a mix of term life, unit-linked, index-linked and non-linked The preparation of financial statements in conformity with IFRSs requires management to make business. Scildon is open to new business for some of its products, whilst the Waard Group has judgements, estimates and assumptions that affect the application of policies and reported amounts seen growth in recent years through a number of acquisitions of closed-book portfolios. of assets and liabilities, income and expenses. The estimates and associated assumptions are These financial statements are presented in pounds sterling, which is the functional currency of the based on historical experience and various other factors that are believed to be reasonable under Parent Company. Foreign operations are included in accordance with the policies set out in Note A4. the circumstances, the results of which form the basis of making the judgements about carrying The results and cash flows of these operations have been translated into sterling at an average rate values of assets and liabilities that are not readily apparent from other sources. Actual results may for the year of £1 = SEK 13.51 (2023: £1 = SEK 13.20) for the Swedish business and £1 = EUR 1.18 differ from these estimates. (2023: £1 = EUR 1.15) for the Dutch business. The estimates and underlying assumptions are reviewed on an ongoing basis. Judgements made Assets and liabilities have been translated at the year end rate of £1 = SEK 13.84 (31 December 2023: by management in the process of applying the Group’s accounting policies that have a significant £1 = SEK 12.84) for the Swedish business and £1 = EUR 1.21 (31 December 2023: £1 = EUR 1.15) effect on the financial statements and estimates with a significant risk of material adjustment in for the Dutch business. the next year are set out in Note A5. Total foreign currency exchange rate loss for the year ended 31 December 2024 recognised in the The Group prepares interim financial statements at half year and as permitted by IFRS 17 has elected Consolidated Statement of Comprehensive Income of £15.3m (year ended 31 December 2023: to apply the ‘year-to-date’ method and restate estimates in respect of insurance contracts made loss of £7.8m). in the previous interim financial statements, in these year end financial statements. This accounting policy election applies to all groups of insurance and reinsurance contracts. The financial statements were authorised for issue by the directors on 26 March 2025. The accounting policies set in Note A4, unless otherwise stated, have been applied consistently to A2 Basis of consolidation all years presented in these Consolidated Financial Statements. The Consolidated Financial Statements incorporate the financial statements of the Company and of The Consolidated Financial Statements have been prepared in accordance with United Kingdom entities controlled by the Company (its subsidiaries), made up to 31 December each year. Control adopted international accounting standards in conformity with the requirements of the Companies is achieved when the Company is exposed or has rights to the variable returns from the involvement Act 2006. Both the Parent Company financial statements and the Group financial statements with the entity and has the ability to affect those returns through its power over the entity. The have been prepared and approved by the directors in accordance with United Kingdom adopted Parent Company financial statements present information about the Company as a separate entity international accounting standards. and not about its Group. There are no non-controlling interests in the net assets of the Group and all total comprehensive income is attributed to the Company shareholders. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. 152 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Restatement of prior year numbers BEPS 2.0 A prior year restatement has been applied in respect of the accounting treatment of the Canada Life The Organisation for Economic Cooperation and Development (OECD) has introduced international portfolio in 2023. tax reform measures under the Two-Pillar solution, including the Global Anti-Base Erosion (GloBE) rules, which establish a 15% global minimum tax for multinational groups with a consolidated turnover In the previously reported financial statements for December 2023, a long contract boundary was of at least EUR 750m in at least 2 of the past 4 years. applied in valuing the future cash flows beyond the expected termination of the reinsurance contract. On further assessment, as there is no executable right under the reinsurance agreement itself The Group operates in the United Kingdom, Sweden and the Netherlands, all of which have enacted to the underlying policies, then under IFRS 17 requirements a short contract boundary should have legislation implementing BEPS Pillar II effective from 1 January 2024. Based on the latest available been applied. guidance and the Group’s financial position, Chesnara remains below the EUR 750m threshold and is not in scope of the GloBE rules for 2024. This accounting change means that the resulting CSM reflects only the profit to be realised in the reinsurance contract timeframe. Following the legal transfer of the underlying policies, the CSM The Group continues to monitor interpretations of BEPS legislation in each jurisdiction to assess is recalculated to reflect the profit to be earned on the full remaining duration of the policies. potential for future exposure, particularly the treatment of policyholder investment returns in the UK and the application of OECD guidance in Sweden in connection with insurance investment funds, Balance sheet: together with the classification of taxes paid therefrom. As reported Restated Although Chesnara remains below the threshold, the Group continues to assess potential future £m £m exposure, including the impact of business growth and future acquisitions; effective tax rates across jurisdictions; and the interaction of local tax regimes with GloBE rules. Present value of future cash flows 15.7 5.0 Risk adjustment (0.9 ) – Discussions with relevant tax authorities and industry bodies are ongoing to ensure continued CSM (11.2 ) (1.5 ) compliance with evolving published and draft guidance. Assets for incurred claims 0.4 0.4 Based on our assessment that Chesnara remains below the EUR 750m threshold, and is not in scope Insurance contract assets total 4.0 3.9 for BEPS in 2024, no adjustments to current or deferred tax have been made in respect of BEPS Pillar II, and no additional disclosures are required necessary under IAS 12. The total net assets reported at 31 December 2023 of £359.9m have therefore been restated to £359.8m from £359.9m as previously reported. A4 Material accounting policy information The following accounting policy information is in respect of the Group and also for the Parent Income statement: Company where it is applicable. The material accounting policies that relate to the Parent Company as well as to the Group are in respect of: Investment return, Other operating expenses, Financing As reported Restated costs, Income taxes, Financial investments, Derivative financial instruments, Other assets, Cash £m £m and cash equivalents, Lease contract liabilities, Borrowings, Other current liabilities and Employee Insurance revenue 228.0 228.0 benefits. The material accounting policies that relate to the Parent Company and not the Group Insurance service expense (224.7 ) (224.8 ) are: Investment in subsidiary, Share-based payments, Share capital and shares held in treasury and Dividends. The total comprehensive income reported for 2023 of £10.3m has therefore been restated to £10.2m. (a) Insurance contracts and reinsurance contracts Basic earnings per share has been restated from 12.41p to 12.36p. (i) Scope and classification Diluted earnings per share has been restated from 12.29p to 12.24p. Contracts under which the Group accepts significant insurance risk are classified as insurance contracts. Contracts held by the Group under which it transfers significant insurance risk related to The Part VII business transfer for the transaction received court approval on the 3 February 2025. underlying insurance contracts are classified as reinsurance contracts. Insurance and reinsurance contracts also expose the Group to financial risk. Standards and amendments issued but not yet effective At the date of authorisation of these financial statements the following standards and interpretations, Insurance contracts may be issued, and reinsurance contracts may be initiated by the Group, or they which are applicable to the Group, and which have not been applied in these financial statements, may be acquired in a business combination or in a transfer of contracts that does form a business. were in issue but not yet effective: All references in these accounting policies to ‘insurance contracts’ and ‘reinsurance contracts’ include contracts issued, reinsurance contracts initiated or insurance or reinsurance contracts acquired Title Effective date by the Group, unless otherwise stated. IFRS 9/IFRS 7 Amendments to the classification and Some contracts entered into by the Group have the legal form of insurance contracts but do not measurement of financial instruments 1 January 2026 transfer significant insurance risk. These contracts are classified as financial liabilities and are referred IFRS 18 Presentation and disclosure financial statements 1 January 2027 to as ‘investment contracts’ (see Note A4(b)). Similarly financial reinsurance contracts do not transfer significant insurance risk and are accounted for under IFRS 9. Mass lapse reinsurance contracts also The directors do not expect that the adoption of the IFRS 9/IFRS 7 amendments have a material contain no insurance risk and are accounted for under IAS 37. impact on the financial statements of the Group in future periods. The directors expect that the adoption of IFRS 18 will have a material impact on the presentation of the primary statements in future periods. CHESNARAANNUALREPORTANDACCOUNTS2024 153 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A4 Material accounting policy information (continued) Contracts within a portfolio that would fall into different groups only because law or regulation (a) Insurance contracts and reinsurance contracts (continued) specifically constrains the Group’s practical ability to set a different price or level of benefits for (i) Scope and classification (continued) policyholders with different characteristics can be included in the same group, however the Group Insurance contracts are classified as direct participating contracts or contracts without direct has not taken advantage of this. participating features. Direct participating contracts are contracts for which, at inception: Portfolios of reinsurance contracts held are assessed separately from insurance contracts issued – the contractual terms specify that the policyholder participates in a share of a clearly identified pool and are assessed for aggregation on an individual contract basis. Some reinsurance contracts provide of underlying items; cover for underlying contracts that are included in different groups. – the Group expects to pay to the policyholder an amount equal to a substantial share of the fair As per the gross insurance contracts the reinsurance contracts are divided into profitability groupings value returns on the underlying items; and as follows: – the Group expects a substantial proportion of any change in the amounts to be paid to the – any contracts on which there is a net gain on initial recognition; policyholder to vary with the change in fair value of the underlying items. – any contracts that, on initial recognition, have no significant possibility of showing a net gain All other insurance contracts and all reinsurance contracts are classified as contracts without direct subsequently; and participating features. Some of these contracts are measured under the PAA. – any remaining contracts in the annual cohort. The following table provides a summary of the broad product categories and the measurement model All reinsurance contracts within the Group fall into the third profitability category above. approach applied. (iv) Recognition and derecognition of insurance and reinsurance contracts Classification Product category An insurance contract issued by the Group is recognised from the earliest of: Long-term contracts without direct Immediate annuities – the beginning of its coverage period (i.e. the period during which the Group provides services in GMM) participating features ( Term assurance and other non-linked respect of any premiums within the boundary of the contract); Unit-linked/index-linked/with-profits – GMM – when the first payment from the policyholder becomes due or, if there is no contractual due date, Long-term contracts with direct Unit-linked/index-linked/with-profits – VFA when it is received from the policyholder; and VFA participating features ( ) – when a group of contracts becomes onerous or if the facts and circumstances indicate that a group Short-term contracts ( PAA ) Short-term protection of contracts is onerous for those contracts measured using the PAA. An insurance contract acquired in a transfer of contracts, or a business combination is recognised on (ii) Separating components from insurance and reinsurance contracts the date of acquisition. The Group does not have any distinct investment components which require separation from the insurance or reinsurance contract. Distinct investment components are investment components When the contract is recognised, it is added to an existing group of contracts or, if the contract does that are not highly inter-related with the insurance components and for which contracts with equivalent not qualify for inclusion in an existing group, it forms a new group to which future contracts are terms are sold, or could be sold, separately in the same market or the same jurisdiction. added. Groups of contracts are established on initial recognition and their composition is not revised once all contracts have been added to the group. The Group does not have any insurance contracts containing embedded derivatives or have any insurance contracts which transfer distinct goods and services other than insurance contract services Non-proportionate reinsurance contracts are recognised at the earlier of: which require separation from the host contract. (a) the beginning of the coverage period of the group of reinsurance contracts; or (iii) Aggregation of insurance and reinsurance contracts (b) the date the entity recognises an onerous group of underlying insurance contracts if the entity Insurance contracts are aggregated into groups for measurement purposes. Groups of insurance entered into the related reinsurance contract held at or before that date. contracts are determined by identifying portfolios of insurance contracts, each comprising contracts The recognition of proportionate reinsurance contracts is delayed until the date that any underlying that are subject to similar risks and are managed together. Each portfolio is divided into annual insurance contract is initially recognised, if that date is later than the beginning of the coverage cohorts (i.e. by year of issue) and each annual cohort into a maximum of three groups based on the period of the group of reinsurance contracts held. profitability of contracts: Reinsurance contracts acquired as recognised at the date of acquisition. – any contracts that are onerous on initial recognition; The Group derecognises a contract when it is extinguished – i.e. when the specified obligations – any contracts that, on initial recognition, have no significant possibility of becoming onerous in the contract expire or are discharged or cancelled. The Group also derecognises a contract if its subsequently; and terms are modified in a way that would have changed the accounting for the contract significantly – any remaining contracts in the annual cohort. had the new terms always existed, in which case a new contract based on the modified terms is recognised. If a contract modification does not result in derecognition, then the Group treats the Further detail regarding the judgements involved in the defining portfolios and profitability groups can changes in cash flows caused by the modification as changes in estimates of fulfilment cash flows. be found in Note A5(c). 154 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (v) Fulfilment Cash Flows Insurance acquisition cash flows arising before the recognition of the related group of contracts are The Fulfilment Cash Flows (FCF) are the current estimates of the future cash flows within the contract recognised as an asset and the asset is derecognised, when the insurance acquisition cash flows boundary of a group of contracts and: are included in the measurement of the group of contracts. The Group derecognises the assets for insurance acquisition cash flows in the year within the reporting period in which the expenses are – are unbiased estimates of the future cash flows; incurred and therefore does not have any assets for insurance acquisition cash flows on the balance – are determined from the perspective of the Group, provided that the estimates are consistent with sheet at the reporting date. observable market practises and variables; and (viii) Initial measurement – insurance contracts not measured under the PAA – reflect conditions existing at the period-end date. The CSM is a component of the carrying amount of the asset or liability for a group of insurance An explicit risk adjustment for non-financial risk is estimated separately from the other estimates contracts issued representing the unearned profit that the Group will recognise as it provides and reflects the compensation that the Group requires for bearing the uncertainty about the amount insurance contract services in the future. At initial recognition, the CSM is an amount that results and timing of the cash flows from non-financial risk as the Group fulfils insurance contracts. For in no income or expenses (unless a group of contracts is onerous) arising from: reinsurance contracts held, the risk adjustment for non financial risk represents the amount of risk (a) the initial recognition of the FCF; and being transferred by the Group to the reinsurer. Methods and assumptions used to determine the risk adjustment for non-financial risk are discussed in Note A5(e). (b) cash flows arising from the contracts in the group at that date. The estimates of the future cash flows are adjusted using current discount rates to reflect the time When the above calculation results in a net outflow, the group of insurance contracts issued is value of money and the financial risks related to those cash flows. The discount rates reflect the onerous. A loss from onerous insurance contracts is recognised in profit or loss immediately, with characteristics of the cash flows arising from the groups of insurance contracts, including timing, no CSM recognised on the balance sheet on initial recognition, and a loss component is established currency and liquidity of cash flows. The determination of the discount rate that reflects the in the amount of loss recognised (see Note A4(a)(xi)). characteristics of the cash flows and liquidity characteristics of the insurance contracts requires significant judgement and estimation (See Note A5(d)). (ix) Initial measurement – reinsurance contracts not measured under the PAA For groups of reinsurance contracts held, any net gain or loss at initial recognition is recognised as The Group estimates certain FCF at the portfolio level or higher and then allocates such estimates the CSM unless the net cost of purchasing reinsurance relates to past events, in which case the to groups of contracts. The Group uses consistent assumptions to measure the estimates of the Group recognises the net cost immediately in profit or loss. For reinsurance contracts held, the CSM present value of future cash flows for the group of reinsurance contracts held and such estimates represents a deferred gain or loss that the Group will recognise as a reinsurance expense as it for the groups of underlying insurance contracts. receives insurance contract services from the reinsurer in the future and is calculated as the sum of: (vi) Contract boundaries (a) the initial recognition of the FCF; The measurement of a group of contracts includes all of the future cash flows within the boundary (b) cash flows arising from the contracts in the group at that date; and of each contract in the Group. For insurance contracts, cash flows are within the contract boundary if they arise from substantive rights and obligations that exist during the reporting period in which (c) any income recognised in profit or loss when the entity recognises a loss on initial recognition the Group can compel the policyholder to pay premiums or has a substantive obligation to provide of an onerous group of underlying insurance contracts or on addition of onerous underlying services (including insurance coverage and any investment related services). insurance contracts to that group. A substantive obligation to provide insurance contract services ends when either: A loss-recovery component is established or adjusted within the remaining coverage for reinsurance contracts held for the amount of income recognised in (c) above. This amount is calculated by – the Group has the practical ability to reassess the risks of the particular policyholder and as a result multiplying the loss recognised on underlying insurance contracts by the percentage of claims on can set a price or level of benefits that fully reflects those risks, or underlying insurance contracts that the Group expects to recover from the reinsurance contracts – the Group has the practical ability to reassess the risks of the portfolio of insurance contracts that held that are entered into before or at the same time as the loss is recognised on the underlying contain the contract and as a result can set a price or level of benefits that fully reflects the risk of insurance contracts. When underlying insurance contracts are included in the same group with that portfolio unless the pricing of the premiums up to the date when the risks are reassessed takes insurance contracts issued that are not reinsured, the Group applies a systematic and rational method into account the risks that relate to periods after the assessment. of allocation to determine the portion of losses that relates to underlying insurance contracts. For reinsurance contracts cash flows are within the contract boundary if they arise from substantive (x) Contracts acquired in a business combination or portfolio transfer rights and obligations that exist during the reporting period in which the Group is compelled to pay For groups of contracts acquired in a transfer of contracts or a business combination, the consideration amounts to the reinsurer or has a substantive right to receive services from the reinsurer. received for the contracts is included in the fulfilment cash flows as a proxy for the premiums received at the date of acquisition. In a business combination, the consideration received is the fair (vii) Insurance acquisition cash flows value of the contracts at that date. If the total is a net outflow, then the group is onerous. In this Insurance acquisition cash flows are cash flows arising from the costs of selling, underwriting and case, the net outflow is recognised as a loss in profit or loss, or as an adjustment to goodwill or the starting a group of insurance contracts (issued or expected to be issued) that are directly attributable gain on a bargain purchase if the contracts are acquired in a business combination. A loss component to the portfolio of insurance contracts to which the group belongs. Such cash flows are allocated to is created to depict the amount of the net cash outflow, which determines the amounts that are groups of insurance contracts using a systematic and rational method and considering, in an unbiased subsequently presented in profit or loss as reversals of losses on onerous contracts and are excluded way, all reasonable and supportable information that is available without undue cost or effort. from insurance revenue and instead reported within ‘insurance service expense’. CHESNARAANNUALREPORTANDACCOUNTS2024 155 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A4 Material accounting policy information (continued) The Group has not applied the risk mitigation option that is available under IFRS 17.B115 regarding (a) Insurance contracts and reinsurance contracts (continued) offsetting the impacts of derivatives and reinsurance contracts and therefore recognises all changes (xi) Subsequent measurement – insurance contracts not measured under the PAA in financial risk and the time value of money against the CSM for direct participating contracts. The carrying amount of a group of insurance contracts at each reporting date is the sum of the The following adjustments relate to future service and thus adjust the CSM: Liability for Remaining Coverage (LRC) and the Liability for Incurred Claims (LIC). The LRC comprises the FCF that relate to services that will be provided under the contracts in future periods and any (a) changes in the amount of the Group’s share of the fair value of the underlying items; and remaining CSM at that date. The LIC includes the FCF for incurred claims and expenses that have (b) changes in the FCF that do not vary based on the returns of underlying items: not yet been paid, including claims that have been incurred but not yet reported. (i) changes in the effect of the time value of money and financial risks including the effect of The FCF of groups of insurance contracts are updated by the Group for current assumptions at the financial guarantees; end of every reporting period, using the current estimates of the amount, timing and uncertainty of future cash flows and of discount rates. The way in which the changes in estimates of the FCF (ii) changes in estimates of the present value of future cash flows in the LRC; and are treated follow the general principle below: (iii) changes in the risk adjustment for non-financial risk that relate to future service. (a) changes that relate to current or past service are recognised in profit or loss; and Adjustments are measured using the current discount rates. (b) changes that relate to future service are recognised by adjusting the CSM or the loss component For insurance contracts under the VFA, the following adjustments do not adjust the CSM: within the LRC as per the policy below. (a) changes in the obligation to pay the policyholder the amount equal to the fair value of the For insurance contracts under the GMM: underlying items; The following adjustments relate to future service and thus adjust the CSM: (b) changes in the FCF that do not vary based on the returns of underlying items: (a) experience adjustments – arising from premiums received in the period that relate to future (i) changes in the FCF relating to the LIC; and service and related cash flows such as insurance acquisition cash flows and premium-based taxes; (ii) experience adjustments relating to insurance service expenses (excluding insurance (b) changes in estimates of the present value of future cash flows in the LRC, except those described acquisition cash flows). in the following paragraph; The Group does not classify any premiums received in the period as relating to current service on (c) differences between any investment component expected to become payable in the period materiality grounds. and the actual investment component that becomes payable in the period, determined by comparing (i) the actual investment component that becomes payable in a period with (ii) the Changes to the CSM for insurance contracts: payment in the period that was expected at the start of the period plus any insurance finance For insurance contracts, the carrying amount of the CSM at each reporting date is the carrying amount income or expenses related to that expected payment before it becomes payable; and at the start of the year, adjusted for: (d) changes in the risk adjustment for non-financial risk that relate to future service. (i) the CSM of any new contracts that are added to the Group in the year; Adjustments (a), (b) and (d) above are measured using discount rates determined on initial recognition (ii) interest accreted on the carrying amount of the CSM during the year (for contracts under the (the locked-in discount rates). GMM, using discount rates determined at initial recognition that are applied to nominal cash For insurance contracts under the GMM, the following adjustments do not adjust the CSM: flows that do not vary based on the returns of underlying items); (a) changes in the FCF for the effect of the time value of money and the effect of financial risk and (iii) as detailed above, changes in fulfilment cash flows that relate to future services, to the extent changes thereof; that there is a CSM available. When an increase in the FCF exceeds the carrying amount of the CSM, the CSM is reduced to zero, the excess is recognised in insurance service expenses and (b) changes in the FCF relating to the LIC; and a loss component is recognised within the LRC. When the CSM is zero, changes in the FCF (c) experience adjustments relating to insurance service expenses (excluding insurance acquisition adjust the loss component within the LRC with the impact going to insurance service expenses. cash flows). The excess of any decrease in the FCF over the loss component reduces the loss component to zero and reinstates the CSM; The Group does not classify any premiums received in the period as relating to current service on materiality grounds. (iv) the effect of any currency exchange differences on the CSM; and (v) the amount recognised as insurance revenue for insurance services provided in the year, For insurance contracts under the VFA: determined after all other adjustments above. Direct participating contracts are contracts under which the Group’s obligation to the policyholder is the net of: The CSM for Movestic, Scildon in Waard is calculated in the Swedish krona and euro respectively and translated into sterling on consolidation into the Group financial statements. – the obligation to pay the policyholder an amount equal to the fair value of the underlying items; and – a variable fee in exchange for future services provided by the contracts, being the amount of the Release of the CSM to profit or loss for insurance contracts – coverage units Group’s share of the fair value of the underlying items less fulfilment cash flows that do not vary The amount of the CSM recognised in profit or loss for insurance contract services in the period is based on the returns on underlying items. The Group provides investment related services under determined by the allocation of the CSM remaining at the end of the reporting period over the current these contracts by promising an investment return based on underlying items, in addition to and remaining expected coverage period of the group of insurance contracts based on coverage insurance coverage. units. The coverage period is defined as a period during which the entity provides insurance contract 156 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS services. Insurance contract services include coverage for an insured event (insurance coverage), (v) changes in fulfilment cash flows that relate to future services, measured at the discount rates the generation of an investment return for the policyholder, if applicable (investment-return service) determined on initial recognition, unless they result from changes in fulfilment cash flows of for the contracts under the GMM, and the management of underlying items on behalf of the onerous underlying contracts, in which case they are recognised in profit or loss and create or policyholder (investment-related service) for the contracts under the VFA. adjust a loss-recovery component; Investment-return services are provided only when an investment component exists in insurance (vi) the effect of any currency exchange differences on the CSM; and contracts or the policyholder has a right to withdraw an amount, and the Group expects these (vii) the amount recognised in profit or loss because of the services received in the year. amounts to include an investment return that is achieved by the Group by performing investment activities to generate that investment return. Income referred to in (iii) above is calculated by multiplying the loss recognised on underlying insurance contracts by the percentage of claims on underlying insurance contracts that the Group Note A5(g) sets out the coverage units that are applied to the products within the Group. expects to recover from the reinsurance contract held that is entered into before or at the same time as the loss is recognised on the underlying insurance contracts. For the purposes of (iii) to (v) Insurance contracts – loss component above, when underlying insurance contracts are included in the same group with insurance contracts When the negative adjustments to the CSM exceed the amount of the CSM, the group of contracts issued that are not reinsured, the Group applies a systematic and rational method of allocation to becomes onerous, and the Group recognises the excess in insurance service expenses and records determine the portion of losses that relates to underlying insurance contracts. the excess as a loss component of the LRC. Both additions and reversals to the loss component are measured at locked-in discount rates and allocations are made at the beginning of the period. The Release of the CSM to profit or loss for reinsurance contracts – coverage units systematic allocation is calculated as the opening loss component of the LRC divided by the sum For reinsurance contracts held, the CSM is released to profit or loss as insurance contract services of the total opening present value of future cash flows and adjustment for future non-financial risk. are received from the reinsurer in the period. Note A5(g) sets out the coverage units that are applied When a loss component exists, the Group allocates between the loss component and the remaining to the reinsurance contracts held within the Group. component of the LRC for the respective group of contracts, on a systematic and rational basis for: Reinsurance contracts held – loss-recovery component (a) expected incurred claims and other directly attributable expenses for the period; A loss-recovery component is established or adjusted within the asset for remaining coverage for (b) changes in the risk adjustment for non-financial risk for the risk expired; and reinsurance contracts held for the amount of income recognised in profit or loss when the Group recognises a loss on initial recognition of an onerous group of underlying insurance contracts or on (c) finance income (expenses) from insurance contracts issued. addition of onerous underlying insurance contracts to that group. Subsequently, the loss-recovery The amounts of loss component allocation in (a) and (b) above reduce the respective components component is adjusted to reflect changes in the loss component of an onerous group of underlying of insurance revenue and are reflected in insurance service expenses. Decreases in the FCF in insurance contracts. subsequent periods that relate to future service reduce the remaining loss component and reinstate The loss-recovery component is further adjusted, if required, to ensure that it does not exceed the the CSM after the loss component is reduced to zero. Increases in the FCF in subsequent periods portion of the carrying amount of the loss component of the onerous group of underlying insurance that relate to future service increase the loss component. contracts that the Group expects to recover from the group of reinsurance contracts held. The Movement in the loss component comprises changes in experience and systematic allocation. loss-recovery component determines the amounts that are presented as a reduction of incurred claims Changes relating to experience and assumptions are presented as ‘Losses and reversals of losses on recovery from reinsurance contracts held and are consequently excluded from the reinsurance onerous contracts’ and changes relating to systematic allocation are presented as ‘Incurred claims expenses determination. and other directly attributable expenses’ in the loss component column of the ‘analysis by remaining coverage and incurred claims’ tables in the insurance and reinsurance contracts notes in Section F. (xiii) Insurance and reinsurance contracts measured under PAA The Group uses PAA to simplify the measurement of groups of contracts where the coverage period (xii) Subsequent measurement – reinsurance contracts not measured under the PAA of each contract in the group is 1 year or less. This approach is used for stand-alone short-term The carrying amount of a group of insurance contracts at each reporting date is the sum of the Asset protection products in Movestic. for Remaining Coverage (ARC) and the Asset for Incurred Claims (AIC). The ARC comprises the FCF On initial recognition of each group of insurance contracts, the carrying amount of the LRC is that relates to services that will be received under the reinsurance contracts held in future periods measured at the premiums received. The Group has chosen to expense insurance acquisition cash and any remaining CSM at that date. The AIC comprises the FCF related to past service for incurred flows when they are incurred. claims that have not yet been received. Subsequently, the carrying amount of the LRC is increased by any premiums received and decreased Changes to the CSM for reinsurance contracts: by the amount recognised as insurance revenue for services provided. On initial recognition of each For reinsurance contracts, the carrying amount of the CSM at each reporting date is the carrying group of contracts, the Group expects that the time between providing each part of the services and amount at the start of the year, adjusted for: the related premium due date is no more than a year. Accordingly, the Group has chosen not to adjust the LRC to reflect the time value of money and the effect of financial risk. (i) the CSM of any new contracts that are added to the Group in the year; For contracts measured under the PAA, the LIC is adjusted for the time value of money, as the (ii) Interest accreted on the carrying amount of the CSM during the year, measured at the discount contracts issued and measured under the PAA typically have a settlement period of over 1 year. rates on nominal cash flows that do not vary based on the returns on any underlying items A risk adjustment for non-financial risk is also calculated. determined on initial recognition; There are no investment components within insurance contracts issued and reinsurance contracts (iii) Income recognised in profit or loss in the year on initial recognition of onerous underlying contracts; held that are measured under the PAA. (iv) reversals of a loss-recovery component to the extent that they are not changes in the fulfilment cash flows of the group of reinsurance contracts; CHESNARAANNUALREPORTANDACCOUNTS2024157 IFRS FINANCIAL STATEMENTS SECTION A – GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A4 Material accounting policy information (continued) The Group disaggregates changes in the risk adjustment for non-financial risk between the insurance (a) Insurance contracts and reinsurance contracts (continued) service result and insurance finance income or expenses so that the impact of measuring the (xiv) Non-distinct investment components risk adjustment for non-financial risk at current discount rates is reported within insurance finance Insurance revenue and insurance service expenses exclude any Non-Distinct Investment Components income or expense. (NDIC). The Group identifies the investment component of a contract by determining the amount Portfolios of insurance contracts that are assets and those that are liabilities, and portfolios of that it would be required to repay to the policyholder in all scenarios with commercial substance. reinsurance contracts that are assets and those that are liabilities, are presented separately in the These include circumstances in which an insured event occurs, or the contract matures or is balance sheet. Any assets or liabilities recognised for cash flows arising before the recognition of terminated without an insured event occurring. Investment components are excluded from insurance the related group of contracts (including any assets for insurance acquisition cash flows) are included revenue and insurance service expenses, being recognised instead directly in the balance sheet. in the carrying amount of the related portfolios of contracts. The table that follows details the source of the NDICs for the broad product categories. (b) Investment contracts Product category Typical NDIC Investment contracts are contracts that carry financial risk, with no significant insurance risk and are accounted for under IFRS 9. Where contracts contain both insurance and investment components Immediate annuities None the investment component can only be separated if it meets the requirements of a ‘distinct Term assurance and other non-linked Term assurance: None investment component’. Distinct in this sense is where the investment component is not highly Other non-linked: Lower of death, surrender inter-related with the insurance component and for which contracts with equivalent terms are and maturity benefit sold, or could be sold, separately in the same market or the same jurisdiction. Unit-linked/index-linked/with-profits – GMM Lower of death, surrender and maturity benefit All investment contract liabilities are designated on initial recognition as held at fair value through profit or loss. The Group has designated investment contract liabilities at fair value through profit or Unit-linked/index-linked/with-profits – VFA Lower of death, surrender and maturity benefit loss as this more closely reflects the basis on which the businesses are managed. Short-term protection None The financial liability in respect of unit-linked contracts is measured by reference to the value of the underlying net asset value of the unitised investment funds, determined on a bid value, at the balance (xv) Presentation in the profit and loss and balance sheet sheet date. Under IFRS 17, for contracts not measured under the PAA, the Group recognises insurance revenue as it satisfies its performance obligations – i.e. as it provides services under groups of insurance For the UK business, the impact of deferred tax on unrealised capital gains is passed to the contracts. The insurance revenue relating to services provided for each year represents the total of policyholder and for the Swedish business a policyholder yield tax in respect of an estimate of the the changes in the LRC that relate to services for which the Group expects to receive consideration. investment return on the underlying investments in the unitised funds are also reflected in the This mainly comprises the release of expected claims, the risk adjustment expired and the CSM measurement of the respective unit-linked liabilities. amortised in the period. Investment contract liabilities are managed together with related investment assets on a fair value For contracts measured under the PAA, the insurance revenue for each period equates to the amount basis as part of the documented risk management strategy. of expected premium receipts for providing services in the period. The fair value of other investment contracts is measured by discounting current estimates of all ‘Insurance service expenses’ in each reporting period represents the cost of providing those services, contractual cash flows that are expected to arise under contracts. broadly comprising incurred claims and benefits and expenses that are directly attributable to Amounts collected on investment contracts are accounted for using deposit accounting, under providing the service in the period. Incurred claims and benefits include lapse amounts but exclude which the amounts collected, less any initial fees deducted, are credited directly to the balance sheet NDICs per note above. as an adjustment to the liability to the investor. Similarly, benefits paid are not included in the ‘Net income/(expenses) from reinsurance contracts’ generally comprises reinsurance expenses and income statement but are instead deducted from investment contract liabilities in the accounting the recovery of incurred claims. Reinsurance expenses are recognised similarly to insurance revenue, period in which they are paid. with the amount of reinsurance expenses representing an allocation of the premiums paid to reinsurers that depicts the received insurance contract services in the period. Income and expenses (c) Amounts deposited with reinsurers from reinsurance contracts are presented separately from income and expenses from insurance Amounts deposited with reinsurers are investment contract assets under reinsurance arrangements, contracts issued. Income and expenses from reinsurance contracts, other than insurance finance which primarily involve the transfer of financial risk with no significant insurance risk. These assets income or expenses, are presented on a net basis on the face of the income statement as ‘net are designated on initial recognition as at fair value through profit or loss in order to significantly expenses from reinsurance contracts’ in the insurance service result. reduce the accounting mismatch with the corresponding liabilities which these assets share a risk with and tend to offset. These assets are accounted for under IFRS 9 in line with the corresponding Together, the insurance revenue, insurance service expenses and net income/(expenses) from gross investment contracts. reinsurance contracts make up the insurance service result, presented on the face of the income statement. (d) Investment return The ‘investment result’ comprises the ‘net investment return’, changes in investment contract Investment return comprises investment income from financial assets and rental income from liabilities and policyholder funds held by the Group and insurance finance income or expenses (IFIE) investment properties. for both insurance and reinsurance contracts. The IFIE broadly includes the effect of changes in the Income from financial assets comprises dividend and interest income, net fair value gains and losses time value of money and the effect of financial risk and changes in financial risk. The Group includes (both unrealised and realised) in respect of financial assets classified as fair value through profit or all IFIE in the profit or loss, with no disaggregation into Other Comprehensive Income. loss, and realised gains on financial assets classified as measured at amortised cost. 158 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Dividends are accrued on an ex-dividend basis. Interest received and receivable in respect of (g) Financing costs interest-bearing financial assets classified as fair value through profit or loss is included in net fair Financing costs comprise interest payable on borrowings and on reinsurance claims deposits included value gains and losses. For financial assets measured at amortised cost, interest income is within reinsurance payables, calculated using the effective interest rate method. Under IFRS 16, calculated using the effective interest method. interest on lease liabilities is recognised in the Statement of Comprehensive Income as finance costs. Rental income from investment properties under operating leases is recognised in the Consolidated (h) Income taxes Statement of Comprehensive Income on a straight-line basis over the term of each lease. Lease Income tax on the profit or loss for the year comprises current and deferred tax and is recognised incentives are recognised in the Consolidated Statement of Comprehensive Income as an integral in the Consolidated Statement of Comprehensive Income. Tax that relates directly to transactions part of the total lease income. reflected within equity is also presented within equity. The investment return in respect of assets backing investment contracts is disclosed separately (i) Current tax from the investment return for those assets backing insurance contracts in order to meet the Current tax is the expected tax payable on the taxable income for the year, using tax rates IFRS 17 requirement to illustrate the relationship between insurance finance income or expenses enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable and the corresponding return on the assets. in respect of previous years. (e) Fee, commission income and other operating income (ii) Deferred tax Fee and commission income for investment contracts: Deferred tax is provided using the balance sheet liability method, providing for temporary In accordance with IFRS 15, fees charged for investment management services provided in connection differences between the carrying amounts of assets and liabilities for financial reporting purposes with investment contracts are recognised as revenue over time, as the services are provided. and the amounts used for taxation purposes. The amount of deferred tax provided is based on Initial fees which exceed the level of recurring fees and relate to the future provision of services are the expected manner of realisation or settlement of the carrying amount of assets and liabilities, deferred and amortised over the anticipated period over time in which services will be provided. using tax rates enacted or substantively enacted at the balance sheet date. Initial fees, annual management charges and contract administration charges are recognised over A deferred tax asset is recognised only to the extent that it is probable that future taxable profits time as revenue on an accruals basis. Surrender charges are recognised as a reduction to policyholder will be available against which the asset can be utilised. Deferred tax assets are reduced to claims and benefits incurred when the surrender benefits are paid and as such are not reported the extent that it is no longer probable that the related tax benefit will be realised. in the income statement. In accordance with IAS 12, deferred tax assets and deferred tax liabilities arising from different Commissions received or receivable which do not require the Group to render further services are tax jurisdictions in which the Group operates are not offset against each other. recognised at the point at which the commission becomes due. However, when it is probable that (iii) Policyholders’ fund yield tax the Group will be required to render further services during the life of the contract, the commission, Certain of the Group’s policyholders within the Swedish business are subject to a yield tax which or part thereof, is deferred and recognised over time as revenue over the period in which services is calculated based on an estimate of the investment return on underlying investments within are rendered. their unitised funds. The Group is under an obligation to deduct the yield tax from the policyholders’ All fees in respect of insurance contracts are now recognised within insurance revenue. unitised funds and to remit these deductions to the tax authorities. The remittance of this tax payment is included in other operating expenses as it does not comprise a tax charge on Other operating income: Group profits. Fee income from investment managers is recognised in accordance with IFRS 15 and are in relation to Movestic, and are received from the fund companies, based on the value of the managed assets. (i) Intangible assets The fee income is recognised and adjusted on an ongoing basis, as Movestic meets its commitments. (i) Acquired value of in-force business (AVIF) Acquired in-force investment contracts are in respect of investment contracts acquired under (f) Other operating expenses business combinations and are measured at fair value at the time of acquisition. Actual incurred expenses within the Group are assessed according to the Group’s guidelines to consider whether they are attributable to fulfilling insurance contracts and those meeting this The present value of in-force investment contracts recognised under IFRS 9 is stated at cost requirement are reported as ‘insurance service expenses’. As part of this assessment, the eligible less accumulated amortisation and impairment losses. The initial cost is deemed to be the fair expenses are apportioned between investment and insurance contracts on a systematic and rational value of the contractual customer relationships acquired. The acquired present value of the basis. Certain expenses such as project expenses and one-off expenses are considered to be in-force investment contracts is carried gross of tax and is amortised against income on a time non-attributable and are therefore excluded from the apportionment and directly allocated to ‘other profile which, it is intended, will broadly match the profile of the underlying emergence of operating expenses’. The ‘other operating expenses’ therefore include all expenses that are not profit from the contracts. The recoverable amount is estimated at each balance sheet date. If the attributable to insurance contracts, as they are either not eligible or have been apportioned to recoverable amount is less than the carrying amount, an impairment loss is recognised in the investment contracts. Consolidated Statement of Comprehensive Income and the carrying amount is reduced to its recoverable amount. Operating lease payments Under IFRS 16, the deprecation of right-of-use assets is recognised in the Statement of Comprehensive (ii) Acquired value of customer relationships (AVCR) Income as an administration expense. Payments made in relation to lease commitments are The acquired value of customer relationships arising from business combinations is measured reflected in the balance sheet as a reduction to the corresponding lease liability. at fair value at the time of acquisition. This comprises the discounted cash flows relating to new insurance and investment contracts which are expected to arise from existing customer relationships. These are carried gross of tax, are amortised in accordance with the expected emergence of profit from the new contracts and are tested for recoverability if there is an indication of impairment. CHESNARAANNUALREPORTANDACCOUNTS2024159 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A4 Material accounting policy information (continued) Fair value is understood as the value of a property estimated without regard to costs of sale or (i) Intangible assets (continued) purchase, and without offset for any associated taxes. All such valuations are prepared and expressed (iii) Software assets exclusive of VAT payments, unless otherwise stated. An intangible asset in respect of internal development software costs is only recognised if all of The properties are derecognised either when they have been disposed of, or when the investment the following conditions are met: property is permanently withdrawn from use and no future economic benefit is expected from its (i) an asset is created that can be identified; disposal. Any gains or losses on the retirement or disposal of an investment property are recognised within investment income in the Statement of Comprehensive Income in the year of retirement (ii) it is probable that the asset created will generate future economic benefits; and or disposal. (iii) the development costs of the asset can be measured reliably. SIPP Commercial Property (Directly Held) Where no internally generated intangible asset can be recognised, development expenditure The self-invested fund properties are initially recorded at purchase price and then valued triennially, by is recognised as an expense in the period in which it is incurred. Software assets, including an independent professional valuer, on an open market basis, using valuation models in accordance internally developed software, are amortised on a straight-line basis over their estimated useful with the Practice Statements in the RICS Appraisal and Valuation Standards (5th Edition). The portfolio life, which typically varies between 3 and 5 years. is revalued annually using an index valuation on each property. Any funds in receipt of the sale of the property are for the benefit of the respective pension fund members. (iv) Deferred acquisition costs Acquisition costs relating to investment contracts comprise directly attributable incremental (l) Financial investments, assets and liabilities acquisition costs, which vary with, and are related to, securing new contracts, and are recognised IFRS 9 requires financial investments to be classified into measurement categories using the as an asset under IFRS 15 to the extent that they represent the contractual right to benefit ‘business model’ test and the ‘solely payment of principal and interest’ test. The measurement from the provision of investment management services. The asset is presented as a deferred categories under IFRS 9 are: acquisition cost asset and is amortised over the expected term of the contract, as the fees relating to the provision of the services are recognised. All other costs are recognised as expenses (i) Amortised Cost (AC); when incurred. (ii) Fair Value Through Other Comprehensive Income (FVOCI); and (j) Property and equipment (iii) Fair Value Through Profit or Loss (FVTPL). Items of property and equipment are stated at cost less accumulated depreciation and IFRS 9 also permits the application of a ‘fair value option’ in instances where the outcome of the impairment losses. business model and SPPI tests would lead to a classification of financial assets that would result Depreciation is charged to the Consolidated Statement of Comprehensive Income on a straight-line in an accounting mismatch with the corresponding liabilities. basis over the estimated useful economic lives of the property and equipment on the following basis: The Group has accordingly classified all financial assets held for investment purposes and derivative Computers and similar equipment 3 to 5 years financial instruments as FVTPL either mandatorily as a result of the business model and SPPI tests Fixtures and other equipment 5 years or has designated as FVTPL as permitted by the ‘fair value option’. The fair values of financial assets quoted in an active market are their bid prices at the balance sheet date. Assets held under leases, as right-of-use assets, are depreciated over their useful economic lives on the same basis as owned assets, or where shorter, over the term of the relevant lease. These Asset groups to which the fair value option has been applied are debt securities, the mortgage loan include office buildings, office and IT equipment and motor vehicles. portfolio and cash and cash equivalents. The mortgage loan portfolio includes the savings mortgage books for Argenta which encompass both insurance and investment components. As a separate (k) Investment properties contractional relationship exists, the mortgage assets are accounted for separately to the liabilities. Investment properties consist of properties held in the Unit-Linked Property Investment Fund and For the liabilities, the investment component and the insurance component are not separated but SIPP Commercial Property (Directly Held) in our UK division, as described below. accounted for as a single unit of account. Unit-Linked Property Investment Fund The present value of the insurance liabilities associated with the mortgage loan and debt securities The properties held in the unit-linked property fund are valued on a monthly basis by Jones Lang are strongly dependent on discount rates sourced from market data and therefore a classification Lasalle (JLL), an independent property valuer, on an open-market basis. Their valuation is prepared of AC for these assets would lead to a large mismatch with the insurance liability. in accordance with the Practice Statements in the RICS Appraisal and Valuation Standards Investments in subsidiaries are carried in the Company Balance Sheet at cost less impairment and (5th Edition). all short-term receivables are classified as AC. The properties are measured initially at cost. The carrying amount includes the cost of replacing part Financial assets are derecognised when contractual rights to receive cash flows from the financial of an existing property at the time that cost is incurred if the recognition criteria are met; and excludes assets expire, or where the financial assets have been transferred together with substantially all the costs of day-to-day servicing of a property. Subsequent to initial recognition, properties are the risks and rewards of ownership. stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of properties are included within investment income in the Statement Financial liabilities of Comprehensive Income in the year in which they arise. Rental income from investment property ‘Investment contract liabilities’ and ‘Liabilities relating to policyholder funds held by the Group’ are is accounted for as described in Accounting Policy (l). designated as FVTPL, since the liabilities are managed together with the investment assets on a fair value basis as part of the documented risk management strategy. Purchases and sales of ‘regular Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly way’ financial assets are recognised on the trade date, which is when the Group commits to transaction between market participants at the measurement date. purchase, or sell, the assets. Borrowings and short-term payables are classified as AC. 160 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (m) Impairment and Expected Credit Loss provisioning Operating activities cash flows include loans and financial investments. The purchases are funded IFRS 9 utilises a forward-looking Expected Credit Loss (ECL) impairment model which applies to from cash flows associated with the origination of insurance and investment contracts, net of financial assets measured at amortised cost, debt investments at FVOCI and lease receivables. payments of related benefits and claims. This is due to the cash receipts and payments made on behalf of the customers for which their funds are held by the entity. Dividends and interest received As stated above, for the Group all financial assets held for investment purposes are classified as from the financial investments are captured within the operating activities. FVTPL. Financial assets that are subject to ECL provisioning are limited to short-term receivables only. The simplified approach under IFRS 9 has been applied in assessing full lifetime loss provisions Investing activities cash flows include cash payments to acquire property, plant and equipment, for these assets. Due to the short-term nature of these instruments and the minimal historical intangibles, and other long-term assets. These payments include those relating to capitalised losses on these asset classes, the resulting provisions that would be required are not considered development costs. to be material and therefore no provision is made. Financing activities cash flows include cash proceeds from issuing share capital, cash payments to owners to acquire or redeem the entity’s shares, cash repayments of amounts borrowed, cash (n) Policyholders’ funds held by the Group and liabilities relating payments by a lessee for the reduction of the outstanding liability relating to a finance lease, dividends to policyholders’ funds held by the Group paid out to shareholders, and interest paid on the borrowings. Policyholders’ funds held by the Group and liabilities relating to policyholders’ funds held by the Group are investment contracts that are recognised at fair value and accounted for under IFRS 9. (r) Other provisions (i) Policyholders’ funds held by the Group Provisions are recognised when the Group has a present, legal or constructive obligation as a result The policyholders’ funds held by the Group represent the assets associated with an investment of past events such that it is probable that an outflow of economic benefits will be required to product in the Swedish business, where the assets are held on behalf of the policyholder, for settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the which the group holds a corresponding liability as noted in (ii) below. effect of the time value of money is material, the amount of the provision is the present value of the expenditure expected to be required to settle the obligation. The Group recognises provisions The policyholders’ funds held by the Group are held for investment purposes on behalf of the for onerous contracts when the expected benefits to be derived from a contract are less than the policyholders and are designated as at fair value through profit or loss. The fair values of the unavoidable costs of meeting the obligations under the contract. policyholders’ funds held by the Group are the accumulation of the bid prices of the underlying assets at the balance sheet date. Transactions in these financial assets are recognised on the (s) Lease contract liabilities trade date, which is when the Group commits (on behalf of the policyholder) to purchase or sell The Group assesses whether a contract is or contains a lease, at inception of the contract. The the assets. Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease (ii) Liabilities relating to policyholders’ funds held by the Group arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease The liability relating to policyholders’ funds held by the Group represents the liability that matches term of 12 months or less) and leases of low value assets (such as tablets and personal computers, the asset policyholders’ funds held by the Group. small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another (o) Derivative financial instruments systematic basis is more representative of the time pattern in which economic benefits from the Derivative financial instruments are recognised at fair value. The gain or loss on re-measurement to leased assets are consumed. fair value is recognised immediately in profit or loss. Hedge accounting has not been applied. The lease liability is initially measured at the present value of the lease payments that are not paid The fair value of interest rate swaps is the estimated amount that the Group would receive or pay at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot to terminate the swap at the balance sheet date, taking into account current interest rates and the be readily determined, the Group uses its incremental borrowing rate. Lease payments included in current creditworthiness of the swap counterparties. The fair value of forward exchange contracts the measurement of the lease liability comprise: is their quoted market price at the balance sheet date, being the present value of the quoted – Fixed lease payments forward price. – Variable lease payments Embedded derivatives which are not closely related to their host contracts, and which meet the definition of a derivative are separated and fair valued through profit or loss. – The amount expected to be payable by the lessee under residual value guarantees – The exercise price of purchase options (p) Other assets ‘Other assets’ comprise receivables arising from investment contracts and other receivables such – The payments of penalties for terminating the lease, if the lease term reflects the exercise of an as accrued interest, receivables from fund management companies and income tax balances. option to terminate the lease Financial assets classified as ‘other assets’, other than accrued interest, are stated at amortised cost The lease liability is presented as a separate line in the Consolidated Balance Sheet. less impairment losses. These assets are subject to an expected credit loss assessment under IFRS 9 and are assessed as being immaterial given the typically short-term nature of these balances. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on The majority of the accrued interest relates to financial assets that are measured at FVTPL and the lease liability (using the effective interest method) and by reducing the carrying amount to reflect are therefore not subject to the expected credit loss assessment. the lease payments made. The right-of-use assets comprise the initial measurement of the corresponding lease liability, (q) Cash and cash equivalents lease payments made at or before the commencement day and any initial direct costs. They are Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term subsequently measured at cost less accumulated depreciation and impairment losses. highly liquid investments. Highly liquid is defined as having a short maturity of 3 months or less at their acquisition. CHESNARAANNUALREPORTANDACCOUNTS2024 161 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A4 Material accounting policy information (continued) Dutch business (Waard) (s) Lease contract liabilities (continued) Group companies operate defined contribution pension schemes, which are funded through The right-of-use assets are depreciated over the shorter of the lease term and the useful life of the payments to insurance companies, to which Group companies pay fixed contributions. There are underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use no legal or constructive obligations on Group companies to pay further contributions if the fund asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is does not hold sufficient assets to pay employee benefits relating to service in current and prior depreciated over the useful life of the underlying asset. The depreciation starts at the commencement periods. Accordingly, Group companies have no further payment obligations once the contributions date of the lease. The Group does not have any leases that include purchase options or transfer have been paid. Contributions to defined contribution pension schemes are recognised in the ownership of the underlying asset. The right-of-use assets are presented within the same line item Consolidated Statement of Comprehensive Income when due. as that within which the corresponding underlying assets would be presented if these were owned. As a result of the Conservatrix acquisition, Waard Leven assumed the obligations under a defined For the Group this is ‘Property and Equipment’. benefit pension scheme for a small number of former Conservatrix employees. This scheme For short-term leases (lease of than 12 months or less) and leases of low-value assets (such as is closed to new entrants with no further benefits accruing and as such the exposure for Waard personal computers and office furniture) the Group has opted to recognise a lease expense on Leven is limited to the longevity risk of the contracts. The liability is valued under IAS 19 and a straight-line basis as permitted by IFRS 16. This expense is presented within ‘Other operating reported under ‘Other provisions’ in the balance sheet. expenses’ in the Consolidated Income Statement. Dutch business (Scildon) As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and Scildon had a defined benefit plan which was closed and transferred into a defined contribution instead account for any lease and associated non-lease components as a single arrangement. pension plan during 2019. The defined benefit pension scheme was administered by Stichting The Group has not used this practical expedient. Pensionfonds Legal & General Nederland. The Company had agreed to contribute to the premium for the unconditional part of the pension. The Company paid a contribution to the Scheme and The Group’s weighted average incremental borrowing rate applied to lease liabilities during 2024 subsequently had no further financial obligations with respect to this part of the Scheme. is 4.7% for the UK division, 2.1% or the Swedish division and 2.0% for the Dutch division. During 2019, a new defined contribution pension scheme was established for the benefit of Scildon employees. (t) Borrowings Borrowings are recognised initially at fair value, less transaction costs, and are subsequently measured (ii) Bonus plans at amortised cost using the effective interest rate method, with interest expense recognised in the The Group recognises a liability and an expense for bonuses based on a formula that takes into Consolidated Statement of Comprehensive Income on an effective yield basis. The effective interest consideration the profit attributable to the Company’s shareholders after certain adjustments. rate method is a method of calculating the amortised cost of a financial liability and of allocating The expense is recognised in the Consolidated Statement of Comprehensive Income on an interest expense over the relevant period. The effective interest rate is the rate that exactly discounts accruals basis. future cash payments through the expected life of the financial liability. (x) Share-based payments (Parent Company only) (u) Deferred income The value of employee share options and other equity settled share-based payments is calculated Deferred income is in respect of initial fees that relate to the future provision of services that are at fair value at the grant date using appropriate and recognised option pricing models. Vesting deferred and amortised over the anticipated period. conditions, which comprise service conditions and performance conditions, other than those based upon market conditions, are not taken into account when estimating the fair value of such awards (v) Other current liabilities but are taken into account by adjusting the number of equity instruments included in the ultimate ‘Other current liabilities,’ comprising investment contract payables and other payables, are recognised measurement of the transaction amount. The value of the awards is recognised as an expense on when due and are measured on initial recognition at the fair value of the consideration paid. Current a systematic basis over the period during which the employment services are provided. Where an liabilities in respect of insurance contracts are reported as part of the Liability for Incurred Claims. award of options is cancelled by an employee, the full value of the award (less any value previously recognised) is recognised at the cancellation date. (w) Employee benefits (i) Pension obligations (y) Share capital and shares held in treasury (Parent Company only) UK businesses (i) Share capital Group companies operate defined contribution pension schemes, which are funded through Shares are classified as equity when there is no obligation to transfer cash or other assets. payments to insurance companies, to which Group companies pay fixed contributions. There are Incremental costs directly attributable to the issue of equity instruments are shown in equity no legal or constructive obligations on Group companies to pay further contributions if the fund as a deduction from the proceeds, net of tax. Incremental costs directly attributable to the does not hold sufficient assets to pay employee benefits relating to service in current and prior issue of equity instruments, as consideration for the acquisition of a business, are included in periods. Accordingly, Group companies have no further payment obligations once the contributions the cost of acquisition. have been paid. Contributions to defined contribution pension schemes are recognised in the (ii) Shares held in treasury Consolidated Statement of Comprehensive Income when due. Where the Company purchases its own equity share capital, the consideration paid, including Swedish business directly attributable costs, is deducted from total shareholders’ equity and shown separately The Group participates in a combined defined benefit and defined contribution scheme for the as ‘treasury shares’ until they are cancelled. Where such shares are subsequently sold, any benefit of its employees. However, the Scheme is a multi-employer scheme, with the associated consideration received is credited to the share premium account. assets and liabilities maintained on a pooled basis. There is limited information available to the Group to allow it to account for the Scheme as a defined benefit scheme and, in accordance with (z) Dividends (Parent Company only) IAS 19 Employee Benefits, it is, therefore, accounted for as a defined contribution scheme. Dividend distributions to the Company’s shareholders are recognised in the period in which the Contributions paid to the Scheme are recognised in the Consolidated Statement of Comprehensive dividends are paid, and, for the final dividend, when approved by the Company’s shareholders at the Income when due. Annual General Meeting. 162 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (aa) Investment in subsidiaries (Parent Company only) Transactions relating to business combinations denominated in foreign currencies are translated Investments in subsidiaries are carried in the balance sheet at cost less impairment. The Company into sterling at the exchange rates prevailing on the transaction date. assesses at each reporting date whether an investment is impaired by assessing whether any indicators of impairment exist. If objective evidence of impairment exists, the Company calculates (ae) Climate change the amount of impairment as the difference between the recoverable amount of the Group entity In our Climate-related Financial Disclosures on pages 74 to 91, we note that climate change-related and its carrying value and recognises the amount as an expense in the income statement. The risks are potentially material and as such we have made commitments to transition to net zero by recoverable amount is determined based on the cash flow projections of the underlying entities. 2050. Primarily for Chesnara, climate change risk would be expected to arise through other financial risks e.g. equity risk, credit risk etc (PR1 – Investment and Liquidity risk) and also regulatory risk (ab) Business combinations given the level of ongoing change. The Group is also exposed to strategic and reputational risks (PR9 Acquisitions meeting the definition of a ‘business’ are accounted for under IFRS 3 ‘Business – Reputational risk) arising from its action or inaction in response to climate change. combinations‘. This requires management to perform an assessment of the fair value of the assets The year end balance sheet does not include any explicit adjustments in relation to climate risk related and liabilities acquired and consideration paid at the point of acquisition. The acquiree’s identifiable impacts. This is based on the expectation that financial markets will factor into their pricing the assets, liabilities, and contingent liabilities, are classified according to the relevant accounting standard potential risks and impacts of climate change and other sustainability risks. The market approach to and are measured initially at their fair values at the acquisition date. Expenses directly attributable this will continue to develop as the methodology and underlying data to quantify the potential risk to the acquisition are expensed as incurred unless determined to be attributable to future insurance becomes better understood. contracts. Gains arising on a bargain purchase, where the net fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed exceeds the fair value of the consideration A5 Significant accounting judgements and estimates for the acquisition, are recognised in the Consolidated Statement of Comprehensive Income. In preparing the financial statements, the Group makes judgements and applies estimates and Where the fair value of the consideration exceeds the fair value of the assets and liabilities acquired assumptions that affect the application of accounting policies and reported amounts of assets and it is recognised as a goodwill intangible asset on the Group balance sheet. liabilities, income and expenses. Disclosures of judgements made by the Group in applying the The non-controlling interest in the acquiree is initially measured at the non-controlling interest’s accounting policies include those that have the most significant effect on the amounts that are proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. recognised in the Consolidated Financial Statements. Such estimates and judgements are continually evaluated and are based on historical experience (ac) Portfolio transfers and other factors, including expectations of future events that are believed to be reasonable. Details Where a transaction is not deemed to be a business combination it is accounted for as an asset of all critical accounting judgements and estimates are set out in the notes that follow. and liability purchase. In this scenario the Group identifies and recognises the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, IFRS 17 significant judgements applied in determining the transition amounts intangible assets in IAS 38 Intangible Assets) and liabilities assumed. The cost of the transaction to (a) Judgement in applying the IFRS 17 fair value approach at transition the Group shall be allocated to the individual identifiable assets and liabilities on the basis of their IFRS 17 became effective from 1 January 2023 with a transition date of 1 January 2022. The Group relative fair values at the date of purchase. applied the full retrospective approach where practical to measure each group of insurance contracts on transition which means IFRS 17 has been applied since acquisition into the Group. Where it (ad) Foreign currencies was impractical to apply the full retrospective approach a fair value approach was used. The transition The individual financial statements of each Group company are presented in the currency of the approach was determined at the level of a group of insurance contracts, however due to the factors primary economic environment in which it operates, being its functional currency. For the purpose under consideration (such as the length of time since acquisition and availability of data) the outcome of these Consolidated Financial Statements, the results and balance sheet of each Group company of the practicability assessment resulted in a transition approach being applied for the operating are expressed in pounds sterling, which is the functional currency of the Parent Company and the segment as a whole, with the exception of Movestic. presentation currency of the Consolidated Financial Statements. In preparing the financial statements of the individual companies, transactions in currencies other Operating segment Transition approach than the entity’s functional currency, being foreign currencies, are recorded at the rates of exchange UK – CA Fair value prevailing on the dates of the transactions. Income and expense items are translated at the average Movestic Fair value exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which Waard Group Full retrospective case the exchange rates at the dates of transactions are used. At each balance sheet date, Scildon Full retrospective monetary assets and liabilities which are denominated in foreign currencies are retranslated at the Other Group activities N/A rates prevailing on the balance sheet date and exchange differences are recognised in profit or loss. Non-monetary items carried at fair value, which are denominated in foreign currencies, are translated For PAA contracts in Movestic the Group has concluded that it is practicable to apply the at the rates prevailing when the fair value was determined. full retrospective approach and hence this was applied. However, it was concluded that the full For the purpose of presenting Consolidated Financial Statements, the assets and liabilities of the retrospective approach could not be applied to the majority of the pension benefits in scope of Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. IFRS 17, and hence the fair value approach has been applied. Income and expense items are translated at the average exchange rates for the year, unless exchange Note F2 provides information relating to the disaggregation of insurance revenue and CSM by rates fluctuate significantly during the period, in which case the exchange rates at the dates of transition approach. transactions are used. Exchange differences arising are classified as other comprehensive income and are recognised in the Group’s foreign currency translation reserve. Such translation differences are recognised as income or as expense in the year in which the operation is disposed of. CHESNARAANNUALREPORTANDACCOUNTS2024163 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A5 Significant accounting judgements and estimates (continued) IFRS 17 accounting judgements IFRS 17 significant judgements applied in determining the transition amounts (continued) (b) Separation of contracts and classification (a) Judgement in applying the IFRS 17 fair value approach at transition (continued) Judgement has been exercised across the Group in determining whether contracts issued contain The Group determined that it would be impracticable to apply the full retrospective approach where significant insurance risk and whether contracts including investment components and insurance the following applied: components can be separated. Once any investment components are separated, the Group assesses whether the contract should be separated into several insurance components that, in substance, (i) Historical cash flow information was unavailable at the required level of aggregation should be treated as separate contracts to reflect the substance of the transaction. To determine (ii) Historical actuarial models were unavailable whether insurance components should be recognised and measured separately, the Group considers whether there is an interdependency between the different risks covered, whether components (iii) Information relating to historical assumptions that reflected the conditions existing at the relevant can lapse independently of each other and whether the components can be priced and sold date was unavailable or not possible to create without the use of hindsight separately. When the Group enters into one legal contract with different insurance components Chesnara has been able to apply the full retrospective approach to all material business acquired operating independently of each other, insurance components are recognised and measured or written since 2016 when SII was introduced. There was no material new business in the UK or separately applying IFRS 17. Sweden from 2016 to the transition date. In addition the full retrospective approach has been applied Generally, the contracts identified as insurance contracts under IFRS 17 at transition were the same to all of the contracts within Waard, which includes business acquired in 2015. Note A5 provides as those under IFRS 4. However, there are some contracts, in the Swedish business, where under information relating to the key accounting judgements applied to business that has transitioned under IFRS 17 the investment and insurance components can no longer be separated resulting in certain the full retrospective approach. pension benefits becoming in scope of IFRS 17. No contracts have been switched from insurance In applying the fair value approach, the Group determined the CSM to be the difference between to investment contracts at transition. Many contracts issued include ‘rider’ benefits in addition to the the fair value of a group of insurance contracts, measured in accordance with IFRS 13, ‘Fair Value base policy, however having considered the facts and circumstances of these products it has been Measurement’ (IFRS 13), and its FCF at the transition date. The fair value of an insurance liability is determined that these components should not be separated and that the contract is measured as the price that a market participant would be willing to pay to assume the obligation and the one contract. remaining risks of the in-force contracts as at the transition date. The assessment as to whether insurance contracts have direct participating features qualify for the In the absence of recent market transactions for similar contracts, a present value technique was VFA requires an element of judgement to determine whether the proportion of the underlying item used to determine the fair value of the groups of contracts. IFRS 13 defines fair value accounting to be paid to the policyholder is substantial and whether the policyholder liability varies substantially techniques according to the inputs used. The lack of observable market prices for the liabilities under with the movement in the fair value of the underlying item. consideration and hence the reliance on significant judgement to determine a market participant’s view results in the present value technique being considered a Level 3 technique. The significant (c) Level of aggregation judgements to determine a market participant’s view include: Judgement is required in applying the requirement to group portfolios of insurance contracts that (a) a market participant’s view of the expected future cash flows and risk allowances would align have similar risks and are managed together. The Group has considered the following factors (to the to Chesnara’s view; extent that they are relevant for the entity) in order to group contracts by similar risks and those that are managed together: principal insurance risk, product type, tax status, legacy book/outsource (b) only future cash flows within the boundaries of the insurance contracts were included in the provider and measurement model. market participant’s fair value estimation; Further judgement is required in determining the profitability grouping that applies to portfolios of (c) a market participant would require a compensation for the cost of holding capital in respect of contracts. For the new business cohorts in Scildon, a policy level test is applied and contracts are the liabilities which has been determined based on market rates; and allocated to the relevant profitability group. To date, this has not resulted in any contracts being (d) a market participant would determine the compensation for the cost of holding capital based classified as ‘no significant risk of becoming onerous’. Where portfolios of contracts are acquired in on a buffer in excess of the SII regulatory capital requirements. The buffer assumed is in the range a business combination or a portfolio transfer, the purchase terms have been such that to date all of 130% -140% reflecting the specifics of the underlying business. contracts have been allocated to the ‘other’ profitable cohort. A number of specific modifications are permitted when using the fair value approach. The Group has adopted the following modifications: (i) Level of aggregation – to use information at the transition date to identify groups of insurance contracts; (ii) Level of aggregation – to group annual cohorts of business; (iii) Level of aggregation – the assessment for profitability was made at the transition date; and (iv) Measurement model – to use information at the transition date to assess eligibility for the VFA. Fulfilment cash flows were estimated prospectively at the transition date and discount rates were determined at the transition date. 164 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (d) Discount rates are discounted using the same curve used to value the corresponding mortgage assets which itself Cash flows are discounted using currency-specific, risk-free yield curves adjusted for the characteristics is derived from mortgage rates available in the market. of the cash flows and the liquidity of the insurance contracts. The Group applies a ‘bottom-up’ The cash flows are discounted using a discount rate that adjusts risk-free yields for portfolio specific approach to determining discount rates and follows the methodology used by the PRA and EIOPA characteristics, with differences in liquidity characteristics between the financial assets used to determine risk-free yield curves and ultimate forward rates for regulatory solvency calculations. to derive the risk-free yield and the relevant liability cash flows (known as an illiquidity premium). To reflect the liquidity or otherwise of the insurance contracts, the risk-free yield curves are adjusted by an illiquidity premium, which is aligned to the SII Volatility Adjustment. Inflation rates mainly relate to expense inflation. The assumptions in respect of expense inflation reflect the Group’s best estimate view incorporating market consistent data such as earnings indices For certain Dutch ‘savings mortgage’ products, there is a direct connection to the policyholder’s and central bank inflation targets. mortgage loan and the premiums to repay the loan in that the crediting rate is set such that the account value will be equal to the balance on the loan at maturity. For this product, the cash flows The yield curves that were used to discount the estimates of future cash flows that were modelled deterministically are shown in the table below: 2024 2023 Yield curve Broad product category Currency 1 yr 5 yrs 10 yrs 20 yrs 30 yrs 1 yr 5 yrs 10 yrs 20 yrs 30 yrs RFR Unit-linked/index-linked/with-profits – VFA EUR 2.24% 2.14% 2.27% 2.26% 2.39% 3.36% 2.32% 2.39% 2.41% 2.53% Unit-linked/index-linked/with-profits – GMM GBP 4.46% 4.04% 4.07% 4.30% 4.23% 4.74% 3.36% 3.28% 3.43% 3.36% (with high liquidity) Short-term protection SEK 2.25% 2.41% 2.63% 2.93% 3.05% 3.03% 2.26% 2.25% 2.76% 2.99% RFR + VA Immediate annuities EUR 2.47% 2.37% 2.50% 2.49% 2.58% 3.56% 2.52% 2.59% 2.61% 2.70% Term assurance and other non-linked Unit-linked/index-linked/with-profits – GMM GBP 4.70% 4.28% 4.31% 4.54% 4.47% 5.05% 3.67% 3.59% 3.74% 3.67% (with medium liquidity) Market Mortgage Rates Waard Savings Mortgage EUR 3.36% 3.32% 3.43% 3.39% 3.51% 4.77% 3.73% 3.80% 3.82% 3.94% The sensitivity of the income statement and balance sheet to movements in the yield curve is shown in Note B3(a)(ii). (e) Methods used to measure the risk adjustment for non-financial risk In determining the risk adjustment for non-financial risk each entity allows for diversification between The Group calculates the risk adjustment using a Cost of Capital (CoC) methodology similar to the the risks in a consistent manner to that applied in the Solvency II risk margin. Diversification is PRA and EIOPA Solvency II Risk Margin approach. The differences between the Solvency II Risk allowed for within each entity, but not across the entities, and is allocated to groups of insurance Margin and the IFRS 17 risk adjustment for non-financial risk include: contracts in proportion to the undiversified risk capital amounts. The risk adjustment is then determined by applying a CoC rate to the amount of capital required for each future reporting date (a) the risk adjustment for non-financial risk only includes risks within the IFRS 17 contract boundary and discounting the result using the appropriate portfolio level risk-free rates adjusted for illiquidity. which may differ to the contract boundary assumed in Solvency II; The required capital is determined using stresses and diversification factors aligned to the relevant (b) the Solvency II risk margin makes allowance for counterparty default risk and operational risk, Solvency II methodologies and allocated to groups of contracts in a way that is consistent with the but these are not permitted in the risk adjustment for non-financial risk; and risk profiles of the groups. The CoC rate reflects that used in the Group’s own EcV reporting, currently (c) the Solvency II risk margin does not apply a tapering factor for the overseas divisions. 3.25%pa (2023: 3.25%). The tapering factor reduces the liabilities within the Group and was introduced to the risk margin To determine the risk adjustments for non-financial risk for reinsurance contracts, the Group applies calculation in the UK SII reforms at December 2023. The same methodology and parameters have these techniques both gross and net of reinsurance and derives the amount of risk being transferred been applied for the first time to the risk adjustment calculation for IFRS 17 at 31 December 2024 to the reinsurer as the difference between the two results. as a result of the Group also adopting the tapering factor in its EcV reporting, from which the CoC Over a 1 year time horizon and on a net of reinsurance basis, this risk adjustment corresponds to a is also derived. The impact of this change in accounting estimate in the year has been a reduction confidence level of 66.5% (2023: 75.9%). This is equivalent to estimating that the probability that in the risk adjustment of £15.0m and an increase in the CSM of £13.8m. any changes in best estimate liabilities from non-financial risk over the next year exceed the amount of the risk adjustment is less than 33.5%. Using statistical approximations, the 1-year figure can be transformed into an equivalent confidence level over the expected lifetime of in-force policies of 59.6% (2023: 61.9%). CHESNARAANNUALREPORTANDACCOUNTS2024165 IFRS FINANCIAL STATEMENTS SECTION A GENERAL INFORMATION AND ACCOUNTING POLICIES AND JUDGEMENTS A5 Significant accounting judgements and estimates (continued) The following table provides details of the coverage units applied for the broad product categories: IFRS 17 accounting judgements (continued) (f) Expense allocations Product category Typical coverage unit Expenses cash flows are assessed as to whether they are attributable to the fulfilment or acquisition Immediate annuities Annuity face amount of insurance contracts. Where estimates of expenses-related cash flows are determined at the portfolio level or higher, they are allocated to groups of contracts on a systematic basis, such as Term assurance and other non-linked Term assurance: Sum insured activity-based costing method. The Group has determined that this method results in a systematic Other non-linked: Higher of death and and rational allocation. maturity benefit Unit-linked/index-linked/with-profits – GMM Higher of death benefit, account value (g) Coverage period and units and maturity benefit Judgement is required in determining the expected coverage period over which the CSM is allocated into profit or loss for the services provided or received. Unit-linked/index-linked/with-profits – VFA Higher of death benefit, account value and maturity benefit For contracts issued, the Group determines the coverage period for the CSM recognition as follows : Short-term protection N/A (a) for non-participating contracts, the coverage period corresponds to the policy coverage for mortality and/or morbidity risk and investment return services; Notes F2 to F5 provide information regarding the timing of the future release of the CSM to the profit (b) for contracts with direct participating features, the coverage period corresponds to the period and loss account, based on the CSM at the balance sheet date. in which insurance or investment related services are expected to be provided. (h) Non-distinct investment components The coverage period for reinsurance contracts is determined based on the coverage period of all Insurance revenue and insurance service expenses exclude any NDIC. The Group identifies the underlying contracts whose cash flows are included in the reinsurance contract boundary. investment component of a contract by determining the amount that it would be required to repay The CSM at the end of the reporting period is allocated to profit and loss based on the relevant to the policyholder in all scenarios with commercial substance. In so doing a judgement that this underlying coverage units where the number of coverage units in a group is determined by is from the perspective of the policyholder has been applied. These include circumstances in which considering, for each contract, the quantity of the benefits provided under a contract and its expected an insured event occurs or the contract matures or is terminated without an insured event occurring. coverage period. The quantity of benefits provided includes insurance, investment return and Investment components are excluded from insurance revenue and insurance service expenses. Where investment-related services and hence the coverage unit is based on the maximum benefit paymen t the required information for the actual NDIC is unavailable at a policy level, the Group applies (including insurance, investment return and investment-related services) which may become due estimation techniques based on expected data. Typical non-distinct investment components are in a period. outlined in Note A4(a)(xiv). Where a specific unit of account contains a mixture of services, and therefore coverage units, it is Other significant accounting estimates necessary to weight the coverage units so that the resulting profile of CSM release reflects the (i) Acquired value of in-force business (CASLP) overall package of benefits provided. This is particularly pertinent to units of account incorporating The Group applies accounting estimates and judgements in determining the fair value, amortisation a combination of immediate and deferred annuities. Under IFRS 17, deferred annuities usually and recoverability of acquired in-force business. In the initial determination of the acquired value provide multiple services, split between the two phases of benefit provision (the deferral phase and of in-force business, the Group uses actuarial models to determine the expected net cash flows (on the payment phase). Judgement is therefore required to combine the different coverage units a discounted basis) of the policies acquired. The key assumptions applied in the models are driven so that they fairly reflect the services provided. The weighting between the deferral phase and the by the expected behaviour of policyholders on termination rates, expenses of management and age payment phase coverage units is calculated so that the services provided in the deferral phase of individual contract holders as well as global estimates of investment growth, based on recent reflect the investment return provided and the probability weighted delivery of any lump sum death experience at the date of acquisition. The assumptions applied within the models are considered benefits, both adjusted so that all of the CSM is earned in the deferral phase for all contracts against historical experience of each of the relevant factors. Refer to accounting policy Note A4(i). which do not enter the payment phase either through transfer out, withdrawal of funds or death. The acquired value of in-force business is amortised on a basis that reflects the expected profit For contracts that provide an investment return or investment-related service, the account balance stream arising from the investment contracts acquired at the date of acquisition. The rate of is generally considered the main driver for determining the amount of service provided in a period . amortisation is therefore based on expected claims and the asset is expected to run-off over a period For products that provide an insurance service the sum assured, in excess of any account balance, of 30 years as at the balance sheet date. is considered the main driver for determining the amount of insurance service provided in a period . Impairment testing requires a degree of estimation and judgement. In particular, the value is sensitive to the rate at which future cash flows are discounted and to the rates of return on invested assets, which have been determined with reference to our review of the current market assessment of the true value of money and the risks specific to the asset for which the cash flows have not been adjusted. The actual (pre-tax) rate applied for the impairment test was 9.55% (31 December 2023: 11.45%). 166 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The acquired value of in-force business for CASLP has been tested for recoverability as at (m) Future expenses 31 December 2024 and as a result of that test no impairment is required as at 31 December 2024 Best estimate assumptions regarding expenses used in the estimation of future cash flows are set (31 December 2023: £21.0m, £6.1m net of tax). The prior year impairment is reported in ‘other at a level that reflects the Group’s expectations as to future expenditure based on each entity’s operating expenses’ in the Group income statement and UK segmental income statement. cost base and annual budgeting process along with longer-term expectations as to how the business will run off net of any new business. Transition costs and major project expenses are reviewed on a A 200 bps increase in the effective discount rate would reduce the underlying value of in-force case-by-case basis as to whether they should be treated as non-attributable. Costs which are borne business in CASLP by £2.8m (31 December 2023: £2.0m). A 10% fall in projected future centrally for groupwide projects have been considered non-attributable. Expenses pertaining to profits would reduce the underlying value of in-force business in CASLP by £2.8m (31 December investment costs on assets backing liabilities where no investment related service is provided to 2023: £2.2m). policyholders, generally term assurance and annuities, are also excluded. Note B2 provides more information on the sensitivity of the income statement and balance sheet to changes in future (j) Investment in subsidiary CA expense assumptions. The Group applies accounting estimates and judgements in determining the holding value and recoverability of its investment in subsidiaries, in particular that of Countrywide Assured plc. An annual impairment test is performed which requires a degree of estimation and judgement, and for which recoverability is tested by reference to the fair value of existing assets and liabilities and expected future income and expense levels as calculated under EcV methodology. The EcV methodology assesses the future cash flows on a best-estimate basis, discounted at a risk-free rate, to measure the future profitability of the business. This assessment showed that as at the balance sheet date, there was a deficit of £4.0m (31 December 2023: £14.4m) against the carrying value of the investment in subsidiary value and hence the carrying value has been impaired by this amount, thereby impacting the Parent Company income statement and balance sheet but no impact to the Group Consolidated Financial Statements. A 200 bps increase in interest rates would reduce the EcV, and hence the carrying value, by £9.5m (31 December 2023: £2.7m). A 10% fall in equity values would reduce the carrying value by £8.0m (31 December 2023: £7.9m). A 10% mass lapse of policyholders would reduce the carrying value by £10.6m (31 December 2023: £11.1m). (k) Persistency Best estimate assumptions about policyholder behaviour, such as surrenders and lapses, used in estimating future cash flows are developed for homogeneous product types and groups of policyholders at a local entity level. Assumptions are generally based on a combination of the local entity’s recent experience and future expectations. Experience is monitored through regular studies, the results of which are reflected both in the pricing of new products and in the measurement of existing contracts. Surrenders and lapses depend on the product and policy duration in force. Note B2 provides more information on lapse rates and the sensitivity of the income statement and balance sheet to changes in persistency assumptions. Key sources of estimation and uncertainty (l) Mortality/Longevity/Morbidity Best estimate assumptions about mortality, longevity and morbidity used in estimating future cash flows are developed for homogeneous product types and groups of policyholders at a local entity level. Assumptions are generally based on a combination of national data, standard industry tables, the local entity’s recent experience and also future expectations. Experience is monitored through regular studies, the results of which are reflected both in the pricing of new products and in the measurement of existing contracts. Note B2 provides more information on mortality rates used and the sensitivity of the income statement and balance sheet to changes in mortality and morbidity assumptions. CHESNARAANNUALREPORTANDACCOUNTS2024167 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B1 Risk Management Framework The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts. The Group’s Board of Directors has overall responsibility for the adequacy of the design and Insured events are, by their nature, random, and the actual number and size of events during any implementation of the Group’s Risk Management Framework and its consistent application 1 year may vary from those estimated using established statistical techniques. It is noted that the across divisions. The Group and its divisions operate within a defined risk strategy and supporting annuity policies give exposure to longevity risk, which provides a partial natural hedge to the Risk Appetite Framework. Risk preferences are approved by the Board of Directors and the risk exposure to mortality risk. position of the business is monitored against these preferences. The Group manages its insurance risk through adoption of underwriting strategies, the aim of which The Group’s risk management policies are established to identify and analyse the risks faced by is to avoid undue concentration of risk, approval procedures for new products, pricing guidelines the Group, set appropriate risk limits and controls, and monitor adherence to risk limits. The risk and adoption of reinsurance strategies, the aim of which is to reinforce the underwriting strategy management policies are reviewed regularly to reflect changes in market conditions and the Group’s by avoiding the retention of undue concentration of risk. activities whilst the Board of Directors approves the review, updates and attestation of these Notwithstanding that the Group pursues common overarching objectives and employs similar policies at least annually. techniques in managing these risks, the range of product characteristics and the differing market Risk is managed at local entity level where the business is transacted, based on the principles and and regulatory environments of the UK, Swedish and Dutch businesses are such that insurance policies established at Group level. The Group Audit & Risk Committee oversees how management risk is managed separately for the separate operating segments and concentration of insurance risk monitors compliance with the Group’s risk management policies and procedures, and reviews is mitigated. The UK segment consists of largely closed legacy books of business that are in run-off. the adequacy of the Risk Management Framework in relation to the risks faced by the Group. It is Within the Dutch business, the Waard Group operates as an acquisitive vehicle with a number of assisted in its oversight role by internal audit, which undertakes both regular and ad hoc reviews acquisitions of closed books in recent years whereas Scildon is a writer of new business. The Swedish of risk management controls and procedures, the results of which are reported to the Group Audit segment, Movestic, also writes new business however this predominantly comprises of investment & Risk Committee. contracts valued under IFRS 9. Accordingly, the information which follows (and also the quantitative disclosures in Section F of the notes to the financial statements) differentiates these segments The Group issues insurance contracts and investment contracts. The nature and extent of the and sets out for each the key risks arising from insurance contracts and how those risks are measured underwriting and financial risks arising from these contracts are determined by the contract design. and managed. The risks are evaluated for risk management purposes in conjunction with the risks mitigated by related reinsurance contracts and the risks arising from financial assets held to fund the settlement (a) UK business of the liabilities. The main insurance contract portfolios within the UK and the associated risks that have a material effect on the amount, timing and uncertainty of future cash flows arising from the insurance contracts B2 Underwriting risk issued are as follows: General Underwriting risk consists of insurance risk, persistency risk (together demographic experience risk) (i) Immediate annuities and expense risk: Immediate annuities provide regular income payments generally during the outstanding life of the – Insurance risk: the risk transferred from the policyholder to the Group, other than financial risk. policyholder, and in some cases that of a surviving spouse or partner. In certain cases, payments Insurance risk arises from uncertainty regarding the occurrence, timing and amount of future claims. may be guaranteed for a minimum period. These contracts expose the business to longevity risk. – Persistency (or lapse) risk: the risk that a policyholder will cancel a contract, increase or reduce (ii) Term assurances and other non-linked premiums, withdraw deposits or annuitise a contract earlier or later than expected. The principal insurance risk for these portfolios is mortality risk with some morbidity risk arising from critical illness benefits. The policies generally provide fixed and guaranteed benefits and have – Expense risk: the risk of unexpected increases in the administrative costs of servicing contracts. fixed future premiums. The Group is exposed to different aspects of insurance risk for life insurance policies issued: (iii) Unit-linked/Index-linked/With-profits – GMM – Mortality risk – the risk of losses arising from death of life insurance policyholders being earlier The contracts in these portfolios are with-profits or unit-linked pensions and savings products which, than expected due to the presence of in the money guarantees or the charges applied, did not meet the criteria – Morbidity risk – the risk of medical claims arising from the diagnosis of illness being higher for measurement under VFA. The with-profits policies comprise a guaranteed sum assured payable than expected on death or at maturity, to which may be added a discretionary terminal bonus. The unit-linked policies include guarantees in excess of the unit fund. The principal insurance risk for these contracts – Longevity risk – the risk of losses due to policyholders living longer than expected is mortality risk however some contracts also contain morbidity risk. The Group’s management of insurance risk is a critical aspect of its business. The primary insurance activity carried out by the Group comprises the assumption of the risk of loss from persons that are directly subject to the risk. As such, the Group is exposed to the uncertainty surrounding the timing and severity of claims under the related contracts. The principal risk is that the frequency and severity of claims is greater than expected. 168 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (iv) Unit-linked/Index-linked/With-profits – VFA Other underwriting risks on insurance contracts These portfolios contain unit-linked pensions, endowments and whole of life contracts and a small Expense risk number of with-profits policies. The contracts passed the criteria for measurement under VFA. The UK business outsources the majority of operational activities to third party administrators in The principal insurance risk for these contracts is mortality risk however some contracts also contain order to reduce the expense inefficiencies that would arise with fixed and semi-fixed costs on morbidity risk. a reducing policy base, although this is mitigated by acquisitions of business. There are, however, risks associated with the use of outsourcing. In particular, there will be a need for periodic Management of insurance risks renegotiations of the terms of the outsourcing arrangements as the existing agreements expire, the The risk at outset of a contract is managed through the pricing basis. Thereafter the risks associated outcome of which could potentially impact ongoing maintenance expenses and involve transition with these products are managed by reinsurance and, in some cases, by the ability to charge the costs. There is also a risk that, at some point in the future, third party administrators could default policyholder for the mortality benefits provided. on their obligations. The UK business monitors the financial soundness of third-party administrators For unit-linked contracts there is exposure to insurance risk only insofar as the value of the unit-linked and has retained step-in rights on the more significant of these agreements. There are also contractual fund is lower than the guaranteed minimum death benefit. arrangements in place which provide for financial penalties in the event of default by the administration service provider. The with-profits business which is measured using the VFA is reinsured to ReAssure Limited and hence the only risk retained for this business is the risk of default by the reinsurer and some Persistency risk expense risk. Persistency risk is the risk that the investor cancels the contract or discontinues paying new premiums into the contract, thereby exposing the UK business to the risk of a reduction in profits. The following table shows the breakdown of insurance and reinsurance contract values by major Persistency experience is actively monitored to allow early identification of trends. In addition, product type for contracts in the UK: reinsurance is in place to limit the impact arising from a mass lapse event on the long-term contracts. 31 December Restated Restated (b) Swedish business Type of contracts 2024 2023 Gross Reinsurance Total Gross Reinsurance Total The Movestic business is focused predominantly on unit-linked savings and pensions in the local £m £m £m £m £m £m Swedish market. IFRS 17 requires that contracts are separated according to the benefits selected. The majority of the benefits in Movestic are classified as investment contracts, with no significant Immediate annuities 102.0 (43.9 ) 58.1 113.4 (48.8 ) 64.6 insurance risk, and are therefore measured under IFRS 9, however some of the savings benefits Term assurance and other do however fall within the scope of IFRS 17 ‘Insurance Contracts’. In addition, there is some short-term non-linked 86.7 (61.1 ) 25.6 92.7 (68.0 ) 24.7 protection business, measured under PAA. Unit-linked/Index-linked/ With-profits – GMM 202.4 (0.3 ) 202.1 223.3 (0.2 ) 223.1 (i) Unit-linked/Index-linked/With-profits – VFA Unit-linked/Index-linked/ The insurance benefits within scope of IFRS 17 are unit-linked pension savings contracts where With-profits – VFA 915.6 (47.2 ) 868.4 949.7 (47.7 ) 902.0 the policyholder has selected to receive a payment on survival to a specified date but there are no Total 1,306.7 (152.5 ) 1,154.2 1,379.1 (164.7 ) 1,214.4 payments to beneficiaries on death before this date, with invested amounts instead becoming the property of Movestic. To compensate the insured for this risk, Movestic allocates inheritance gains on a monthly basis to surviving policyholders such that the gains broadly match the long-term Concentration of insurance risk average values retained due to death. At the individual beneficiary level there is insurance risk as The UK does not underwrite group insurance covers which tends to naturally limit geographic significant additional amounts are paid to the beneficiary on survival compared to receiving no concentrations. Exposures to material insurance risks, on individual cases, are avoided through payment on death. the use of quota share and surplus reinsurance and retained sums assured on any one life are generally under £250,000. (ii) Short-term protection These portfolios primarily include insurance contracts providing: Mortality assumptions A base mortality table is selected which is most appropriate for each type of contract taking into – Life cover on an individual or group contract basis account historical experience and where appropriate, reinsurers rates. The mortality rates reflected – Accident and sickness cover for group contracts in these tables are periodically adjusted, allowing for emerging experience. The mortality assumptions used on the blocks of business most sensitive to changes in mortality assumptions – Income protection benefits separated from group pension schemes are disclosed below. – Waiver of premium separated from group pension schemes Term assurance ex-Protection Life, Life Business: 65% TMN00 select (2023: 65%) and 65% TFN00 The principal risk for the life cover is mortality risk and the principal risk for the remaining products select (non-smokers) (2023: 65%), 65% TMS00 select (2023: 65%) and 65% TFS00 select (smokers) is morbidity risk. The above are 1-year contracts as Movestic has the practical ability to re-price all (2023: 65%). benefits within 1 year. Annuitant mortality (CA): 104% PMA08 table (2023: 104%) and 104% PFA08 table (2023: 104%), with 100% CMI_2023 improvements (2023: 100% CMI_2022 improvements) with a 1.5% long-term convergence rate from 31 December 2024 (2023: 1.5%). Annuitant mortality (CASLP conventional annuities): 120% PMA08 table (2023: 120%) and 120% PFA08 table (2023: 120%), with 100% CMI_2023 improvements (2023: 100% CMI_2022 improvements) with a 1.5% long-term convergence rate from 31 December 2024 (2023: 1.5%). CHESNARAANNUALREPORTANDACCOUNTS2024169 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B2 Underwriting risk (continued) (c) Waard Group (b) Swedish business (continued) The Waard Group comprises the original business acquired by the Chesnara Group in 2015 and the (ii) Short-term protection (continued) subsequent acquisitions of portfolios of business made by the Waard Group from 2019 onwards Management of insurance risks (see Note C1 for details). With the recent acquisitions there is now a mix of protection and savings For linked contracts the investment risk is borne by the policyholder and there is limited exposure business in the Waard Group and both the GMM and VFA measurement models are applied. to insurance risk. In addition, the allocation of inheritance gains are reviewed regularly and are The acquisition of Conservatrix in 2023 also contained contracts where no significant insurance risk subject to change in order that the inheritance gains allocated broadly equals the amount paid to remained at the date of acquisition and these contracts have consequently been classified as Movestic on death, thereby reducing the risk to Movestic. investment contacts. For the contracts measured under the PAA the key risks are managed through appropriate product (i) Immediate annuities design and pricing of the policies to ensure that the potential cost to Movestic of these events (and The Robein and Conservatrix blocks of business contain immediate annuities, where the risk associated expenses of underwriting and administration) are reflected in the price charged to the is longevity. policyholder. These contracts are either 1-year contracts or Movestic has the practical ability to re-price all benefits within 1 year, which allows Movestic to manage its risk exposure. In addition, risk is (ii) Term assurance and other non-linked further mitigated by the use of reinsurance. Waard’s original business includes term assurances, with further contracts added in subsequent The following table shows the breakdown of insurance and reinsurance contract values by major acquisitions most significantly for Argenta and Brand New Day. These portfolios are exposed to product type for contracts in Sweden: mortality risk. The portfolio acquired from Monuta contained endowment and savings business, some with-profit 31 December 2024 2023 sharing conditions however there are separate portfolios for mortality and longevity risk depending Type of contracts Gross Reinsurance Total Gross Reinsurance Total £m £m £m £m £m £m on which is considered to be the predominant risk. The Robein acquisition also included term assurance business. Long-term with direct participating features 142.1 – 142.1 131.5 – 131.5 The Robein book includes some term assurance business and Conservatrix includes pension, Short-term protection 32.0 (12.4 ) 19.6 40.3 (14.5 ) 25.8 endowment and funeral plans all of which are exposed to mortality risk. Total 174.1 (12.4 ) 161.7 171.8 (14.5 ) 157.3 (iii) Unit-linked/Index-linked/With-profits – GMM The Argenta book includes a significant amount of mortgage savings which contain mortality risk. Concentration of insurance risk Robein contains unit-linked savings products with death cover as a percentage of fund value. Regarding benefits assured for individual contracts, the combined effect of reinsurance and the A significant amount of these policies had no insurance risk on acquisition (as over time the death fact that the vast majority of the total benefit assured relates to numerous small value contracts cover moves to 100% of the fund value) however as the acquisition was before the effective date limits the level of concentration risk. The use of reinsurance means that exposures to material of IFRS 17, the scope is determined at inception of the contract. For those policies with insurance insurance risks on individual cases are avoided, with 96.9% of the business having retained sums risk, the predominant risk is considered to be longevity risk. The unit-linked savings products have assured of less than £250,000. been allocated to two portfolios as only certain types of policy (execution only) passed all criteria of the VFA eligibility test. In respect of group contracts, the business is exposed to multiple employees of the same organisation being involved in a single loss event. Movestic forecasts that its maximum loss would be of the The Conservatrix book includes ‘Natural Guarantee Plans’ which provide varying degrees of death order of SEK 666m (approximately £48.1m) gross of reinsurance and SEK 33m (approximately £2.4m) benefit cover, ranging from 0% to 110%. These policies have been split between those with mortality after reinsurance. The equivalent retention for 2023 was SEK 15m (approximately £1.2m). risk (where the death cover exceeds the fund value) and those with longevity risk (where the death cover is lower than fund value). In addition Conservatrix also includes unit-linked products Mortality assumptions with mortality being the predominant risk. These are not material for the long-term Swedish contracts as the inheritance gains allocated by Movestic to the surviving policyholders are such that they broadly match the long-term average of (iv) Unit-linked/Index-linked/With-profits – VFA the amounts retained on death. Mortality assumptions are not material to the protection products As noted above, the Robein book contains unit-linked savings contracts, for which the criteria for due to the short-term nature of these contracts. measurement under VFA are met. The principal insurance risk for these contracts is longevity risk. Other underwriting risks on insurance contracts Management of insurance risks Expense risk The portfolio is closed to new business and is in run-off and hence no significant underwriting occurs. Expense risk is the risk that expenses are higher than expected hence leading to a reduction in profits. For the existing portfolio, the division entered into an excess of loss and catastrophe (Life) and Expenses are actively monitored and managed to reduce this risk. quota share (Health) reinsurance agreement to mitigate the risk in excess of risk appetite for mortality, disability and unemployment. Persistency risk Persistency risk is the risk that the investor cancels the contract or discontinues paying new premiums into the contract, thereby exposing the Swedish business to the risk of a reduction in profits. Persistency experience is actively monitored to allow early identification of trends. In addition, reinsurance is in place to limit the impact arising from a mass lapse event on the long-term contracts. 170 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table shows the breakdown of insurance and reinsurance contract values by major (iii) Unit-linked/Index-linked/With-profits – GMM product type for contracts in the Waard Group: Scildon writes unit-linked and index-linked business, with most policies paying out 0%, 90% or 110% of the unit-value at death of the policyholder and 100% at maturity. When the death benefit is 31 December 2024 2023 greater than 100% of the unit fund value the principal risk is mortality and if the death benefit is less Type of contracts Gross Reinsurance Total Gross Reinsurance Total than 100% of the unit fund value the principal risk is longevity. These are allocated to two portfolios £m £m £m £m £m £m as only policies allocating the majority of premiums to unit-linked holdings passed the criteria of the VFA eligibility test. Immediate annuities 61.3 – 61.3 67.8 – 67.8 Term assurance and other (iv) Unit-linked/Index-linked/With-profits – VFA non-linked 137.5 (2.7 ) 134.8 153.7 (4.4 ) 149.3 Unit-linked/Index-linked/ As noted above, Scildon contains unit-linked and index-linked savings contracts, for which the criteria With-profits – GMM 463.5 – 463.5 496.9 – 496.9 for measurement under VFA are met. Unit-linked/Index-linked/ The group pension contracts are also unit-linked in nature and pass the VFA eligibility criteria. With-profits – VFA 58.2 – 58.2 67.0 – 67.0 The principal risk for these contracts is mortality risk. Total 720.5 (2.7 ) 717.8 785.4 (4.4 ) 781.0 Management of insurance risks Term assurances are the main new business product type and significant underwriting occurs. Concentration of insurance risk For linked contracts the investment risk is borne by the policyholder, therefore there is exposure to The Waard portfolios do not include group contracts and hence do not have the concentration of insurance risk only insofar as the value of the unit-linked fund is lower than any guaranteed benefits. risk which may be presented by these contracts. For individual life contracts an excess of loss limit Quota share reinsurance agreements are in place with a maximum retention per policy, to of €100,000 is applied for life risk, hence concentration risk is limited. mitigate the risk in excess of risk appetite for mortality at the moment of underwriting. Catastrophe Mortality assumptions reinsurance is in place to mitigate the loss arising from a catastrophe risk event. Different assumptions are used for each portfolio. As an example, the most material portfolio (Argenta The following table shows the breakdown of insurance and reinsurance contract values by major Savings Mortgages) uses the following mortality assumptions: 80% of the generational prognosis product type for contracts in Scildon: table AG2018. The assumptions are subject to regular review to ensure that the assumption reflects the experience 31 December 2024 2023 incurred on the specific book. Type of contracts Gross Reinsurance Total Gross Reinsurance Total £m £m £m £m £m £m Persistency and expense risk The Waard portfolio is small relative to the Group which limits the risks presented to the Group. Immediate annuities 143.1 – 143.1 146.7 – 146.7 To mitigate the expense risk, management actively monitors the expenses incurred to keep costs Term assurance and other to an appropriate level. Management will continue with the current acquisition strategy to maintain non-linked 161.7 14.6 176.3 173.3 14.9 188.2 Unit-linked/Index-linked/ expenses efficiencies and in addition, expense risk will be further mitigated by the planned integration With-profits – GMM 242.2 – 242.2 278.8 – 278.8 of the Waard and Scildon businesses, as referred to in the risk management section of the Unit-linked/Index-linked/ Strategic Report. Persistency levels are moderate and largely depend on investment performance. With-profits – VFA 1,349.1 – 1,349.1 1,264.0 – 1,264.0 (d) Scildon Total 1,896.1 14.6 1,910.7 1,862.8 14.9 1,877.7 Scildon contains a mixture of unit-linked and traditional savings contracts with life cover, term assurance, annuities and group pension business. Concentration of insurance risk (i) Immediate annuities Scildon does write group pensions contracts with an excess of loss limit of €200,000 per life, hence Immediate annuities provide regular income payments for either the outstanding lifetime of the concentration risk is limited. Regarding benefits assured for individual contracts, the combined effect policyholder and in some cases the outstanding lifetime of a surviving spouse or partner or for of reinsurance and the fact that the vast majority of the total benefit assured relates to numerous the fixed term chosen by the policyholder. Payments are guaranteed for a minimum period. These small value contracts, limit the level of concentration risk. contracts expose the business to longevity risk. Mortality assumptions The assumptions differ by product type, and there are also different assumptions applied within (ii) Term assurance and other non-linked each product type depending on when the contract was written. The unit-linked contracts are the Scildon mainly writes term life contracts, sold as a regular premium policy. The current mass market largest product group and an example of the mortality tables used are the GBM 1976-1980 (males) product has no surrender value or profit sharing. The most significant factors that could increase and the GBV 1976-1980 (females). For annuities, an example of the mortality tables applied are the risk are epidemics and changes in lifestyle leading to higher mortality. GBM 1980-1985 (males) and GBV 1980-1985 (females) tables. There are also older traditional policies with-profit sharing conditions (before 2011) that allow for a Persistency and expense risk surrender value at lapse or profit sharing at maturity. These are split into separate portfolios reflecting To mitigate the expense risk, management actively monitor the expenses incurred to keep costs the principal risks of mortality or longevity. to an appropriate level. Persistency levels are moderate however they are actively monitored to allow early identification of trends. In addition, expense risk will be further mitigated by the planned integration of the Waard and Scildon businesses, as referred to in the risk management section of the Strategic Report. CHESNARAANNUALREPORTANDACCOUNTS2024 171 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B2 Underwriting risk (continued) The Group provides two types of investment contract: unit-linked savings and unit-linked pensions (e) Sensitivity analysis predominantly written in the UK and Sweden. The following tables show the impact to the CSM, profit or loss after tax and shareholders’ equity (i) Unit-linked savings are single or regular premium contracts, with the premiums invested in if changes in underwriting risk variables that were reasonably possible at the reporting date had a pooled investment fund, where the policyholder’s investment is represented by units or trust occurred. The analysis has been prepared for a change in the stated variable, with all other assumptions accounts where the policyholder decides where to invest. On certain contracts there is a remaining constant and presents the impact both before and after reinsurance. small additional benefit payable on death which is deemed not to transfer significant insurance risk to the business for these contracts. The benefits payable at maturity or surrender of the 31 December 2024 CSM CSM Profit or Profit or Equity Equity contracts are the underlying value of the investment in the unit-linked funds or trust accounts, Variation in/arising from gross net loss gross loss net gross net £m £m £m £m £m £m less surrender charges where applicable. (ii) Unit-linked pensions are single or regular premium contracts with features similar to unit-linked Mortality and morbidity savings contracts. Benefits are payable on transfer, retirement or death. combined – 10% increase (35 .6 ) (11.0 ) (17.9 ) (11.6 ) (17.9 ) ( 11.6 ) Expenses – 10% increase (1 0.5 ) (11.0 ) (5.2 ) (4.9 ) (5.2 ) (4.9 ) Lapse – 10% decrease (1.0 ) (2 . 3 ) (0.3 ) 0.3 (0.3 ) 0.3 (a) Market risk (i) Management of market risk The Group businesses manage their market risks within Asset Liability Matching (ALM) frameworks 31 December 2023 CSM CSM Profit or Profit or Equity Equity that have been developed to achieve long-term investment returns at least equal to their obligations – restated gross net loss gross loss net gross net under insurance and investment contracts, with minimal risk. Within the ALM frameworks the Variation in/arising from £m £m £m £m £m £m businesses produce quarterly reports at legal entity and asset and liability class level, which are circulated to the businesses’ key management. The principal technique of the ALM frameworks Mortality and morbidity is to match assets to the liabilities arising from insurance and investment contracts by reference to combined – 10% increase (34.1 ) (9. 2 ) (1 9.3 ) (11.9 ) ( 1 9. 3 ) (1 1 .9 ) the type of benefits payable to policyholders, with separate portfolios of assets being maintained Expenses – 10% increase ( 11.7 ) (12 . 3 ) (5 .9 ) (5.6 ) (5 .9 ) (5 .6 ) for linked and non-linked liabilities. Lapse – 10% decrease (1.9 ) (3.0 ) ( 1 .1 ) (0.5 ) (1 .1 ) (0.5 ) For non-unit-linked business, the Group’s objective is to match the timing and nature of cash flows The sensitivities to mortality and morbidity (critical illness) rates shown above are calculated on from insurance and investment contract liabilities with the timing of cash flows from assets subject the assumption that there would be no consequential change in rates to policyholders. In practice, to identical or similar risks. By matching the cash flows of liabilities with those of suitable assets, Group policy is to pass costs on to policyholders where it is contractually permitted and where market risk is managed effectively, whilst liquidity risk is minimised. These processes to manage it considers that the impact of the change is significant and subject to treating customers fairly. the risks, which the Group has not changed from previous periods, ensure that the Group is able to meet its obligations under its contractual liabilities as they fall due. A 10% increase in mortality and morbidity rates in 2024 is expected to result in a lower fall in profits compared to 2023 as Scildon, which has the highest exposure to mortality and morbidity risks, Unit-linked and index-linked insurance contracts and investment contracts has a higher CSM in 2024. This means that the CSM would absorb more of the impact of the stress. The Group matches the financial liabilities relating to these contracts with units in the financial This is partially offset by a higher fall in profits for CA (lower CSM for one of the protection books assets of the funds to which the value of the liabilities is linked, such that the policyholders bear the than 2023) and Waard (lower pvFCF than 2023). principal market risk (being interest rate, equity price and foreign currency risks) and credit risk. The impact of a 10% increase in expenses has increased from 2023 to 2024, driven by CA due to Accordingly, this approach results in the Group having no significant direct market or credit risk on a reduction in per policy expenses allocated to insurance contracts. these contracts. Its primary exposure to market risk is the risk of volatility in asset-related fees due to the impact of interest rate, equity price and foreign exchange rate movements on the fair B3 Financial risk value of the assets held in the linked funds, on which asset-related fees are based. General There is residual exposure to market risk on certain unit-linked contracts where the Group provides The Group is exposed to a range of financial risks, principally through its insurance contracts, financial to policyholders guarantees as to fund performance or additional benefits which are not dependent assets, including assets representing shareholder assets, financial liabilities, including investment on fund performance. This exposure is mitigated to the extent that the Group matches the obligations contracts and borrowings, and its reinsurance assets. These risks are described at a high level in the with suitable financial assets external to the unit-linked funds, such that the residual exposure is risk management section of the Annual Report and Accounts under ‘PR1 – Investment and not considered to be material. Liquidity Risk’. In particular, the key financial risk is that, in the long-term, proceeds from financial assets are not With-profits contracts sufficient to fund the obligations arising from its insurance and investment contracts and borrowings. Some non-linked insurance contracts within the UK businesses include discretionary participation The most important components of this financial risk are market risk (interest rate risk, equity and features in the form of with-profits policies. For the CA business, where the policyholder benefits property price risk and foreign currency exchange risk), liquidity risk and credit risk (including the risk comprise a discretionary annual bonus and a discretionary terminal bonus, the with-profits business of reinsurer default). is wholly reinsured to ReAssure Limited and hence there is no market risk for this class of business on a net basis. The risks related to insurance contracts that have a material effect on the amount, timing and uncertainty of future cash flows arising are set out in Note B2. For the CA (S&P) business, the primary investment objective of the with-profits policyholder funds is that the guaranteed minimum benefits of the with-profits policyholders should be met entirely from the policyholder funds. 172 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The secondary investment objective is, where possible, to provide a surplus in excess of the Shareholder funds guaranteed minimum benefits. The entire surplus in the policyholder fund accrues to the with-profits Shareholder funds at both Group Parent Company and operating subsidiary level, in accordance policyholders. Any deficit in the policyholder fund is ultimately borne by shareholders. Therefore, with corporate objectives and, in some instances, in accordance with local statutory solvency the Group has a significant exposure to market risk in relation to with-profits business should the requirements, are invested in order to protect capital and to minimise market and credit risk. with-profits policyholder assets be unable to fully meet the cost of guarantees. To achieve the Accordingly, they are generally invested in assets of a shorter-term liquid nature, which gives rise investment objectives, the funds may invest in a range of asset classes including property, equities, to the risk of lower returns on these investments due to changes in short-term interest rates. fixed interest securities, convertibles, cash and derivatives, both in UK and overseas. (ii) Interest rate risk Other insurance contracts As discussed in the management of market risk section the Group is exposed to interest rate risks Other non-linked contracts include contracts which pay guaranteed benefits on insured events, in regard to the assets backing non-linked contracts, such assets being primarily in the form of the terms being fixed at the inception of the contract. Exposure to market price risk is minimised interest-bearing debt securities. The exposure is managed by closely matching contracts written by generally investing in fixed-interest debt securities, while interest rate risk is generally managed with financial assets of suitable nature, yield, duration and currency. by closely matching contracts written with financial assets of suitable nature, yield, duration and currency. To the extent that the Group is unable to fully match its interest rate risk, it makes provision in respect of assumed shortfalls on guaranteed returns to policyholders as part of the present value of future cash flows of the contracts. The tables below show the impact of movements in per annum market rates of interest on the CSM, profit or loss after tax and on shareholder equity as at the balance sheet dates. We believe these interest rate risk variables, to which the Group results are sensitive, represent the ones that might reasonably occur in the future. 31 December 2024 Increase Decrease Increase Decrease Increase Decrease Variation in/arising from 100 basis points in market rate of interest Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 1.0 (1.7 ) 71.3 (82.1 ) 71.3 (82.1 ) Financial instruments – – (79.4 ) 91.2 (79.4 ) 91.2 To t al 1 . 0 ( 1.7 ) ( 8.1 ) 9 . 1 (8.1 ) 9. 1 31 December 2023 – restated Increase Decrease Increase Decrease Increase Decrease Variation in/arising from 100 basis points in market rate of interest Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 2.7 (2.6 ) 83.5 (101.5 ) 83.5 (101.5 ) Financial instruments – – (89.1 ) 99.1 (89.1 ) 99.1 To t al 2.7 (2.6 ) ( 5. 6 ) (2. 4 ) ( 5. 6 ) (2.4 ) The Group’s exposure to interest rate risk principally comes from non-linked liabilities and the assets (iii) Equity price risk backing them. The change in exposure from 2023 to 2024 is primarily driven by Waard, in particular As discussed in the management of market risk section, the Group is exposed to equity and property due to a deferred tax asset which can be fully substantiated after a shock, whereas in 2023 this was price risks in regards to the asset related fees from the assets backing its unit-linked and index- not the case under a yield fall in particular, causing a reduction in net assets that isn’t experienced linked insurance contracts and investment contracts and also in regards to policyholder guarantees this year. The Group’s only material interest-bearing liability is in respect of the Tier 2 debt for which for these contracts. The exposure is mitigated somewhat by investing in suitable financial assets the interest rate is fixed and therefore no material exposure. outside of the unit-linked and index-linked funds. As also in the management of market risk section, the Group is exposed to equity and property price risks in regards to the UK with-profits. The exposure is mitigated by limiting these investments to back the surplus in the relevant funds and not the guaranteed minimum benefits. CHESNARAANNUALREPORTANDACCOUNTS2024 173 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B3 Financial risk (continued) (a) Market risk (continued) (iii) Equity price risk (continued) The tables below show the impact of movements in equity and property values on the CSM, profit or loss after tax and on shareholder equity as at the balance sheet date. We believe these equity and property risk variables, to which the Group results are sensitive, are appropriate for the current year and represent the ones that might reasonably occur in the future. 31 December 2024 Increase Decrease Increase Decrease Increase Decrease Variation in/arising from 10% in equity and property price Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 5. 8 (5.8 ) (149.5 ) 149.6 (149.5 ) 149.6 Financial instruments – – 154.7 (154.8 ) 154.7 (154.8 ) Total 5.8 (5.8 ) 5.2 (5.2 ) 5.2 (5.2 ) 31 December 2023 Increase Decrease Increase Decrease Increase Decrease Variation in/arising from 10% in equity and property price Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 5. 8 (4.7 ) (142.4 ) 141.4 (142 .4 ) 141.4 Financial instruments – – 152.5 (152.6 ) 152.5 (152.6 ) Total 5.8 (4.7 ) 10.1 (11.2 ) 10.1 (11.2) A fall in equity and property values reduces policyholder fund values and so reduces the value of charge income. Thus, the profit and loss impact of a 10% decrease in equity and property values is negative. This impact has increased in 2024 due to an increase in equity exposures following strong equity growth. Conversely, a 10% increase in equity and property values is now more positive than before. (iv) Currency translation risk Currency risk is the risk that the fair value or future cash flows of an asset or liability will change Each business unit settles its material transactions in its functional currency, as such the Group’s as a result of movements in foreign exchange rates. The Group’s exposure to currency risk is exposure to currency risk is limited. minimised to the extent that the risk on investments denominated in foreign currencies which The following table sets out the Group’s material exposure to assets and liabilities denominated back unit-linked investment and insurance contracts is borne by policyholders. It is, however, in foreign currencies, expressed in sterling, at the respective balance sheet date. This exposure exposed to currency risk through: reflects the translation risk faced by the Group as currency fluctuations can have significant impact (i) its investment in Movestic, the assets and liabilities of which are principally denominated in on the results of the Group: Swedish krona; and 31 December 2024 2023 (ii) its investment in Waard and Scildon, the assets and liabilities of which are principally £m £m denominated in euros. Swedish krona The Group’s currency risk through its ownership of Movestic, Scildon and Waard Group is reflected in: Assets 5,259.1 4,507.1 (i) foreign exchange translation differences arising on the translation into sterling and consolidation Liabilities (5,177.7 ) (4,442.0 ) of Movestic, Scildon and Waard Group’s financial statements; and Net assets 81.4 65.1 (ii) the impact of adverse exchange rate movements on cash flows between Chesnara plc and its foreign subsidiaries: in the short-term these relate to cash flows from Movestic, Scildon and Euro Waard to Chesnara by way of dividend payments. The risk on cash flows is reduced by: Assets 2,887.5 2,955.9 Liabilities (2,710.0 ) (2,761.6 ) (a) the foreign currency hedge held by Chesnara plc which mitigates against adverse exchange rate impacts whilst also providing a dampening effect to a favourable currency Net assets 177.5 194.3 movement, and; (b) by closely monitoring exchange rate movements and buying forward foreign exchange contracts, where deemed appropriate. 174 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The tables below show the impact of movements in foreign currency exchange rates on profit before tax for the year under review and on shareholder equity as at the balance sheet date. We believe these currency risk variables, to which the Group results are sensitive, are appropriate for the current year and represent the ones that are most reasonably possible to occur in the future. 31 December 2024 Favourable Adverse Favourable Adverse Favourable Adverse Variation in/arising from 10% in SEK: sterling exchange rate Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 0.8 (0.7 ) 0.6 (0.5 ) (18 .0 ) 14 .7 Financial instruments – – (6.9 ) 7.8 21.5 (16.0 ) Total 0.8 (0.7 ) (6.3 ) 7.3 3.5 (1.3 ) 31 December 2024 Favourable Adverse Favourable Adverse Favourable Adverse Variation in/arising from 10% in EUR: sterling exchange rate Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 1 5.4 (1 2.6 ) (0. 3 ) 0.2 (292.0 ) 238.9 Financial instruments – – (13.1 ) 19.4 301.4 (240.1 ) Total 15.4 (12.6 ) (13.4 ) 19.6 9.4 (1.2 ) 31 December 2023 Favourable Adverse Favourable Adverse Favourable Adverse Variation in/arising from 10% in SEK: sterling exchange rate Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 0.6 (0. 5 ) 0. 3 (0.3 ) (1 7.5 ) 14 .3 Financial instruments – – (7.2 ) 2.2 20.8 (20.0 ) Total 0.6 (0.5 ) (6.9 ) 1.9 3.3 (5.7 ) 31 December 2023 Favourable Adverse Favourable Adverse Favourable Adverse Variation in/arising from 10% in EUR: sterling exchange rate Profit Profit Shareholder Shareholder CSM CSM or loss or loss equity equity £m £m £m £m £m £m Insurance and reinsurance contracts 14.7 (1 2.0 ) (0. 3 ) 0. 3 (295.4 ) 241.7 Financial instruments – – (8.5 ) 7.4 308.2 (251.8 ) Total 14.7 (12.0 ) (8.8 ) 7.7 12.8 (10.1 ) (b) Credit risk (i) Management of credit risk The Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Group is exposed to credit risk are: – Counterparty risk with respect to debt securities and cash deposits; – The mortgage loan portfolio held by Waard with respect to the interest and capital repayments due from the borrowers; – Reinsurers’ share of insurance liabilities; – Amounts deposited with reinsurers in relation to investment contracts; – Amounts due from reinsurers in respect of claims already paid; and – Other short-term receivables. CHESNARAANNUALREPORTANDACCOUNTS2024175 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B3 Financial risk (continued) Although the businesses hold a significant proportion of their financial assets in debt securities and (b) Credit risk (continued) cash deposits the risk of default on these is mitigated to the extent that any losses arising in (i) Management of credit risk (continued) respect of unit-linked assets backing the insurance and investment contracts which the businesses In addition, there will be some exposures to individual policyholders, on amounts due on insurance issue, would effectively be passed on to policyholders and investors through the unit-linked funds contracts. These are tightly controlled, with contracts being terminated or benefits amended if backing the insurance and investment contracts. amounts owed are outstanding for more than a specified period of time, so that there is no significant Reinsurance is used to manage insurance risk in the businesses. This does not, however, discharge risk to the results of the businesses. the businesses’ liability as primary insurers. If a reinsurer fails to pay a claim for any reason, The Group businesses structure the levels of credit risk they accept by placing limits on their exposure the businesses remain liable for the payment to the policyholder. The Group limits its exposure to a single counterparty, or group of counterparties. Such risks are subject to at least an annual to reinsurance counterparties with a credit rating lower than BBB- and the creditworthiness of review, while watch lists are maintained for exposures requiring additional review. reinsurance exposures is regularly monitored as part of the Group’s Risk Framework. (ii) Exposure to Credit Risk The following table presents the assets of the Group which are subject to credit risk and a reconciliation to the balance sheet carrying amount for each item, this amount representing the maximum credit risk exposure: 31 December 2024 2023 Amount Balance sheet Amount Balance sheet Policyholder subject to carrying Policyholder subject to carrying linked credit risk value linked credit risk value £m £m £m £m £m £m Reinsurance contract assets – 169.9 169.9 – 185.7 185.7 Amounts deposited with reinsurers – 34.3 34.3 – 32.5 32.5 Holdings in collective investment schemes 8,333.3 328.3 8,661.6 8,025.4 350.8 8,376.2 Debt securities at fair value through profit or loss 15.1 1,075.8 1,090.9 14.8 1,222.3 1,237.1 Policyholders’ funds held by the Group 1,825.8 – 1,825.8 1,281.8 – 1,281.8 Mortgage loan portfolio 346.9 – 346.9 366.8 – 366.8 Derivative financial instruments 0.1 – 0.1 0.1 0.2 0.3 Other assets 26.9 41.8 68.7 12.6 45.1 57.7 Cash and cash equivalents 83.1 54.9 138.0 78.3 67.7 146.0 Total 10,631.2 1,705.0 12,336.2 9,779.8 1,904.3 11,684.1 The amounts presented above as policyholder linked represent unit-linked assets where there is a corresponding liability meaning that the risk is borne predominantly by the holders of unit-linked insurance and investment contracts. (iii) Credit quality analysis The creditworthiness of major reinsurers is considered on an annual basis by reviewing their financial strength. The Group’s exposure to credit risk is summarised as: Credit rating AAA AA A BBB Below BBB Unrated Total As at 31 December 2024 £m £m £m £m £m £m £m Reinsurance contract assets – 122.9 – – – 47.0 169.9 Amounts deposited with reinsurers – 32.5 – – – 1.8 34.3 Debt securities at fair value through profit or loss 215.8 337.0 367.9 157.2 0.8 12.2 1,090.9 Policyholders’ funds held by the Group – 136.8 411.6 293.2 984.2 – 1,825.8 Mortgage loan portfolio – – 10.2 – – 336.7 346.9 Derivative financial instruments – – – – – 0.1 0.1 Other assets 0.6 0.4 0.4 0.2 – 67.1 68.7 Cash and cash equivalents – 3.4 73.0 39.8 – 21.8 138.0 Total 216.4 633.0 863.1 490.4 985.0 486.7 3,674.6 176 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Credit rating AAA AA A BBB Below BBB Unrated Total As at 31 December 2023 £m £m £m £m £m £m £m Reinsurance contract assets – 138.7 – – – 47.0 185.7 Amounts deposited with reinsurers – 32.5 – – – – 32.5 Debt securities at fair value through profit or loss 409.6 349.1 338.4 128.2 1.2 10.6 1,237.1 Policyholders’ funds held by the Group – 101.9 353.3 167.3 659.7 (0.4 ) 1,281.8 Mortgage loan portfolio – – 10.7 – – 356.1 366.8 Derivative financial instruments – – 0.3 – – – 0.3 Other assets 0.7 0.5 0.5 0.2 – 55.8 57.7 Cash and cash equivalents 0.1 3.2 89.7 41.2 – 11.8 146.0 Total 410.4 625.9 792.9 336.9 660.9 480.9 3,307.9 Credit ratings have not been disclosed in the above tables for holdings in unconsolidated collective Monument Re makes up £43.8m of the unrated exposure to reinsurers’ share of insurance contract investment schemes and investments in associates totalling £8,661.6m (31 December 2023: liabilities as at 31 December 2024 (31 December 2023: £48.7m). Exposure is limited through the £8,376.2m). The credit quality of the underlying debt securities within these vehicles is managed use of a funds withheld arrangement under which the reinsurer has deposited collateral to CA in by the investment managers in line with agreed investment guidelines. respect of the value of expected future reinsured claim payments. Included within reinsurers’ share of insurance contract liabilities and amounts deposited with The ‘Other assets’ in the credit risk rating table are not held at fair value or managed on a fair value reinsurers (in respect of investment contracts) above, is a total exposure of £73.4m as at basis. These assets generally consist of short-term receivables and are not considered to have a 31 December 2024 (31 December 2023: £71.4m) to ReAssure, which has been included within low credit rating as at 31 December 2024. the ‘AA’ rating category. (iv) Concentration of credit risk Debt securities Policyholder Policyholder Non-linked/ Debt securities Policyholder Policyholder Non-linked/ As at 31 December 2024 linked with-profit shareholder Total As at 31 December 2023 linked with-profit shareholder Total £m £m £m £m £m £m £m £m Austria – – 17.5 17.5 Austria – – 24.8 24.8 Belgium – – 32.1 32.1 Belgium – – 37.1 37.1 France 0.6 2.7 219.5 222.8 France 0.7 2.7 200.1 203.5 Germany – 0.4 90.9 91.3 Germany – 0.4 210.7 211.1 Italy – – 15.9 15.9 Italy – – 12.3 12.3 Ireland – – 13.1 13.1 Ireland – – 14.4 14.4 Netherlands – 2.5 179.7 182.2 Netherlands – 2.5 230.6 233.1 Poland – – 0.4 0.4 Poland – – 0.4 0.4 Portugal – – 0.3 0.3 Portugal – – 3.3 3.3 Spain – 0.5 38.8 39.3 Spain – 0.5 37.1 37.6 UK 12.0 26.0 169.1 207.1 UK 11.4 25.9 181.9 219.2 Other 2.1 11.2 152.5 165.8 Other 2.2 13.4 117.4 133.0 Europe 14.7 43.3 929.8 987.8 Europe 14.3 45.4 1,070.1 1,129.8 USA 0.3 3.2 82.4 85.9 USA 0.5 3.2 82.4 86.1 Other – 1.5 1.1 2.6 Other – 1.7 1.4 3.1 North America 0.3 4.7 83.5 88.5 North America 0.5 4.9 83.8 89.2 Australia – – 7.9 7.9 Australia – – 11.3 11.3 Other – – 6.7 6.7 Other – – 6.8 6.8 Asia Pacific – – 14.6 14.6 Asia Pacific – – 18.1 18.1 Total 15.0 48.0 1,027.9 1,090.9 Total 14.8 50.3 1,172.0 1,237.1 There are no direct holdings in debt securities within Russia or Ukraine. CHESNARAANNUALREPORTANDACCOUNTS2024177 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B3 Financial risk (continued) (c) Liquidity risk (i) Management of liquidity risk Liquidity risk is the risk that adequate liquid funds are not available to settle liabilities as they fall due and is managed by forecasting cash requirements and by adjusting investment management strategies to meet those requirements. Liquidity risk is generally mitigated by holding sufficient investments which are readily marketable in sufficiently short timeframes to allow the settlement of liabilities as they fall due. Where liabilities are backed by less marketable assets, for example investment properties, there are provisions in contractual terms which allow deferral of redemptions in times of adverse market conditions. The Group’s substantial holdings of money market assets also serve to reduce liquidity risk. (ii) Maturity analysis The tables below present a maturity analysis of the Group’s liabilities on discounted basis. The insurance and reinsurance contracts are presented on a discounted basis. Financial liabilities are presented on an undiscounted basis. 31 December 2024 Contractual cash flows Carrying values and cash Carrying value <1 yr 1-2 yrs 2-3 yrs 3-4 yrs 4-5 yrs 5-10 yrs >10 yrs Total flows arising from: £m £m £m £m £m £m £m £m £m Insurance contract liabilities 4,099.1 704.4 301.8 264.3 245.6 249.9 813.0 1,322.1 3,901.1 Reinsurance contract liabilities 16.6 3.5 3.6 3.3 3.0 2.8 14.7 22.2 53.1 Total insurance and reinsurance contract liabilities (discounted) 4,115.7 707.9 305.4 267.6 248.6 252.7 827.7 1,344.3 3,954.2 Investment contract liabilities 6,116.7 6,070.3 4.6 5.4 4.4 5.0 21.2 5.8 6,116.7 Liabilities relating to policyholder’s fund held by the Group 1,825.5 1,825.5 – – – – – – 1,825.5 Lease contract liabilities 0.6 0.6 – – – – – – 0.6 Borrowings 204.8 1.4 0.5 0.2 0.2 0.2 201.6 – 204.1 Derivative financial instruments 0.6 0.6 – – – – – – 0.6 Other current liabilities 129.7 116.8 – – – – – – 116.8 Bank overdrafts 0.8 0.8 – – – – – – 0.8 Total financial liabilities (undiscounted) 8,278.7 8,016.0 5.1 5.6 4.6 5.2 222.8 5.8 8,265.1 Total 12,394.4 8,723.9 310.5 273.2 253.2 257.9 1,050.5 1,350.1 12,219.3 31 December 2023 – restated Contractual cash flows Carrying values and cash Carrying value <1 yr 1-2 yrs 2-3 yrs 3-4 yrs 4-5 yrs 5-10 yrs >10 yrs Total flows arising from: £m £m £m £m £m £m £m £m £m Insurance contract liabilities 4,203.0 651.2 332.8 294.4 277.8 267.2 872.9 1,222.6 3,918.9 Reinsurance contract liabilities 17.1 3.2 3.6 3.5 3.2 2.9 15.1 24.7 56.2 Total insurance and reinsurance contract liabilities (discounted) 4,220.1 654.4 336.4 297.9 281.0 270.1 888.0 1,247.3 3,975.1 Investment contract liabilities 5,872.3 5,414.0 40.3 38.0 40.2 47.7 131.0 69.6 5,780.8 Liabilities relating to policyholder’s fund held by the Group 1,281.8 1,281.8 – – – – – – 1,281.8 Lease contract liabilities 1.2 1.0 0.2 – – – – – 1.2 Borrowings 207.9 3.6 1.7 0.7 0.3 0.2 0.9 200.6 208.0 Derivative financial instruments 4.4 4.4 – – – – – – 4.4 Other current liabilities 131.7 131.7 – – – – – – 131.7 Bank overdrafts 0.2 0.2 – – – – – – 0.2 Total financial liabilities (undiscounted) 7,499.5 7,037.3 42.2 38.7 40.5 47.9 131.9 69.6 7,408.1 Total 11,719.6 7,691.7 378.6 336.6 321.5 318.0 1,019.9 1,316.9 11,383.2 The values reported for insurance contract liabilities and reinsurance contract liabilities exclude the risk adjustment and contractual service margin as these are not considered to be financial liabilities subject to liquidity risk. The carrying values in the table above are the balance sheet values. The maturity analysis for unit-linked investment contracts presents all the liabilities as due in the earliest period in the table because they are repayable or transferable on demand, with no notice period. 178 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ii) Maturity analysis (continued) Company law The table that follows shows the amounts from insurance contract assets and liabilities that are As well as complying with the Solvency II regime, each company within the Group is required payable on demand. In most cases the non-distinct investment component is considered to be to comply with relevant company law capital and distribution rules. appropriate as a proxy for the amount payable on demand. As per the maturity analysis table, the amounts presented exclude the risk adjustment and contractual service margin. The carrying (b) Objectives, policies and processes for managing capital amount is the full balance sheet value. (i) Objectives To manage compliance with the externally imposed capital requirements, the Group and its 31 December Restated subsidiaries have established capital management policies in place. The objectives of these Type of contracts 2024 2024 2023 2023 policies are: Payable on Carrying Payable on Carrying demand amount demand amount – to ensure that capital is managed in a way that is consistent with the business strategy of the Group £m £m £m £m and its subsidiaries, in that they: – promote fair customer outcomes through protecting policyholders; Immediate annuities 2.7 306.4 2.4 327.9 Term assurance and other non-linked 130.1 385.9 150.3 419.8 – provide protection to shareholders through ensuring that the business is adequately protected Unit-linked/Index-linked/With-profits – GMM 822.2 908.1 882.0 999.0 against stress events; and Unit-linked/Index-linked/With-profits – VFA 2,161.5 2,464.9 2,132.5 2,412.1 Short-term protection 29.1 32.0 36.9 40.3 – provide a framework to support the decision making process for returns to shareholders via dividends. Total 3,145.6 4,097.3 3,204.1 4,199.1 – to ensure that capital of the Group and its subsidiaries is managed in accordance with the Board’s risk appetite, in particular each Board’s aversion for Own Funds to fall below the SCR. B4 Capital management (a) Regulatory context (ii) Policies Solvency II In light of the objectives for the Group’s and its subsidiaries’ capital management policies, the On 31 December 2024 the PRA’s restatement of Solvency II assimilated law came into force. following quantitative limits for managing Own Funds are applied across the Group: Throughout the document we refer to the new regime as Solvency II, in line with the name of the prudential regime in PRA policy material. Region Waard UK Movestic Group Scildon Group The Group is required to comply with the ‘Solvency II’ regime. Solvency II includes rules over the quantity and quality of capital (known as ‘Own Funds’) that insurance companies and groups need Dividend paying limit: in order to meet the required level of capital (known as the ‘Solvency Capital Requirement‘). Own Funds stated as % of SCR 120% 120% 135% 175% 140% The Group operates exclusively within the UK and the EU and as a result, the Solvency II regime is applied to the Group and all regulated insurance companies within the Group in the financial year. Management actions limit: Own Funds stated as % of SCR 110% 110% 135% 175% 110% The Solvency II regime has specific rules regarding how Own Funds are recognised and valued. In a number of cases, the IFRS and Solvency II value of an asset and liability are the same, but in some cases there are differences. In particular, liabilities for insurance and investment contracts Dividend paying limit: This is the point at which a dividend would cease to be paid, until at such are valued differently, with insurance contracts valued according to IFRS 17 and therefore including time the solvency position was restored above this point. This limit is set by the relevant Board in a contractual service margin and investment contracts valued as per unit value under IFRS 9. In each division with reference to its respective risk appetite, as articulated in each division’s Capital addition, Solvency II has differing treatments for certain intangible assets. A high-level reconciliation Management Policy. between the IFRS net assets and Solvency II Own Funds of the Group and its subsidiaries has been provided in section (c)(ii) of this Note. Management actions limit: This is the point at which, should Own Funds fall below this level, additional management actions would be considered to restore Own Funds back above this level. Regarding the Solvency Capital Requirement (SCR) of the Group and its subsidiaries, the Group has In essence this represents an internal ‘ladder of intervention limit’ that is set by the Group and elected to use the ‘standard formula’ approach for its calculation, which means we are applying the divisional Boards. formulae as included in the Solvency II framework. The calculations within the standard formula have been designed such that, on the basis that an insurance company holds Own Funds that are at To put the above table and definitions in context, and taking Group as an example, this means that least equal to its SCR, it will be able to withstand a 1 in 200 year event. An alternative would have the Group will not pay a dividend should the payment of the dividend take the Group Own Funds been to use an ‘internal model’ but this was not deemed appropriate for the size and complexity to below 140% of its SCR. Should Own Funds fall below 110% of SCR additional management actions of the Group. will be taken. The UK Treasury and EIOPA have both undertaken a review of Solvency II rules implementation. In the UK this resulted in a reduction in the Risk Margin from 31 December 2023 and similar is expected for the overseas entities from the EIOPA review. CHESNARAANNUALREPORTANDACCOUNTS2024179 IFRS FINANCIAL STATEMENTS SECTION B RISK AND CAPITAL MANAGEMENT B4 Capital management (continued) – Recovery management protocol: A protocol for management actions has been designed which, in (b) Objectives, policies and processes for managing capita (continued) effect, represents an internally set ‘ladder of intervention’. The protocol includes items such as (iii) Process for management of capital solvency monitoring frequency, what level of escalations are required and what management actions The following key processes and procedures are in place across the Group to manage adherence need to be considered. to the capital management policies in place: – Monthly solvency monitoring: Full solvency calculations are performed on a quarterly basis. For – Internal solvency reporting: A number of internal reports are produced that focus on the solvency intra-quarter months, a monthly solvency estimate is produced. Where full estimation routines are position of the Group/Company. These include the Own Risk & Solvency Assessment (ORSA) not practical intra-valuation solvency can be monitored through trigger monitoring and sensitivity Report, a quarterly actuarial report and a quarterly finance report. All of these are presented to and analysis. In addition to the Group level indicators, the Chesnara Board will remain close to any approved by the Board. indications of divisional solvency movements by means of divisional MI and quarterly business reviews. On at least a monthly basis, specific key risk indicators are monitored against pre-defined trigger – Production of projections: On at least an annual basis, solvency projections are produced for the points. The trigger points are set having regard for the sensitivity of the Group to certain scenarios. Group and its subsidiaries. These projections are included in both the business plans and the ORSA Trigger points and the list of risk indicators being monitored are assessed at least annually. Report and show how management anticipates the solvency position to develop over time. The projections process includes assessing the impact of a number of different stress scenarios to ensure (iv) Compliance during year that the sensitivities of the business are understood. Both the ORSA and the business plans are The Group, and all insurance companies within the Group, held Own Funds above their respective presented to and approved by the Board. Solvency Capital Requirements at all times during the year. – Regular review of internal limits in place: On at least an annual basis, the limits described in section (b)(ii) of this Note are reviewed and assessed, having regard to the developments of the business and any other changes that may have affected the Group’s/divisions’ risk appetite. (c) Quantitative analysis (i) Group solvency position The unaudited solvency position of the Group and its divisions at 31 December 2024, and at 31 December 2023, has been shown in the tables below. They present a view of the solvency position which may differ to the position of the individual insurance company(ies) within that division. 31 December 2024 (unaudited) Other Region Group and consolidation UK Movestic Waard Group Scildon adjustments Group £m £m £m £m £m £m Own Funds (pre dividends) 175.4 186.0 88.3 139.8 76.7 666.2 Proposed dividend (45.0 ) (2 .5 ) (6.6 ) – 30.6 (23.5 ) Own Funds (post dividends) 130.4 183.5 81.7 139.8 107.3 642.7 SCR 96.5 121.9 25.2 68.3 4.0 315.9 Solvency surplus 33.9 61.6 56.5 71.5 n/a 326.8 Solvency ratio 135% 151% 324% 205% n/a 203% Dividend paying limit (% of SCR) 120% 120% 135% 175% n/a 140% Dividend paying limit (£) 115.8 146.3 34.0 119.5 n/a 442.2 Surplus over dividend paying limit 14.6 37.2 47.7 20.3 n/a 200.4 180 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2023 (unaudited) Other Region Group and consolidation UK Movestic Waard Group Scildon adjustments Group £m £m £m £m £m £m Own Funds (pre dividends) 187.5 178.7 105.3 133.7 102.0 707.2 Proposed dividend (35.0 ) (7.8 ) (6 .9 ) – 26.2 (23.5 ) Own Funds (post dividends) 152.5 170.9 98.4 133.7 128.2 683.7 SCR 102.6 116.7 27.9 72.8 12.7 332.7 Solvency surplus 49.9 54.2 70.5 60.9 n/a 351.0 Solvency ratio 149% 147% 353% 184% n/a 205% Dividend paying limit (% of SCR) 120% 120% 135% 175% n/a 140% Dividend paying limit (£) 123.1 140.0 37.7 127.4 n/a 465.8 Surplus over dividend paying limit 29.4 30.9 60.7 6.2 n/a 217.9 (ii) Reconciliation between Solvency II Own Funds and IFRS net assets (unaudited) The tables below show the key differences between the Solvency II Own Funds reported in section (c)(i) of this Note and the Group’s IFRS net assets. 31 December 2024 (unaudited) Other Region Group and consolidation UK Movestic Waard Group Scildon adjustments Group £m £m £m £m £m £m Solvency II Own Funds (post dividends) 130.4 183.5 81.7 139.8 107.3 642.7 Add Back: Ring-fenced fund surplus restrictions 1.9 – – – – 1.9 Add Back: Intangible assets 20.4 66.8 – – – 87.2 Add Back: Tier 2 debt and restriction – – 16.4 – (184.8 ) (168.4 ) Add Back: Foreseeable dividends 45.0 2.5 6.6 – 30.6 23.5 Add Back: Difference in valuation of technical provisions (66.8 ) (162.1 ) (60.4 ) (33.2 ) 34.5 (288.0 ) Add Back: Difference in deferred tax (3.2 ) – 14.5 9.2 (8.4 ) 12.1 Add Back: Other valuation differences (1.1 ) 1.2 3.9 (0.8 ) 0.2 2.7 IFRS net assets 126.6 91.9 62.7 115.0 (81.8 ) 314.4 31 December 2023 (unaudited) Other Region Group and consolidation UK Movestic Waard Group Scildon adjustments Group £m £m £m £m £m £m Solvency II Own Funds (post dividends) 152.5 171.0 98.4 133.7 128.1 683.7 Add Back: Ring-fenced fund surplus restrictions 0.5 – – – – 0.5 Add Back: Intangible assets 22.1 72.8 – – – 94.9 Add Back: Tier 2 debt and restriction – – 13.7 – (214.3 ) (200.6 ) Add Back: Foreseeable dividends 35.0 7.8 6.9 – (26.2 ) 23.5 Add Back: Difference in valuation of technical provisions (49.2 ) (153.4 ) (27.7 ) (25.6 ) 40.3 (215.4 ) Add Back: Difference in deferred tax (4.7 ) – 16.5 6.5 (10.2 ) 8.1 Add Back: Other valuation differences (5.7 ) ( 1.0 ) (28.0 ) (0.2 ) 0.1 (34.8 ) IFRS net assets 150.5 97.2 79.8 114.4 (82.2 ) 359.9 Further information on how the Group uses Solvency II, and metrics derived from Solvency II, as Alternative Performance Measures can be found in the additional information section of the Annual Report and Accounts on page 261. CHESNARAANNUALREPORTANDACCOUNTS2024 181 IFRS FINANCIAL STATEMENTS SECTION C SEGMENTAL INFORMATION C1 Composition of operating segments Scildon: This segment represents the Group’s open Dutch life insurance business. Scildon’s policy The Group considers that it has no product or distribution-based business segments. It reports base is predominantly made up of individual protection and savings contracts. It is open to segmental information on the same basis as reported internally to the chief operating decision maker, new business and sells protection, individual savings and group pension contracts via a broker-led which is the Board of Directors of Chesnara plc. distribution model. The segments of the Group as at 31 December 2024 comprise: The planned integration of the Waard and Scildon businesses, as referred to in the risk management section of the Strategic Report has not been applied in the segmental reporting UK: This segment comprises the UK’s life insurance and pensions business within Countrywide in these financial statements. Assured plc (CA), the Group’s principal UK operating subsidiary, and Sanlam Life & Pensions UK (SLP), acquired by the Group on 28 April 2022 and subsequently renamed to CASLP Limited (CASLP). Other Group activities: The functions performed by the Parent Company, Chesnara plc, are The majority of the assets and liabilities of CASLP were transferred to CA in 2023 under a Part VII defined under the operating segment analysis as other Group activities. Also included therein are business transfer. CASLP was dissolved on 14 January 2025. consolidation and elimination adjustments. During the year, the Group reached an agreement to acquire the unit-linked bond and pension The accounting policies of the segments are the same as those for the Group as a whole. business of Canada Life Limited with the transaction initially in the form of a reinsurance agreement Any transactions between the business segments are on normal commercial terms in normal accepted by CA. See Note I7 for further details. market conditions. The Group evaluates performance of operating segments on the basis of the profit before tax attributable to shareholders of the reporting segments and the Group as a whole. Movestic: This segment comprises the Group’s Swedish life and pensions business, Movestic There were no changes to the measurement basis for segment profit during the year ended Livförsäkring AB (Movestic) and its subsidiary company Movestic Fonder AB (investment fund 31 December 2024. management company). Movestic is open to new business and primarily comprises unit-linked pension business and also providing some life and health product offerings. Waard Group: This segment represents the Group’s closed Dutch life insurance business and comprises a number of acquisitions of closed insurance books of business since the acquisition of the original Waard entities into the Group in 2015. The Waard Group comprises a mixture of long-term savings and protection business and also contains some non-life business. 182 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C2 Segmental performance and net assets (a) Segmental income statement for the year ended 31 December 2024 Movestic Waard Group Scildon Other Group UK ( Swe de n ) (Ne t he rl an d s ) ( N et he rl an d s ) act iv i ti e s (U K ) Total £m £m £m £m £m £m Insurance revenue 71.3 10.2 29.8 150.6 – 261.9 Insurance service expense (64.9 ) (2.6 ) (31.4 ) (145. 2 ) – (244.1 ) Net expenses from reinsurance contracts held (0.9 ) ( 1.8 ) (2 .0 ) (4.5 ) – (9.2 ) Segmental insurance service result 5.5 5.8 (3.6 ) 0.9 – 8.6 Net investment return 380.7 666.6 28.1 201.4 9.3 1,286.1 Net finance (expenses)/income from insurance contracts issued (98.4 ) (23.6 ) (23.2 ) (189.6 ) – (334.8 ) Net finance expenses from reinsurance contracts held 3.1 0.3 – (0.8 ) – 2.6 Net change in investment contract liabilities (260.0 ) (479.6 ) (0.8 ) – – (740.4 ) Change in liabilities relating to policyholders’ funds held by the Group – (160.8 ) – – – (160.8 ) Segmental investment result 25.4 2.9 4.1 11.0 9.3 52.7 Fee, commission and other operating income 37.4 65.5 0.3 – 1.0 104.2 Segmental revenue, net of investment result 68.3 74.2 0.8 11.9 10.3 165.5 Other operating expenses (39.7 ) (54.9 ) (3.3 ) (4. 3 ) (22.0 ) (124.2 ) Financing costs (0.2 ) (0.4 ) – – (10.5 ) (1 1 .1 ) Profit/(loss) before tax and consolidation adjustments 28.4 18.9 (2.5 ) 7.6 (22.2 ) 30.2 Other operating expenses: Amortisation and impairment of intangible assets (0.1 ) (9.3 ) – – – (9.4 ) Segmental income less expenses 28.3 9.6 (2.5 ) 7.6 (22.2 ) 20.8 Post completion gain on portfolio acquisition – – – – – – (Loss)/profit before tax 28.3 9.6 (2.5 ) 7.6 (22.2 ) 20.8 Income tax credit/(charge) (17.0 ) (0.5 ) 0.8 (2.0 ) 1. 8 ( 16.9 ) (Loss)/profit after tax 11.3 9.1 (1.7 ) 5.6 (20.4 ) 3.9 (b) Segmental balance sheet as at 31 December 2024 Movestic Waard Group Scildon Other Group UK ( Swe de n ) (Ne t he rl an d s ) ( N et he rl an d s ) act iv i ti e s (U K ) Total £m £m £m £m £m £m Total assets 4,473.8 5,269.7 851.9 2,035.7 124.0 12,755.1 Total liabilities (4,347. 2 ) (5,177.8 ) (789.2 ) (1,920.7 ) (205.8 ) ( 12,440.7 ) Net assets 126.6 91.9 62.7 115.0 (81.8 ) 314.4 Investment in associates – – – – – – Additions to non-current assets – – – – – – CHESNARAANNUALREPORTANDACCOUNTS2024183 IFRS FINANCIAL STATEMENTS SECTION C SEGMENTAL INFORMATION C2 Segmental performance and net assets (continued) (c) Segmental income statement for the year ended 31 December 2023 Restated Movestic Waard Group Scildon Other Group UK ( Swe de n ) (Ne t he rl an d s ) ( N et he rl an d s ) act iv i ti e s (U K ) Total £m £m £m £m £m £m Insurance revenue 65.8 11.1 36.1 115.0 – 228.0 Insurance service expense (65.7 ) (7.4 ) (37.8 ) (11 3.9 ) – (224.8 ) Net expenses from reinsurance contracts held (5.5 ) (0.6 ) 0.4 (2.7 ) – (8.4 ) Se gm e nt al i n su ra nc e s ervic e r es ul t (5.4 ) 3 .1 (1.3 ) ( 1. 6 ) – ( 5.2 ) Net investment return 339.3 432.5 63.2 181.2 7.3 1,023.5 Net finance (expenses)/income from insurance contracts issued (86.4 ) (16.0 ) (49.3 ) (163.2 ) – (314.9 ) Net finance expenses from reinsurance contracts held 9.3 0.7 0.1 (3.4 ) – 6.7 Net change in investment contract liabilities (226.4 ) (299.6 ) (3.6 ) – – (529.6 ) Change in liabilities relating to policyholders’ funds held by the Group – (114.0 ) – – – (114.0 ) Segmental investment result 35.8 3.6 10.4 14.6 7.3 71.7 Fee, commission and other operating income 39.8 50.3 2.9 – (3.6 ) 89.4 Segmental revenue, net of investment result 70.2 57.0 12.0 13.0 3.7 155.9 Other operating expenses (39.9 ) (40.0 ) (3.5 ) (5.5 ) (23.1 ) ( 112 .0 ) Financing costs (0.2 ) (0.5 ) – – (10.3 ) (11.0 ) Profit/(loss) before tax and consolidation adjustments 30.1 16.5 8.5 7.5 (29.7 ) 32.9 Other operating expenses: Amortisation and impairment of intangible assets (26.7 ) (11.2 ) – – – (37.9 ) Segmental income less expenses 3.4 5.3 8.5 7.5 (29.7 ) (5.0 ) Post completion gain on portfolio acquisition – – 6.7 – – 6.7 (Loss)/profit before tax 3.4 5.3 15.2 7.5 (29.7 ) 1.7 Income tax credit/(charge) 20.5 – (1.6 ) (1.9 ) (0.1 ) 16.9 (Loss)/profit after tax 23.9 5.3 13.6 5.6 (29.8 ) 18.6 (d) Segmental balance sheet as at 31 December 2023 Restated Movestic Waard Group Scildon Other Group UK ( Swe de n ) (Ne t he rl an d s ) ( N et he rl an d s ) act iv i ti e s (U K ) Total £m £m £m £m £m £m Total assets 4,527.1 4,519.4 946.8 2,009.1 127.3 12,129.8 Total liabilities (4,376.6 ) (4,422.2 ) (867.0 ) (1, 894.6 ) (209.5 ) (11,769.9 ) Net assets 150.5 97.2 79.8 114.5 (82.2 ) 359.9 Investment in associates – – – – – – Additions to non-current assets – – – – – – 184 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION D PERFORMANCE IN THE YEAR D1 Insurance result Year ended 31 December 2024 Movestic Waard Group Scildon Insurance revenue UK (Sweden ) (Netherlands ) (Netherlands ) Total £m £m £m £m £m Contracts not measured under the PAA: Amounts relating to changes in the liability for remaining coverage: Expected incurred claims and other directly attributable expenses 65.6 0.3 22.1 133.7 221.7 Change in risk adjustment for non-financial risk for the risk expired 1.8 0.1 0.7 2.3 4.9 CSM recognised for the services provided 3.9 0.5 7.0 11.0 22.4 Insurance acquisition cash flows recovery – – – 3.6 3.6 Insurance revenue for contracts not measured under the PAA 71.3 0.9 29.8 150.6 252.6 Insurance revenue for contracts measured under the PAA – 9.3 – – 9.3 Total insurance revenue 71.3 10.2 29.8 150.6 261.9 Insurance service expenses Incurred claims and other directly attributable expenses (60.5 ) (8.9 ) (28.6 ) (108.8 ) (206.8 ) Changes that relate to past service – changes in the FCF relating to the LIC – 6.3 – – 6.3 Losses on onerous contracts and reversals of those losses (4.4 ) – (2.8 ) (32.8 ) (40.0 ) Insurance acquisition cash flows amortisation – – – (3.6 ) (3.6 ) To t al i n su ra nc e s e r v i ce ex p en s e s (64.9 ) ( 2.6 ) (3 1.4 ) ( 14 5. 2 ) ( 2 44.1 ) Net income/(expenses) from reinsurance contracts held Reinsurance expenses (allocation of reinsurance premiums paid) – contracts not measured under the PAA Amounts relating to changes in the remaining coverage: Expected amount recoverable for claims and other insurance service expenses (22.9 ) – (4.3 ) (18.7 ) (45.9 ) Change in risk adjustment for non-financial risk for the risk expired (0.6 ) – (0.1 ) (0.9 ) (1.6 ) CSM recognised for the services received (0.4 ) – – (3.1 ) (3.5 ) Reinsurance expenses (allocation of reinsurance premiums paid) – contracts not measured under the PAA (23.9 ) – (4.4 ) (22.7 ) (51.0 ) Reinsurance expenses (allocation of reinsurance premiums paid) – contracts measured under the PAA – (1.3 ) – – (1.3 ) Amounts recoverable for incurred claims and other incurred insurance service expenses 23.0 2.0 2.4 19.0 46.4 Changes in amounts recoverable that relate to past service – adjustments to incurred claims – (2.5 ) – – (2.5 ) Recoveries of loss on recognition of onerous underlying contracts – – – 0.5 0.5 Recoveries of losses on onerous underlying contracts and reversals of such losses – – – (1.3 ) (1.3 ) Total net expenses from reinsurance contracts held (0.9 ) (1.8 ) (2.0 ) (4.5 ) (9.2 ) Total insurance service result 5.5 5.8 (3.6 ) 0.9 8.6 CHESNARAANNUALREPORTANDACCOUNTS2024185 IFRS FINANCIAL STATEMENTS SECTION D PERFORMANCE IN THE YEAR D1 Insurance result (continued) Year ended 31 December 2023 Restated Movestic Waard Group Scildon Insurance revenue UK (Sweden ) (Netherlands ) (Netherlands ) Total £m £m £m £m £m Contracts not measured under the PAA: Amounts relating to changes in the liability for remaining coverage: Expected incurred claims and other directly attributable expenses 59.3 0.3 28.2 100.1 187.7 Change in risk adjustment for non-financial risk for the risk expired 1.9 0.1 0.9 2.4 5.3 CSM recognised for the services provided 4.6 0.3 7.0 9.0 20.9 Insurance acquisition cash flows recovery – – – 3.5 3.5 Insurance revenue for contracts not measured under the PAA 65.8 0.7 36.1 115.0 217.6 Insurance revenue for contracts measured under the PAA – 10.4 – – 10.4 Total insurance revenue 65.8 11.1 36.1 115.0 228.0 Insurance service expenses Incurred claims and other directly attributable expenses (50.8 ) (11.0 ) (30.4 ) (75.1 ) (167.3 ) Changes that relate to past service – changes in the FCF relating to the LIC – 3.6 – – 3.6 Losses on onerous contracts and reversals of those losses (14.9 ) – (7.4 ) (35.4 ) (57.7 ) Insurance acquisition cash flows amortisation – – – (3.4 ) (3.4 ) To t al i n su ra nc e s e r v i ce ex p en s e s ( 6 5.7 ) (7.4 ) (3 7.8 ) ( 1 1 3.9 ) ( 2 2 4. 8 ) Net income/(expenses) from reinsurance contracts held Reinsurance expenses (allocation of reinsurance premiums paid) – contracts not measured under the PAA Amounts relating to changes in the remaining coverage: Expected amount recoverable for claims and other insurance service expenses (23.8 ) – (5.0 ) (17.7 ) (46.5 ) Change in risk adjustment for non-financial risk for the risk expired (0.7 ) – (0.2 ) (1.3 ) (2.2 ) CSM recognised for the services received (0.5 ) – 2.2 (2.7 ) (1.0 ) Reinsurance expenses (allocation of reinsurance premiums paid) – contracts not measured under the PAA (25.0 ) – (3.0 ) (21.7 ) (49.7 ) Reinsurance expenses (allocation of reinsurance premiums paid) – contracts measured under the PAA – (2.5 ) – – (2.5 ) Amounts recoverable for incurred claims and other incurred insurance service expenses 19.5 3.2 3.4 17.3 43.4 Changes in amounts recoverable that relate to past service – adjustments to incurred claims – (1.3 ) – – (1.3 ) Recoveries of loss on recognition of onerous underlying contracts – – – 0.5 0.5 Recoveries of losses on onerous underlying contracts and reversals of such losses – – – 1.2 1.2 Total net expenses from reinsurance contracts held (5.5 ) (0.6 ) 0.4 (2.7 ) (8.4 ) To t al i n su ra nc e s e r v i ce r e su l t (5.4 ) 3 .1 (1.3 ) ( 1. 6 ) (5.2 ) 186 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS D2 Investment result In the tables that follow the investment return on surplus shareholder assets is included in the insurance contracts column. Net fair value gains and losses in respect of holdings in collective investment schemes are included in the line that is most appropriate taking into account the nature of the underlying investments. Year ended 31 December 2024 Investment Net Investment return Insurance contracts contracts UK Movestic Waard Scildon (without DPFs ) Chesnara plc Total £m £m £m £m £m £m £m Interest revenue from financial assets not measured at FVTPL – 0.5 0.7 – – – 1.2 Net gains on financial investments mandatorily measured as FVTPL 90.2 25.6 16.2 169.1 739.6 7.5 1,408.2 Net gains on financial investments designated as FVTPL 16.6 0.1 11.2 32.5 160.8 1.8 223.0 Net gains from fair value adjustments to investment properties 13.9 – – (0.2 ) – – 13.7 Total net investment return 120.7 26.2 28.1 201.4 900.4 9.3 1,286.1 Finance income/(expenses) from insurance contracts issued Change in fair value of underlying assets of contracts measured under the VFA (99.8 ) (22.8 ) (5.8 ) (170.6 ) – – (299.0 ) Interest accreted (1 9.5 ) (1.0 ) (30.0 ) ( 19.8 ) – – (70.3 ) Effect of changes in interest rates and other financial assumptions 20.2 0.2 7.8 1.5 – – 29.7 Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked in rates 0.5 – 4.8 (0.5 ) – – 4.8 Total finance income from insurance contracts issued (98.6 ) (23.6 ) (23.2 ) (189.4 ) – – (334.8 ) Finance income from reinsurance contracts held Interest accreted 8.6 0.4 – (1.1 ) – – 7.9 Effect of changes in interest rates and other financial assumptions (4.6 ) (0.1 ) – (0.1 ) – – (4.8 ) Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked in rates (0.9 ) – – 0.4 – – (0.5 ) Total finance expenses from reinsurance contracts held 3.1 0.3 – (0.8 ) – – 2.6 Ne t in s ur an ce fina nc e exp e n s es (9 5 .5 ) ( 23.3 ) (2 3 .2 ) (190 .2 ) – – ( 3 3 2.2 ) Net gains/losses on investment contract liabilities – – – – (740.4 ) – (740.4 ) Net gains/losses on liabilities relating to policyholder funds held by the Group – – – – (160.8 ) – (160.8 ) Net investment result 25.2 2.9 4.9 11.2 (0.8 ) 9.3 52.7 CHESNARAANNUALREPORTANDACCOUNTS2024187 IFRS FINANCIAL STATEMENTS SECTION D PERFORMANCE IN THE YEAR D2 Investment result (continued) Year ended 31 December 2023 Investment Net Investment return Insurance contracts contracts UK Movestic Waard Scildon (without DPFs ) Chesnara plc Total £m £m £m £m £m £m £m Interest revenue from financial assets not measured at FVTPL 6.8 0.9 0.5 – – 0.9 9.1 Net gains on financial investments mandatorily measured as FVTPL 63.0 18.1 21.4 129.6 527.7 6.3 766.1 Net gains on financial investments designated as FVTPL 41.9 – 37.6 51.7 115.8 – 247.0 Net gains from fair value adjustments to investment properties 1.2 – – – – – 1.2 Total net investment return 112.9 19.0 59.5 181.3 643.5 7.2 1,023.4 Finance income/(expenses) from insurance contracts issued Change in fair value of underlying assets of contracts measured under the VFA (75.4 ) – (5.1 ) (132.6 ) – – (213.1 ) Interest accreted (18.2 ) – (30.0 ) (19.1 ) – – (67. 3 ) Effect of changes in interest rates and other financial assumptions 2.4 (16.0 ) (21.2 ) (14.2 ) – – (49.0 ) Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked in rates 4.7 – 6.9 2.9 – – 14.5 Total finance income from insurance contracts issued (86.5 ) (16.0 ) (49.4 ) (163.0 ) – – (314.9 ) Finance income from reinsurance contracts held Interest accreted 8.8 – 0.1 (1.1 ) – – 7.8 Effect of changes in interest rates and other financial assumptions 1.5 0.7 – (1.6 ) – – 0.6 Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked in rates (1.0 ) – – (0.7 ) – – (1.7 ) Total finance expenses from reinsurance contracts held 9.3 0.7 0.1 (3.4 ) – – 6.7 Ne t in s ur an ce fina nc e exp e n s es (7 7. 2 ) ( 1 5.3 ) (49 .3 ) ( 1 6 6. 4 ) – – (30 8.2 ) Net gains/(losses) on investment contract liabilities – – – – (529.6 ) – (529.6 ) Net gains/(losses) on liabilities relating to policyholder funds held by the Group – – – – (113.9 ) – (113.9 ) Net investment result 35.7 3.7 10.2 14.9 – 7.2 71.7 D3 Fees, commission and other operating income Fund management-based fees recognised under IFRS 15 has been disaggregated based on the geographical region as follows: Year ended 31 December 2024 2023 Year ended 31 December £m £m 2024 2023 £m £m Policy-based fees 2.9 3.2 Fund management-based fees recognised under IFRS 15 44.1 45.5 UK 33.9 35.0 Change in deferred income – gross 0.2 0.6 Sweden 10.2 10.5 Commission income from investment contracts 22.4 20.4 Fee income from investment managers 1.3 1.3 Total fund management-based fees recognised under IFRS 15 44.1 45.5 Charges to policyholder funds for yield tax 30.8 17.9 Other types of operating income 2.5 0.5 Total fee, commission and other operating income 104.2 89.4 188 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS D4 Expenses by nature Year ended 31 December 2024 Insurance Other Other acquisition attributable operating cash flows expenses expenses Total Note £m £m £m £m Administrative expenses Personnel-related costs I1 2.7 13.6 26.8 43.1 Investment management fees – 2.4 1.3 3.7 Costs paid to third-party administrators – 10.6 2.4 13.0 Other goods and services 4.0 14.0 23.4 41.4 Depreciation charge on property and equipment 0.1 0.5 0.3 0.9 Depreciation of right-of-use assets – – 0.8 0.8 Amortisation charge on software assets – – 2.7 2.7 Sub-total 6.8 41.1 57.7 105.6 Commission, new business and renewal costs Insurance contracts – 3.8 – 3.8 Investment contracts – – 32.6 32.6 Sub-total – 3.8 32.6 36.4 Amortisation and Impairment of intangible assets Acquired value of in-force business – – 4.8 4.8 Deferred acquisition costs – – 7.7 7.7 Sub-total – – 12.5 12.5 Other expenses Payment of yield tax relating to policyholders funds – – 30.8 30.8 Other – 2.2 – 2.2 Sub-total – 2.2 30.8 33.0 Total 6.8 47.1 133.6 187.5 Expenses classed as ‘insurance acquisition cash flows’ in the table above are offset against the CSM on initial recognition. The ‘other attributable expenses’ are reported in the ‘Insurance service expense’ line in the income statement. CHESNARAANNUALREPORTANDACCOUNTS2024189 IFRS FINANCIAL STATEMENTS SECTION D PERFORMANCE IN THE YEAR D4 Expenses by nature (continued) Year ended 31 December 2023 – restated Insurance Other Other acquisition attributable operating cash flows expenses expenses Total Note £m £m £m £m Administrative expenses Personnel-related costs I1 2.2 13.6 25.4 41.2 Investment management fees – 2.3 1.3 3.6 Costs paid to third-party administrators – 9.5 3.9 13.4 Other goods and services 3.3 13.0 28.9 45.2 Depreciation charge on property and equipment 0.1 0.5 0.2 0.8 Depreciation of right-of-use assets – – 0.4 0.4 Amortisation charge on software assets – – 2.0 2.0 Sub-total 5.6 38.9 62.1 106.6 Commission, new business and renewal costs Insurance contracts – 3.8 – 3.8 Investment contracts – – 29.4 29.4 Sub-total – 3.8 29.4 33.2 Amortisation and Impairment of intangible assets Acquired value of in-force business – – 28.6 28.6 Deferred acquisition costs – – 7.6 7.6 Sub-total – – 36.2 36.2 Other expenses Payment of yield tax relating to policyholders funds – – 17.9 17.9 Other – 2.9 4.3 7.2 Sub-total – 2.9 22.2 25.1 Total 5.6 45.5 149.9 201.1 Included in other goods and services above are the following amounts payable to the auditor and its associates, exclusive of VAT. 190 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UK business Year ended 31 December 2024 2023 CA and other Group activities 2024 2023 £m £m Year ended 31 December £m £m Fees payable to the Company’s auditor for the audit of the Company’s Current tax financial statements 0.7 0.6 Current year expense 0.1 – Fees payable to the Company’s auditor and its associates for Overseas tax – (0.3 ) other services to the Group: The audit of the Company’s subsidiaries pursuant to legislation 2.4 1.9 Net expense 0.1 (0.3 ) Audit-related assurance services 0.2 2.0 Deferred tax Non-audit services – 0.1 Origination and reversal of temporary differences (17.4 ) 20.7 Adjustment to prior years 2.1 – Total 3.3 4.6 Total income tax credit (expense)/credit (15.2 ) 20.4 *Includes £1.0m (2023: £1.6m) audit fees in respect of the Movestic, Waard and Scildon audit in the year performed by EY. Includes £0.1m (2023: £0.1m) fees related to assurance services in respect of Waard and Scildon in Reconciliation of effective tax rate on profit before tax 2024 2023 Year ended 31 December £m £m the year performed by EY, £0.2m (2023: £0.2m) fees related to assurance services in respect of CASFS performed by Deloitte and £0.1m (2023: £0.1m) fees related to assurance services in respect Profit/(loss) before tax 2.1 (26.3 ) of Chesnara parent company performed by Deloitte. Income tax using the domestic corporation tax rate of 25.0% (2023: 23.5%) (0.5 ) 6.2 D5 Financing costs Non-taxable profit on acquisition of subsidiary (0.2 ) – Impact of small companies rate – (1.5 ) Year ended 31 December 2024 2023 Other permanent differences – (0.6 ) £m £m Effect of UK tax bases on insurance profits (15.8 ) (7.5 ) Offset of franked investment income 2.6 1.2 Interest expense on bank borrowings 1.0 0.7 Variation in rate of tax on amortisation of acquired in-force value 1.5 13.3 Interest expense on financial reinsurance 0.4 0.5 Foreign tax – (0.3 ) Interest expense on Tier 2 debt 9.7 9.8 Effect of deferred tax not recognised (4.8 ) 10.1 Effect of change in tax rate – (0.2 ) Total financing costs 11.1 11.0 Other 2.0 (0.3 ) Interest expense on bank borrowings and Tier 2 debt is calculated using the effective interest rate Total income tax credit (expense)/credit (15.2 ) 20.4 method and is the total interest expense for financial liabilities that are not designated at fair value through profit or loss. The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. D6 Income tax Total income tax comprises 2024 2023 Year ended 31 December £m £m CA and other Group activities – net credit (15.2 ) 20.4 Movestic (0.5 ) – Waard Group – net expense/credit 0.8 (1.6 ) Scildon – net (expense)/credit (2.0 ) (1.9 ) Total net credit (16.9 ) 16.9 CHESNARAANNUALREPORTANDACCOUNTS2024 191 IFRS FINANCIAL STATEMENTS SECTION D PERFORMANCE IN THE YEAR D6 Income tax (continued) Movestic Movestic 2024 2023 Reconciliation of effective tax rate on profit before tax 2024 2023 Year ended 31 December £m £m Year ended 31 December £m £m Current tax (Loss)/profit before tax (2.5 ) 14.7 Current year expense (0.5 ) – Income tax using the domestic corporation tax rate of 25.8% (2023: 25%) 0.7 (3.8 ) Net expenses (0.5 ) – Non-taxable fair value adjustment – 1.7 Deferred tax Temporary differences 0.1 1.0 Origination and reversal of temporary differences – – Reversal of temporary difference – (0.5 ) Total income tax expense (0.5 ) – Total income tax credit/(expense) 0.8 (1.6 ) Scildon Reconciliation of effective tax rate on profit before tax 2024 2023 Year ended 31 December £m £m Scildon 2024 2023 Year ended 31 December £m £m Profit before tax 10.4 5.4 Current tax – 4.8 Income tax using the domestic corporation tax rate of 20.6% (20.6%) (2.1 ) (1.1 ) Adjustments for prior year – – Non-taxable income in relation to unit-linked business 1.2 1.2 Unrecognised tax recoverable 0.8 (0.3 ) Net expense – 4.8 Non-deductible expenses 0.1 0.2 Deferred tax Under/(over) provided in prior years (0.5 ) – Origination and reversal of temporary differences (2.0 ) (6.7 ) Total income tax credit/(expense) (0.5 ) – Total income tax credit/(expense) (2.0 ) (1.9 ) Waard Group Reconciliation of effective tax rate on profit before tax 2024 2023 Waard Group 2024 2023 Year ended 31 December £m £m Year ended 31 December £m £m Loss before tax 7.5 7.5 Current tax Current year expense (0.9 ) (1.7 ) Income tax using the domestic corporation tax rate 25.8% (2023: 25%) (1.9 ) (1.9 ) Adjustment to prior years 0.6 4.7 Permanent differences 0.1 0.1 Temporary differences (0.1 ) (0.1 ) Net expenses (0.3 ) 3.0 Deferred tax Total income tax credit/(expense) (1.9 ) (1.9 ) Origination and reversal of temporary differences 1.1 (4.6 ) Total income tax credit/(expense) 0.8 (1.6 ) 192 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION E BALANCE SHEET ASSETS E1 Intangible assets Deferred acquisition costs Year ended 31 December 2024 Software Year ended 31 December 2024 2023 AVIF AVCR assets Total £m £m £m £m £m £m Balance at 1 January 50.6 51.2 Cost: Additions 9.2 8.3 Balance at 1 January 112.3 2.3 31.1 145.6 Amortisation charged to income (7.7 ) (7.6 ) Additions – – 2.1 2.1 Foreign exchange translation difference (3.6 ) (1.3 ) Foreign exchange translation difference – – (2.4 ) (2.3 ) Balance at 31 December 48.4 50.6 Balance at 31 December 112.3 2.3 30.8 145.4 Current 6.3 11.1 Amortisation and impairment losses: Non-current 42.1 39.5 Balance at 1 January 76.1 2.1 21.7 99.9 Amortisation for the year 4.7 – 2.7 7.4 Total 48.4 50.6 Impairment for the year – – – – Foreign exchange translation difference 1.0 – (1.7 ) (0.7 ) The amortisation charged to income is recognised in other operating expenses (see Note D4). Balance at 31 December 81.8 2.1 22.7 106.6 E2 Property and equipment Carrying amounts: 31 December 2024 2023 At 1 January 36.3 0.2 9.3 45.8 £m £m At 31 December 30.5 0.2 8.1 38.8 Cost: Balance at 1 January 20.6 19.0 Additions 0.8 1.9 Disposals (1.7 ) (0.3 ) Year ended 31 December 2023 Software Revaluation 0.7 0.3 AVIF AVCR assets Total Foreign exchange translation difference (0.8 ) (0.3 ) £m £m £m £m Balance at 31 December 19.6 20.6 Cost: Balance at 1 January 113.9 2.3 29.5 145.7 Amortisation and impairment losses: Additions – – 2.3 2.3 Balance at 1 January 12.2 11.1 Foreign exchange translation difference (1.6 ) – (0.7 ) (2.3 ) Depreciation charge for the year 1.7 0.8 Disposals (1.7 ) – Balance at 31 December 112.3 2.3 31.1 145.7 Foreign exchange translation difference (0.4 ) 0.3 Amortisation and impairment losses: Balance at 31 December 11.7 12.2 Balance at 1 January 48.5 2.1 20.2 70.8 Amortisation for the year 7.5 – 2.0 9.5 Carrying amounts at 31 December 7.9 8.4 Impairment for the year 21.0 – – 21.0 Foreign exchange translation difference (0.9 ) – (0.5 ) (1.4 ) The Group leases several assets including office buildings, office equipment, IT equipment and motor Balance at 31 December 76.1 2.1 21.7 99.9 vehicles. The average lease term is 3 years. Carrying amounts: At 1 January 65.4 0.2 9.3 74.9 At 31 December 36.3 0.2 9.3 45.8 Section A5 (i) provides further details of the significant judgements applied and the sensitivities to those judgements in respect of the AVIF assets held in regard to CASLP within the UK segment of £19.8m (31 December 2023: £22.9m) and also in Movestic of £10.7m (31 December 2023: £13.4m). The AVCR asset and the software assets are held in respect of Movestic. The amortisation charged to the Consolidated Statement of Comprehensive Income is recognised in other operating expenses (see Note D4). CHESNARAANNUALREPORTANDACCOUNTS2024193 IFRS FINANCIAL STATEMENTS SECTION E BALANCE SHEET ASSETS E2 Property and equipment (continued) E4 Financial investments (a) Financial investments by classification Right-of-use assets Non-investment 2024 The carrying amounts of the financial investments and other financial assets and liabilities held by property Other Total the Group at the balance sheet date are as follows: £m £m £m 31 December 2024 Amortised FVTPL – FVTPL – Carrying amounts at 1 January 1.1 0.2 1.3 cost designated mandatory Total Additions 0.1 – 0.1 £m £m £m £m Depreciation charge (0.6 ) (0.2 ) (0.8 ) Financial investments Carrying amounts at 31 December 0.6 – 0.6 Equity securities – – 191.5 191.5 Holdings in collective investment schemes – – 8,661.6 8,661.6 Amounts recognised in profit or loss are not considered to be material. Debt securities – government bonds – 446.1 – 446.1 Debt securities – other – 634.7 10.1 644.8 Policyholder funds help by the Group – 1,825.8 – 1,825.8 Right-of-use assets Non-investment 2023 Mortgage loan portfolio – 346.9 – 346.9 property Other Total £m £m £m Total – 3,253.5 8,863.2 12,116.7 Carrying amounts at 1 January 1.2 0.1 1.3 Derivatives and other financial assets Additions – 0.8 0.8 Amounts deposited with reinsurer – 34.3 – 34.3 Depreciation charge (0.4 ) (0.4 ) (0.8 ) Derivative financial instruments – – 0.1 0.1 Foreign exchange translation difference 0.3 (0.3 ) – Other assets 68.7 – – 68.7 Cash and cash equivalents – 138.0 – 138.0 Carrying amounts at 31 December 1.1 0.2 1.3 Total financial investments and financial assets 68.7 3,425.8 8,863.3 12,357.8 Amounts recognised in profit or loss are not considered to be material. Financial liabilities E3 Investment properties Investment contracts at fair value through profit or loss – 6,116.7 – 6,116.7 31 December 2024 2023 Liabilities relating to policyholder funds £m £m help by the Group – 1,825.5 – 1,825.5 Derivative financial instruments – – 0.6 0.6 Balance at 1 January 88.1 94.5 Borrowings 204.8 – – 204.8 Additions 3.4 2.3 Other current liabilities 129.7 – – 129.7 Disposals (7.9 ) (6.0 ) Revaluation 8.1 (2.7 ) Total financial liabilities 334.5 7,942.2 0.6 8,277.3 Balance at 31 December 91.7 88.1 Investment properties were bought for investment purposes in line with the investment strategy of the Group. Detail on the property types and the frequency of valuations is provide in Note A4(k). There is no observable input and therefore they are classed as Level 3 in the fair value hierarchy, see Note E4(b). The revaluation is disclosed within net investment return (see Note D2). Expenses incurred in the operation and maintenance of investment properties are disclosed within other operating expenses (see Note D4). Rental income from investment properties was £6.9m for the year (2023: £6.8m). Operating expenses incurred on investment properties was £0.6m for the year (2023: £1.0m). 194 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2023 Amortised FVTPL – FVTPL – Fair value measurement at Level 1 Level 2 Level 3 Total cost designated mandatory Total 31 December 2024 £m £m £m £m £m £m £m £m Investment properties – – 91.7 91.7 Financial investments Financial assets Equity securities – – 194.2 194.2 Equities – Listed 191.5 – – 191.5 Holdings in collective investment schemes – – 8,376.2 8,376.2 Holdings in collective investment schemes 8,454.1 38.9 168.6 8,661.6 Debt securities – government bonds – 716.5 – 716.5 Debt securities – government bonds 446.1 – – 446.1 Debt securities – other – 520.6 – 520.6 Debt securities – other debt securities 644.8 – – 644.8 Policyholder funds help by the Group – 1,281.8 – 1,281.8 Policyholders’ funds held by the Group 1,781.6 – 44.2 1,825.8 Mortgage loan portfolio – 366.8 – 366.8 Mortgage loan portfolio – 346.9 – 346.9 Amounts deposited with reinsurers – 34.3 – 34.3 Total – 2,885.7 8,570.4 11,456.1 Derivative financial instruments – 0.1 – 0.1 Derivatives and other financial assets Total 11,518.1 420.2 304.5 12,242.8 Amounts deposited with reinsurers – 32.5 – 32.5 Derivative financial instruments – – 0.3 0.3 Financial liabilities Other assets 57.7 – – 57.7 Investment contracts at fair value through Cash and cash equivalents – 146.0 – 146.0 profit or loss – 6,116.7 – 6,116.7 Liabilities related to policyholders’ funds Total financial investments and financial assets 57.7 3,064.2 8,570.7 11,692.6 held by the Group – 1,825.5 – 1,825.5 Derivative financial instruments – 0.6 – 0.6 Financial liabilities Investment contracts at fair value through Total – 7,942.8 – 7,942.8 profit or loss – 5,872.3 – 5,872.3 Liabilities relating to policyholder funds help by the Group – 1,281.8 – 1,281.8 Derivative financial instruments – – 4.4 4.4 Fair value measurement at Level 1 Level 2 Level 3 Total Borrowings 207.9 – – 207.9 31 December 2023 £m £m £m £m Other current liabilities 131.7 – – 131.7 Investment properties – – 88.1 88.1 Total financial liabilities 339.6 7,154.1 4.4 7,498.1 Financial assets Equities – Listed 194.2 – – 194.2 Holdings in collective investment schemes 8,189.2 44.5 142.5 8,376.2 Debt securities – government bonds 716.5 – – 716.5 (b) Financial investment fair values Debt securities – other debt securities 520.6 – – 520.6 Fair value is the amount for which an asset or liability could be exchanged between willing parties Policyholders’ funds held by the Group 1,239.4 – 42.4 1,281.8 in an arm’s length transaction. The tables below show the determination of fair value according Mortgage loan portfolio – 366.8 – 366.8 to a three-level valuation hierarchy. Fair values are generally determined at prices quoted in active Amounts deposited with reinsurers – 32.5 – – markets (Level 1). However, where such information is not available, the Group applies valuation Derivative financial instruments – 0.3 – 0.3 techniques to measure such instruments. These valuation techniques make use of market-observable data for all significant inputs where possible (Level 2), but in some cases it may be necessary to Total 10,859.9 444.1 273.0 11,577.0 estimate other than market-observable data within a valuation model for significant inputs (Level 3). Financial liabilities Investment contracts at fair value through profit or loss – 5,872.3 – 5,872.3 Liabilities related to policyholders’ funds held by the Group 1,281.8 – – 1,281.8 Derivative financial instruments – 4.4 – 4.4 Total 1,281.8 5,876.7 – 7,158.5 CHESNARAANNUALREPORTANDACCOUNTS2024195 IFRS FINANCIAL STATEMENTS SECTION E BALANCE SHEET ASSETS E4 Financial investments (continued) Investment contract liabilities (b) Financial investment fair values (continued) The investment contract liabilities in Level 2 of the valuation hierarchy represent the fair value Investment properties of linked and non-linked liabilities valued using established actuarial techniques utilising mark et The investment properties are valued by external chartered surveyors using industry standard observable data for all significant inputs, such as investment yields. techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions Significant unobservable inputs in Level 3 instruments valuations and takes account of expectations of occupancy rates, rental income and growth. Properties The Level 3 instruments held in the Group are in relation to investments held in an Aegon manag ed undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital Dutch Mortgage Fund that contains mortgage-backed assets in the Netherlands. The fair value expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both of the mortgage fund is determined by the fund manager on a monthly basis using an in-hou se observable and unobservable inputs. valuation model. The valuation model relies on a number of unobservable inputs, the most significant being the assumed conditional prepayment rate, the discount rate and the impairme nt Holdings in collective investment schemes rate, all of which are applied to the anticipated modelled cash flows to derive the fair value of the The holdings classified as Level 3 £168.6m (Dec 2023: £142.5m) also relate to Scildon, and underlying asset. represent investments held in a mortgage fund. These are classified as Level 3 as the fair The assumed Conditional Prepayment Rate (CPR) is used to calculate the projected prepayme nt value is derived from valuation techniques that include inputs that are not based on observable cash flow per individual loan and reflects the anticipated early repayment of mortgage balances . market data. The CPR is based on four variables: Policyholder funds held by the Group – Contract age – The CPR for newly originated mortgage loans will initially be low, after which There is also a small holding of assets classified as Level 3 £44.2m (Dec 2023: £42.4m) from it increases for a couple of years to its maximum expected value, and subsequently diminishes our Movestic operation which are unlisted. The valuation of the vast majority of these assets over time. is based on unobservable prices from trading on the over-the-counter market. – Interest rate differential – The difference between the contractual rates and current interest rate s are positively correlated with prepayments. When contractual rates are higher than interest rat es Debt securities of newly originated mortgages, we observe more prepayments and the vice versa. The debt securities classified as Level 2 at 2023 and 2024 are traded in active markets with less depth or wider bid-ask spreads. This does not meet the classification as Level 1 inputs. The fair – Previous partial repayments – Borrowers who made a partial prepayment in the past, are more lik ely values of debt securities not traded in active markets are determined using broker quotes or to do so in the future. valuation techniques with observable market inputs. Financial instruments valued using broker – Burnout effect – Borrowers who have not made a prepayment in the past, while their option to prep ay quotes are classified at Level 2, only where there is a sufficient range of available quotes. was in the money, are less likely to prepay in the future. These assets were valued using counterparty or broker quotes and were periodically validated The projected prepayment cash flows per loan are then combined to derive an average expected against third-party models. lifetime CPR, which is then applied to the outstanding balance of the fund. The CPR used in t he valuation of the fund as at 31 December 2024 was 3.7% (31 December 2023: 3.2%). Derivative financial instruments The derivatives financial instruments include a foreign currency hedge related to the Group. The expected projected cash flows for each mortgage within the loan portfolio are discounted usi ng This was obtained to manage the exposure to foreign exchange movements between sterling rates that are derived using a matrix involving the following three parameters: and both the euro and Swedish krona. – The remaining fixed rate term of the mortgage It includes an uncapped collar which consists of two hedges: – Indexed Loan to Value (LTV) of each mortgage – one hedge to protect against the downside (sterling strengthening) (starting at strike A), and one – Current (Aegon) mortgage rates to remove the upside (weakening) (strike B); with the strikes of these coordinated to result in no upfront premium. At 31 December 2024 this resulted in discounting the cash flows in each mortgage using a ran ge from 4.06% to 4.26% (31 December 2023: 4.67% to 4.68%). – the second hedge (strike B) creates an uncapped liquidity requirement when it bites. An impairment percentage is applied to those loan cash flows which are in arrears, to reflect the The capped collar comes with an additional leg which creates value and liquidity when exchange chance of the loan actually going into default. For those loans which are 1, 2 or 3 months in arrea rs, rates move beyond a certain point (strike C). an impairment percentage is applied to reflect the chance of default. This percentage ranges from Within derivative financial instruments is a financial reinsurance embedded derivative related 0.60% for 1 month in arrears to 13.70% for loans which are 3 months in arrears (31 December 20 23: to our Movestic operation. The Group has entered into a reinsurance contract with a third party 0.60% for 1 month in arrears to 13.70% for loans which are 3 months in arrears). Loans which are that has a section that is deemed to transfer significant insurance risk and a section that is in default receive a 100% reduction in value. deemed not to transfer significant insurance risk. The element of the contract that does not The value of the fund has the potential to decrease or increase over time. This can be as a transfer significant insurance risk has two components and has been accounted for as a consequence of a periodic reassessment of the conditional prepayment rate and/or the discount financial liability at amortised cost and an embedded derivative asset at fair value. rate used in the valuation model. The embedded derivative represents an option to repay the amounts due under the contract early A 1 percent increase in the CPR would increase the value of the asset by £2.0m at a discount to the amortised cost, with its fair value being determined by reference to market (31 December 2023: £1.9m). interest rate at the balance sheet date. It is, accordingly, determined at Level 2 in the three-level fair value determination hierarchy set out above. Further detail can be found in Note E5. A 1 percent decrease in the CPR would reduce the value of the asset by £2.2m (31 December 2023: £2.1m). 196 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A 1 percent increase in the discount rate would reduce the value of the asset by £15.3m The fair value of the Tier 2 debt is calculated using quoted prices in active markets and they are (31 December 2023: £11.4m). classified as Level 1 in the fair value hierarchy. The amount due in relation to financial reinsurance is fair valued with reference to market interest rates at the balance sheet date and is classed as A 1 percent decrease in the discount rate would increase the value of the asset by £17.5m Level 2 in the fair value hierarchy. (31 December 2023: £13.3m). There were no transfers between Levels 1, 2 and 3 during the year. The Group holds no Level 3 Reconciliation of Level 3 fair value measurements of financial instruments liabilities as at the balance sheet date. Level 3 movement E5 Derivative financial instruments 31 December 2024 Holdings in A currency hedge is held in the Parent Company in order to manage the exposure to foreign collective Policyholder exchange movements between sterling and both the euro and Swedish krona. The currency hedge Investment investment funds held is classed as Level 2 (2023: Level 2) in the three-level fair value determination hierarchy set out in properties schemes by Group Total Note E4(b). £m £m £m £m There are also derivatives held within the unit-linked and with-profits funds, except for an option At start of period 88.1 142.5 42.4 273.0 to repay a financial reinsurance contract early, which comprises an embedded derivative. Additions – acquisition of subsidiary – – – – Total gains and losses recognised in 31 December 2024 2023 the income statement 8.1 33.5 1.9 43.5 Asset Liability Asset Liability Purchases 3.4 – 17.0 20.4 £m £m £m £m Settlements (7.9 ) – (13.9 ) (21.8 ) Exchange rate adjustment – (7.4 ) (3.2 ) (10.6 ) Exchange-traded futures – (0.3 ) 0.2 – Foreign currency hedge – (0.3 ) – (4.4 ) At the end of period 91.7 168.6 44.2 304.5 Financial reinsurance embedded derivative 0.1 – 0.1 – Total 0.1 (0.6 ) 0.3 (4.4 ) 31 December 2023 Holdings in Current 0.1 (0.6 ) 0.3 (4.4 ) collective Policyholder Non-current – – – – Investment investment funds held properties schemes by Group Total Total 0.1 (0.6 ) 0.3 (4.4 ) £m £m £m £m Derivatives within unit-linked funds At start of period 93.3 145.4 35.1 273.8 As part of its investment management strategy, the Group purchases derivative financial instruments Additions – acquisition of subsidiary – – – – Total gains and losses recognised in as part of its investment portfolio for unit-linked investment funds, which match the liabilities arising the income statement (2.7 ) 0.5 (6.4 ) (8.6 ) on its unit-linked insurance and investment business. Purchases 2.3 – 20.5 22.8 A variety of equity futures are part of the portfolio matching the unit-linked investment and Settlements (4.8 ) – (6.0 ) (10.8 ) insurance liabilities. Derivatives are used to facilitate more efficient portfolio management allowing Exchange rate adjustment – (3.4 ) (0.8 ) (4.2 ) changes in investment strategy to be reflected by futures transactions rather than a high volume At the end of period 88.1 142.5 42.4 273.0 of transactions in the underlying assets. All the contracts in the unit-linked funds are exchange-traded futures, with their fair value being the bid price at the balance sheet date. They are, accordingly, determined at Level 1 in the three-level 31 December Carrying amount Fair value fair value determination hierarchy set out in Note E4(b). 2024 2023 2024 2023 £m £m £m £m Exchange-traded futures 2024 2023 (by geographical investment market) Asset Liability Asset Liability Financial liabilities 31 December £m £m £m £m Borrowings 200.8 200.6 166.1 148.4 Amounts due in relation to Japan – – 0.2 – financial reinsurance 2.4 5.3 2.3 5.1 USA – (0.2 ) – – Term finance 1.6 2.0 1.6 1.9 Total – (0.2 ) 0.2 – Total 204.8 207.9 170.0 155.4 CHESNARAANNUALREPORTANDACCOUNTS2024197 IFRS FINANCIAL STATEMENTS SECTION E BALANCE SHEET ASSETS E5 Derivative financial instruments (continued) E7 Cash and cash equivalents Financial reinsurance embedded derivative In respect of Movestic, the Group has a reinsurance contract with a third party that has an element 31 December 2024 2023 £m £m that is deemed to transfer significant insurance risk and an element that is deemed not to transfer significant insurance risk. This assessment has been determined by management based on the Bank and cash balances 127.4 135.7 contractual terms of the reinsurance agreement. The element of the contract that does not transfer Call deposits due after 1 month 10.6 10.3 significant insurance risk has two components and has been accounted for as a financial liability at amortised cost and an embedded derivative at fair value. Total cash and cash equivalents 138.0 146.0 The embedded derivative represents an option to repay the amounts due under the contract early Bank overdrafts (0.8 ) (0.2 ) at a discount to the amortised cost, with its fair value being determined by reference to market interest rates at the balance sheet date. It is, accordingly, determined at Level 2 in the three-level Cash and cash equivalents in the statement of cash flows 137.2 145.8 fair value determination hierarchy set out in Note E4(b). Deposits are subject to a combination of fixed and variable interest rates, with an average maturity Derivatives within CA (S&P with-profits funds) of 95 days (2023: 95 days). As part of its investment management strategy, CA enters into a limited range of derivative instruments to manage its exposure to various risks. Included in cash and cash equivalents held by the Group are balances totalling £69.7m (2023: £52.6m) held in unit-linked policyholders’ funds. CA uses equity index futures in order to economically hedge equity market risk in the with-profit funds’ investments. The following tables show the changes in liabilities arising from financing activities in the year. These liabilities are measured at amortised cost. The change in fair value of the futures contracts is intended to offset the change in fair value of the underlying equities being hedged. CA settles the market value of the futures contracts on a daily 31 December Foreign basis by paying or receiving a variation margin. The futures contracts are not discounted as this daily Financing exchange Other settlement is equal to the change in fair value of the futures. As a result, there is no additional fair 1 Jan cash translation changes 31 Dec value to recognise in relation to these derivatives on the balance sheet at the year end. 2024 flows (i) differences (ii) 2024 £m £m £m £m £m CA also purchases exchange rate futures to mitigate exchange rate risk within its with-profits funds. Tier 2 debt 200.6 (9.5 ) – 9.7 200.8 These contracts are exchange-traded contracts in active markets with their fair value being the Financial reinsurance 5.3 (2.6 ) (0.7 ) 0.4 2.4 bid price at the balance sheet date. They are, accordingly, determined at Level 1 in the three-level Lease liabilities 1.2 (0.3 ) (0.3 ) – 0.6 fair value determination hierarchy set out in Note E4(b). Total 207.1 (12.4 ) (1.0 ) 10.1 203.8 E6 Other assets 31 December 2024 2023 £m £m 31 December Foreign Financing exchange Other Receivables arising from investment contracts 1 Jan cash translation changes 31 Dec Reinsurers share of accrued policyholder claims 1.9 1.9 2023 flows (i) differences (ii) 2023 Receivables from policyholders 6.3 3.5 £m £m £m £m £m Commission receivables 0.1 0.1 Tier 2 debt 200.4 – – 0.2 200.6 Sub-total 8.3 5.5 Financial reinsurance 9.6 (3.9 ) (0.4 ) – 5.3 Lease liabilities 1.2 (0.6 ) (0.1 ) 0.7 1.2 Other receivables Accrued interest income 10.2 10.2 Total 211.2 (4.5 ) (0.5 ) 0.9 207.1 Receivables from fund management companies 3.4 3.3 Prepayments 12.5 13.7 (i) The cash flows from bank loans and other borrowings make up the net amount of proceeds from Income tax balances 21.1 16.4 borrowings and repayments of borrowings in the cash flow statement. Other 13.1 8.6 (ii) Other changes include interest accruals. Sub-total 60.3 52.2 Total 68.6 57.7 Current 66.5 54.9 Non-current 2.1 2.8 Total 68.6 57.7 198 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F1 Insurance and reinsurance contracts 31 December 2023 – restated Waard The following notes provide a quantitative analysis of the insurance and reinsurance contract Movestic Group Scildon assets and liabilities and are disaggregated by the IFRS 8 operating segments. This disaggregation (UK ) (Sweden ) (N etherlands ) (Netherlands ) Total has been chosen for the following notes because it is management’s view that together with the £m £m £m £m £m information in the underwriting risk section, it provides the most relevant information for assessing the effect that contracts within the scope of IFRS 17 have on the entity’s financial performance Insurance contracts and position. Insurance contract liabilities 1,383.0 171.8 785.3 1,862.9 4,203.0 Insurance contract assets (3.9 ) – – – (3.9 ) (a) Composition of the balance sheet Net insurance The following tables show the breakdown of the insurance and reinsurance contract assets and contract liabilities 1,379.1 171.8 785.3 1,862.9 4,199.1 liabilities for each of the operating segments within Chesnara. Note A4(a)(i) provides details regarding broad product groups and measurement models. Note B2 provides details for the values Reinsurance contracts of insurance and reinsurance contracts for the broad product groups within each segment. Reinsurance contract assets 166.8 14.5 4.4 – 185.7 Reinsurance contract liabilities (2. 2 ) – – (14 .9 ) (17.1 ) 31 December 2024 Waard Movestic Group Scildon Net reinsurance (UK ) (Sweden ) (N etherlands ) (Netherlands ) Total contract assets 164.6 14.5 4.4 (14.9 ) 168.6 £m £m £m £m £m Insurance contracts Current Non-current Total Insurance contract liabilities 1,308.5 174.1 720.4 1,896.1 4,099.1 £m £m £m Insurance contract assets (1.8 ) – – – (1.8 ) Insurance contract liabilities 672.1 3,530.9 4,203.0 Net insurance Insurance contract assets – (3.9 ) (3.9 ) contract liabilities 1,306.7 174.1 720.4 1,896.1 4,097.3 Reinsurance contract assets 29.1 156.6 185.7 Reinsurance contract liabilities 2.1 (19.2 ) (17.1 ) Reinsurance contracts Reinsurance contract assets 154.8 12.4 2.7 – 169.9 The prior year non-current and current insurance liabilities have been restated in respect of Scildon. Reinsurance contract liabilities (2 .0 ) – – (14.6 ) (16 .6 ) (b) Fair value of underlying items Net reinsurance The following table shows the fair value of the underlying items of the Group’s direct participating contract assets 152.8 12.4 2.7 (14.6 ) 153.3 contracts for each reporting segment. Current Non-current Total Waard £m £m £m Movestic Group Scildon (UK ) (Sweden ) (N etherlands ) (Netherlands ) Total Insurance contract liabilities 730.5 3,368.6 4,099.1 £m £m £m £m £m Insurance contract assets (1.8 ) – (1.8 ) Reinsurance contract assets 29.9 140.0 169.9 Fair value of underlying items Reinsurance contract liabilities 0.5 (17.1 ) (16.6 ) as at 31 December 2024 711.0 142.4 54.9 1,322.8 2,231.1 Fair value of underlying items as at 31 December 2023 816.9 132.3 65.2 1,238.7 2,253.1 Composition of underlying items The majority of the fair value of underlying items across the Group are held in collective investment schemes. A small proportion is held in equities, debt securities and in cash and deposits . CHESNARAANNUALREPORTANDACCOUNTS2024199 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F2 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – UK (a) Insurance contract balances – analysis by remaining coverage and incurred claims Liabilities for remaining coverage Excluding Liabilities loss Loss for incurred component component claims Total £m £m £m £m Insurance contract liabilities as at 1 January 2024 1,301.1 12.4 65.6 1,379.1 Changes in the statement of profit and loss Insurance revenue Contracts measured under the fair value approach (58.1 ) – – (58.1 ) Contracts measured under the full retrospective approach (13.2 ) – – (13.2 ) Insurance revenue total (71.3 ) – – (71.3 ) Insurance service expenses Incurred claims and other directly attributable expenses – (1.8 ) 62.3 60.5 Losses and reversals of losses on onerous contracts – 4.4 – 4.4 Insurance service expense total – 2.6 62.3 64.9 Insurance service result (71.3 ) 2.6 62.3 (6.4 ) Net finance expenses from insurance contracts 98.5 0.1 – 98.6 Total amounts recognised in comprehensive income 27.2 2.7 62.3 92.2 Investment components (135.7 ) – 135.7 – Cash flows Premiums received 35.3 – – 35.3 Claims and other directly attributable expenses paid – – (197.7 ) (197.7 ) Acquisitions 9.7 – (11.9 ) (2.2 ) Total cash flows 45.0 – (209.6 ) (164.6 ) Insurance contract liabilities as at 31 December 2024 1,237.6 15.1 54.0 1,306.7 200 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Restated Liabilities for remaining coverage Excluding Liabilities loss Loss for incurred component component claims Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 1,382.3 – 65.3 1,447.6 Changes in the statement of profit and loss Insurance revenue Contracts measured under the fair value approach (57.5 ) – – (57.5 ) Contracts measured under the full retrospective approach (8.3 ) – – (8.3 ) Insurance revenue total (65.8 ) – – (65.8 ) Insurance service expenses Incurred claims and other directly attributable expenses 0.2 (2.5 ) 53.1 50.8 Losses and reversals of losses on onerous contracts – 14.9 – 14.9 Insurance service expense total 0.2 12.4 53.1 65.7 Insurance service result (65.6 ) 12.4 53.1 (0.1 ) Net finance expenses from insurance contracts 86.5 – – 86.5 Total amounts recognised in comprehensive income 20.9 12.4 53.1 86.4 Investment components (131.0 ) – 131.0 – Cash flows Premiums received 37.9 – – 37.9 Claims and other directly attributable expenses paid – – (183.8 ) (183.8 ) Acquisitions (9.0 ) – – (9.0 ) Total cash flows 28.9 – (183.8 ) (154.9 ) Insurance contract liabilities as at 31 December 2023 1,301.1 12.4 65.6 1,379.1 There is no PAA business in the UK segment. Note A5(a) sets out the fair value methodology applied at transition that has been applied for the CA contracts in the UK. CHESNARAANNUALREPORTANDACCOUNTS2024201 IFRS FINANCIAL STATEMENTS SEC SECTION TIONF F INSUR INSURANCE ANCEAND ANDREINSU REINSUR RANCE ANCECONT CONTR RA AC CTS TS F2 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – UK (continued) (b) Insurance contract balances – analysis by measurement component – contracts not measured under PAA CSM (new contracts and CSM Present value contracts (contracts of future Risk measured measured cash flows adjustment under FRA ) under FVA ) Total £m £m £m £m £m Insurance contract liabilities as at 1 January 2024 1,340.9 12.5 3.2 22.5 1,379.1 Changes that relate to current service CSM recognised for services provided – – (0.1 ) (3.8 ) (3.9 ) Change in risk adjustment for non-financial risk for risk expired – (1.8 ) – – (1.8 ) Experience adjustments (5.0 ) – – – (5.0 ) Revenue recognised for incurred policyholder tax expenses – – – – – Total changes that relate to current service (5.0 ) (1.8 ) (0.1 ) (3.8 ) (10.7 ) Changes that relate to future service Contracts initially recognised in the period (0.8 ) 0.1 0.7 – – Changes in estimates that adjust the CSM (6.2 ) (4.9 ) (2.8 ) 13.9 – Changes in estimates that result in losses or reversals of losses on onerous underlying contracts 4.3 – – – 4.3 Total changes that relate to future service (2.7 ) (4.8 ) (2.1 ) 13.9 4.3 Ins u ran c e s erv i ce res ul t (7.7 ) (6 . 6 ) ( 2.2 ) 1 0 . 1 (6 .4 ) Net finance expenses from insurance contracts 96.6 1.1 0.3 0.6 98.6 Total amounts recognised in comprehensive income 88.9 (5.5 ) (1.9 ) 10.7 92.2 Cash flows Premiums received 35.3 – – – 35.3 Claims and other directly attributable expenses paid (197.7 ) – – – (197.7 ) Acquisitions (2.2 ) – – – (2.2 ) Total cash flows (164.6 ) – – – (164.6 ) Insurance contract liabilities as at 31 December 2024 1,265.2 7.0 1.3 33.2 1,306.7 The contracts initially recognised in the period relate to the acquisition of the unit-linked bond and pension portfolio from Canada Life. 202 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Restated CSM (new contracts and CSM Present value contracts (contracts of future Risk measured measured cash flows adjustment under FRA ) under FVA ) Total £m £m £m £m £m Insurance contract liabilities as at 1 January 2023 1,397.1 13.2 1.1 36.2 1,447.6 Changes that relate to current service CSM recognised for services provided – – (1.5 ) (3.1 ) (4.6 ) Change in risk adjustment for non-financial risk for risk expired – (2.0 ) – – (2.0 ) Experience adjustments (8.3 ) – – – (8.3 ) Revenue recognised for incurred policyholder tax expenses (0.1 ) – – – (0.1 ) Total changes that relate to current service (8.4 ) (2.0 ) (1.5 ) (3.1 ) (15.0 ) Changes that relate to future service Contracts initially recognised in the period (1.7 ) 0.2 1.5 – – Changes in estimates that adjust the CSM 9.0 0.5 1.8 (11.3 ) – Changes in estimates that result in losses or reversals of losses on onerous underlying contracts 14.9 – – – 14.9 Total changes that relate to future service 22.2 0.7 3.3 (11.3 ) 14.9 Insurance service result 13.8 (1.3 ) 1.8 (14.4 ) (0.1 ) Net finance expenses from insurance contracts 84.9 0.6 0.3 0.7 86.5 Total amounts recognised in comprehensive income 98.7 (0.7 ) 2.1 (13.7 ) 86.4 Cash flows Premiums received 37.9 – – – 37.9 Claims and other directly attributable expenses paid (183.8 ) – – – (183.8 ) Acquisitions (9.0 ) – – – (9.0 ) Total cash flows (154.9 ) – – – (154.9 ) Insurance contract liabilities as at 31 December 2023 1,340.9 12.5 3.2 22.5 1,379.1 The contracts initially recognised in the period relate to the acquisition of the term assurance portfolio from Canada Life. CHESNARAANNUALREPORTANDACCOUNTS2024203 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F2 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – UK (continued) (c) Reinsurance contract balances – analysis by remaining coverage and incurred claims Assets for Assets for remaining incurred coverage claims Total £m £m £m Reinsurance contract assets as at 1 January 2024 150.8 13.8 164.6 Reinsurance expenses – allocation of reinsurance premiums paid (23.9 ) – (23.9 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – 23.0 23.0 Net (expenses)/income from reinsurance contracts held (23.9 ) 23.0 (0.9 ) Net finance expenses from reinsurance contracts 3.1 – 3.1 Total amounts recognised in comprehensive income (20.8 ) 23.0 2.2 Investment components (2.8 ) 2.8 – Cash flows Premiums paid 11.4 – 11.4 Recoveries from reinsurance contracts held – (25.4 ) (25.4 ) Total cash flows 11.4 (25.4 ) (14.0 ) Reinsurance contract assets as at 31 December 2024 138.6 14.2 152.8 Assets for Assets for remaining incurred coverage claims Total £m £m £m Reinsurance contract assets as at 1 January 2023 156.6 16.0 172.6 Reinsurance expenses – allocation of reinsurance premiums paid (25.0 ) – (25.0 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – 19.5 19.5 Net (expenses)/income from reinsurance contracts held (25.0 ) 19.5 (5.5 ) Net finance expenses from reinsurance contracts 9.3 – 9.3 Total amounts recognised in comprehensive income (15.7 ) 19.5 3.8 Investment components (2.6 ) 2.6 – Cash flows Premiums paid 12.5 – 12.5 Recoveries from reinsurance contracts held – (24.3 ) (24.3 ) Total cash flows 12.5 (24.3 ) (11.8 ) Reinsurance contract assets as at 31 December 2023 150.8 13.8 164.6 204 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (d) Reinsurance contract balances – analysis by measurement component – contracts not measured under PAA CSM (new contracts and CSM Present value contracts (contracts of future Risk measured measured cash flows adjustment under FRA ) under FVA ) Total £m £m £m £m £m Reinsurance contract assets as at 1 January 2024 155.6 3.0 0.4 5.6 164.6 Changes that relate to current service CSM recognised for services received – – – (0.3 ) (0.3 ) Change in risk adjustment for non-financial risk for risk expired – (0.6 ) – – (0.6 ) Experience adjustments 0.1 – – – 0.1 Total changes that relate to current service 0.1 (0.6 ) – (0.3 ) (0.8 ) Changes that relate to future service Changes in estimates that adjust the CSM 0.8 – – (0.9 ) (0.1 ) Total changes that relate to future service 0.8 – – (0.9 ) (0.1 ) Net (expense)/income from reinsurance contracts held 0.9 (0.6 ) – (1.2 ) (0.9 ) Net finance income from reinsurance contracts held 3.0 – – 0.1 3.1 Total amounts recognised in comprehensive income 3.9 (0.6 ) – (1.1 ) 2.2 Cash flows Premiums paid 11.3 – – – 11.3 Recoveries from reinsurance contracts held (25.3 ) – – – (25.3 ) Total cash flows (14.0 ) – – – (14.0 ) Reinsurance contract assets as at 31 December 2024 145.5 2.4 0.4 4.5 152.8 CHESNARAANNUALREPORTANDACCOUNTS2024205 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F2 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – UK (continued) (d) Reinsurance contract balances – analysis by measurement component – contracts not measured under PAA (continued) CSM (new contracts and CSM Present value contracts (contracts of future Risk measured measured cash flows adjustment under FRA ) under FVA ) Total £m £m £m £m £m Reinsurance contract assets as at 1 January 2023 161.1 3.1 0.5 7.9 172.6 Changes that relate to current service CSM recognised for services received – – – (0.5 ) (0.5 ) Change in risk adjustment for non-financial risk for risk expired – (0.7 ) – – (0.7 ) Experience adjustments (4.3 ) – – – (4.3 ) Total changes that relate to current service (4.3 ) (0.7 ) – (0.5 ) (5.5 ) Changes that relate to future service Changes in estimates that adjust the CSM 1.5 0.5 (0.1 ) (1.9 ) – Total changes that relate to future service 1.5 0.5 (0.1 ) (1.9 ) – Ne t (exp e ns e)/ i n co me fro m re in s ur an ce con tr act s hel d (2.8 ) ( 0 .2 ) (0 .1 ) (2. 4 ) ( 5.5 ) Net finance income from reinsurance contracts held 9.1 0.1 – 0.1 9.3 Total amounts recognised in comprehensive income 6.3 (0.1 ) (0.1 ) (2.3 ) 3.8 Cash flows Premiums paid 12.5 – – – 12.5 Recoveries from reinsurance contracts held (24.3 ) – – – (24.3 ) Total cash flows (11.8 ) – – – (11.8 ) Reinsurance contract assets as at 31 December 2023 155.6 3.0 0.4 5.6 164.6 206 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Insurance contracts recognised in the period (g) Expected recognition of CSM In the tables that follow the CSM accrues interest at the locked-in rate for GMM portfolios and at Restated current rates for VFA portfolios from the balance sheet date and is then amortised based on the 2024 2023 coverage units of the contract groups to give the timeline of the expected recognition. £m £m 31 December 2024 Insurance Reinsurance Estimates of the present value of future cash inflows (12.5 ) (7.3 ) contracts contracts £m £m Estimates of the present value of future cash outflows Claims and other insurance service expenses payable 11.7 5.6 Not later than one year 3.5 (0.3 ) Insurance acquisition cash flows – – Later than one year and not later than two years 2.5 (0.3 ) Later than two years and not later than three years 2.2 (0.3 ) Total estimates of the present value of net future cash inflows/(outflows) 11.7 5.6 Later than three years and not later than four years 2.0 (0.3 ) Later than four years and not later than five years 1.8 (0.3 ) Risk adjustment for non-financial risk 0.1 0.2 Later than five years and not later than ten years 6.6 (1.3 ) CSM 0.7 1.5 Later than ten years 16.0 (1.9 ) Losses recognised on initial recognition – – Total 34.6 (4.7 ) Insurance contracts recognised in the period relate to the acquisition of the unit-linked bond and pension business from Canada Life in the current year and the term assurance portfolio from 31 December 2023 – restated Insurance Reinsurance Canada Life in the prior year. None of the acquired portfolios were onerous at initial recognition. contracts contracts £m £m (f) Reinsurance contracts recognised in the period There are no material new insurance contracts recognised in the period for the UK. Not later than one year 3.4 (0.5 ) Later than one year and not later than two years 1.9 (0.5 ) Later than two years and not later than three years 1.9 (0.5 ) Later than three years and not later than four years 1.7 (0.4 ) Later than four years and not later than five years 1.5 (0.4 ) Later than five years and not later than ten years 5.0 (1.6 ) Later than ten years 10.3 (2.1 ) Total 25.7 (6.0 ) CHESNARAANNUALREPORTANDACCOUNTS2024207 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F3 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Movestic (a) Insurance contract balances – analysis by remaining coverage and incurred claims Liabilities for incurred claims Contracts under PAA Liabilities for For contracts PV of remaining not under future Risk coverage PAA cash flows adjustment Total £m £m £m £m £m Insurance contract liabilities as at 1 January 2024 133.5 – 37.1 1.2 171.8 Changes in the statement of profit and loss Insurance revenue Contracts measured under the fair value approach (0.9 ) – – – (0.9 ) Contracts measured under the full retrospective approach (9.3 ) – – – (9.3 ) Insurance revenue total (10.2 ) – – – (10.2 ) Insurance service expenses Incurred claims and other directly attributable expenses – 0.6 8.2 0.1 8.9 Adjustments to liabilities for incurred claims – – (6.0 ) (0.3 ) (6.3 ) Insurance service expense total – 0.6 2.2 (0.2 ) 2.6 Insurance service result (10.2) 0.6 2.2 (0.2 ) (7.6 ) Net finance expenses from insurance contracts 22.8 – – 0.8 23.6 Effect of movements in exchange rates (10.1 ) – (2.5 ) (0.1 ) (12.7 ) Total amounts recognised in comprehensive income 2.5 0.6 (0.3 ) 0.5 3.3 Investment components (9.4 ) 9.4 – – – Cash flows Premiums received 17.4 – – – 17.4 Claims and other directly attributable expenses paid – (10.1 ) (8.3 ) – (18.4 ) Total cash flows 17.4 (10.1 ) (8.3 ) – (1.0 ) Insurance contract liabilities as at 31 December 2024 144.0 (0.1 ) 28.5 1.7 174.1 208 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Liabilities for incurred claims Contracts under PAA Liabilities for For contracts PV of remaining not under future Risk coverage PAA cash flows adjustment Total £m £m £m £m £m Insurance contract liabilities as at 1 January 2023 119.1 – 38.2 1.6 158.9 Changes in the statement of profit and loss Insurance revenue Contracts measured under the fair value approach (0.7 ) – – – (0.7 ) Contracts measured under the full retrospective approach (10.4 ) – – – (10.4 ) Insurance revenue total (11.1 ) – – – (11.1 ) Insurance service expenses Incurred claims and other directly attributable expenses – 0.6 10.3 0.1 11.0 Adjustments to liabilities for incurred claims – – (3.4 ) (0.2 ) (3.6 ) Insurance service expense total – 0.6 6.9 (0.1 ) 7.4 Insurance service result (11.1 ) 0.6 6.9 (0.1 ) (3.7 ) Net finance expenses from insurance contracts 14.2 – 2.0 (0.2 ) 16.0 Effect of movements in exchange rates (2.8 ) – (1.1 ) (0.1 ) (4.0 ) Total amounts recognised in comprehensive income 0.3 0.6 7.8 (0.4 ) 8.3 Investment components (6.1 ) 6.1 – – – Cash flows Premiums received 20.2 – – – 20.2 Claims and other directly attributable expenses paid – (6.7 ) (8.9 ) – (15.6 ) Total cash flows 20.2 (6.7 ) (8.9 ) – 4.6 Insurance contract liabilities as at 31 December 2023 133.5 – 37.1 1.2 171.8 The fair value approach was applied to all insurance contracts not measured under PAA in Movestic at transition. Note A5(a) provides further details relating to fair value methodology applied for contracts in Movestic. CHESNARAANNUALREPORTANDACCOUNTS2024209 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F3 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Movestic (continued) (b) Insurance contract balances – analysis by measurement component – contracts not measured under PAA Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Insurance contract liabilities as at 1 January 2024 125.4 1.1 5.0 131.5 Changes that relate to current service CSM recognised for services provided – – (0.5 ) (0.5 ) Change in risk adjustment for non-financial risk for risk expired – (0.1 ) – (0.1 ) Experience adjustments 0.3 – – 0.3 Total changes that relate to current service 0.3 (0.1 ) (0.5 ) (0.3 ) Changes that relate to future service Changes in estimates that adjust the CSM (3.4 ) 0.2 3.3 0.1 Total changes that relate to future service (3.4 ) 0.2 3.3 0.1 Insurance service result (3.1 ) 0.1 2.8 (0.2 ) Net finance expenses from insurance contracts 22.6 – 0.2 22.8 Effect of movements in exchange rates (9.5 ) (0.1 ) (0.4 ) (10.0 ) Total amounts recognised in comprehensive income 10.0 – 2.6 12.6 Cash flows Premiums received 8.1 – – 8.1 Claims and other directly attributable expenses paid (10.1 ) – – (10.1 ) Total cash flows (2.0 ) – – (2.0 ) Insurance contract liabilities as at 31 December 2024 133.4 1.1 7.6 142.1 210 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 111.4 1.1 4.5 117.0 Changes that relate to current service CSM recognised for services provided – – (0.3 ) (0.3 ) Change in risk adjustment for non-financial risk for risk expired – (0.1 ) – (0.1 ) Experience adjustments 0.3 – – 0.3 Total changes that relate to current service 0.3 (0.1 ) (0.3 ) (0.1 ) Changes that relate to future service Changes in estimates that adjust the CSM (0.8 ) 0.1 0.7 – Total changes that relate to future service (0.8 ) 0.1 0.7 – Insurance service result (0.5 ) – 0.4 (0.1 ) Net finance expenses from insurance contracts 14.0 – 0.2 14.2 Effect of movements in exchange rates (2.6 ) – (0.1 ) (2.7 ) Total amounts recognised in comprehensive income 10.9 – 0.5 11.4 Cash flows Premiums received 9.8 – – 9.8 Claims and other directly attributable expenses paid (6.7 ) – – (6.7 ) Total cash flows 3.1 – – 3.1 Insurance contract liabilities as at 31 December 2023 125.4 1.1 5.0 131.5 CHESNARAANNUALREPORTANDACCOUNTS2024 211 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F3 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Movestic (continued) (c) Reinsurance contract balances – analysis by remaining coverage and incurred claims Contracts under PAA Assets for incurred claims Assets for PV of remaining future Risk coverage cash flows adjustment Total £m £m £m £m Reinsurance contract assets as at 1 January 2024 (0.6 ) 14.9 0.2 14.5 Reinsurance expenses – allocation of reinsurance (1.3 ) – – (1.3 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – 1.9 – 1.9 Changes in the expected recoveries for past claims – (2.3 ) (0.1 ) (2.4 ) Net (expenses)/income from reinsurance contracts held (1.3 ) (0.4 ) (0.1 ) (1.8 ) Net finance expenses from reinsurance contracts – 0.3 – 0.3 Effect of movements in exchange rates – (1.0 ) – (1.0 ) Total amounts recognised in comprehensive income (1.3 ) (1.1 ) (0.1 ) (2.5 ) Cash flows Premiums paid net of ceding commission 2.6 – – 2.6 Recoveries from reinsurance contacts held – (2.2 ) – (2.2 ) Total cash flows 2.6 (2.2 ) – 0.4 Reinsurance contract assets as at 31 December 2024 0.7 11.6 0.1 12.4 212 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Contracts under PAA Assets for incurred claims Assets for PV of remaining future Risk coverage cash flows adjustment Total £m £m £m £m Reinsurance contract assets as at 1 January 2023 0.3 15.2 0.3 15.8 Reinsurance expenses – allocation of reinsurance (2.5 ) – – (2.5 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – 3.1 0.1 3.2 Changes in the expected recoveries for past claims – (1.2 ) (0.1 ) (1.3 ) Net (expenses)/income from reinsurance contracts held (2.5 ) 1.9 – (0.6 ) Net finance expenses from reinsurance contracts – 0.8 (0.1 ) 0.7 Effect of movements in exchange rates – (0.4 ) – (0.4 ) Total amounts recognised in comprehensive income (2.5 ) 2.3 (0.1 ) (0.3 ) Cash flows Premiums paid net of ceding commission 1.6 – – 1.6 Recoveries from reinsurance contacts held – (2.6 ) – (2.6 ) Total cash flows 1.6 (2.6 ) – (1.0 ) Reinsurance contract assets as at 31 December 2023 (0.6 ) 14.9 0.2 14.5 (d) Reinsurance contract balances – analysis by measurement component – 31 December 2024 Insurance Reinsurance contracts not measured under PAA contracts contracts All Movestic reinsurance is measured as PAA, therefore no table is presented for analysis £m £m of reinsurance contracts by measurement component. Not later than one year 0.3 – (e) Insurance contracts recognised in the period Later than one year and not later than two years 0.3 – There are no material new insurance contracts recognised in the period for Movestic. Later than two years and not later than three years 0.3 – Later than three years and not later than four years 0.3 – Later than four years and not later than five years 0.3 (f) Reinsurance contracts recognised in the period Later than five years and not later than ten years 1.4 – There are no material new reinsurance contracts recognised in the period for Movestic. Later than ten years 4.6 – (g) Expected recognition of CSM Total 7.5 – In the tables that follow the CSM accrues interest at the locked-in rate for GMM portfolios and at current rates for VFA portfolios from the balance sheet date and is then amortised based on the coverage units of the contract groups to give the timeline of the expected recognition. 31 December 2023 Insurance Reinsurance contracts contracts £m £m Not later than one year 0.1 – Later than one year and not later than two years 0.2 – Later than two years and not later than three years 0.2 – Later than three years and not later than four years 0.2 – Later than four years and not later than five years 0.2 – Later than five years and not later than ten years 0.9 – Later than ten years 3.2 – Total 5.0 – CHESNARAANNUALREPORTANDACCOUNTS2024213 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F4 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Waard Group (a) Insurance contract balances – analysis by remaining coverage and incurred claims Liabilities for remaining coverage Excluding Liabilities loss Loss for incurred component component claims Total £m £m £m £m Insurance contract liabilities as at 1 January 2024 761.8 12.4 11.1 785.3 Changes in the statement of profit and loss Insurance revenue total (29.8 ) – – (29.8) Insurance service expenses Incurred claims and other directly attributable expenses – (1.3 ) 29.9 28.6 Losses and reversals of losses on onerous contracts – 2.8 – 2.8 Insurance service expense total – 1.5 29.9 31.4 Insurance service result (29.8 ) 1.5 29.9 1.6 Net finance expenses from insurance contracts 23.1 0.1 – 23.2 Effect of movements in exchange rates (34.6 ) (0.6 ) (0.5 ) (35.7 ) Total amounts recognised in comprehensive income (41.3 ) 1.0 29.4 (10.9 ) Investment components (54.5 ) – 54.5 – Cash flows Premiums received 31.0 – – 31.0 Claims and other directly attributable expenses paid – – (85.0 ) (85.0 ) Total cash flows 31.0 – (85.0 ) (54.0 ) Insurance contract liabilities as at 31 December 2024 697.0 13.4 10.0 720.4 214 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Liabilities for remaining coverage Excluding Liabilities loss Loss for incurred component component claims Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 447.7 7.3 8.7 463.7 Changes in the statement of profit and loss Insurance revenue total (36.1 ) – – (36.1 ) Insurance service expenses Incurred claims and other directly attributable expenses – (2.1 ) 32.5 30.4 Losses and reversals of losses on onerous contracts – 7.4 – 7.4 Insurance service expense total – 5.3 32.5 37.8 Insurance service result (36.1 ) 5.3 32.5 1.7 Net finance expenses from insurance contracts 49.4 – – 49.4 Effect of movements in exchange rates (11.3 ) (0.2 ) (0.2 ) (11.7 ) Total amounts recognised in comprehensive income 2.0 5.1 32.3 39.4 Investment components (62.1 ) – 62.1 – Acquisitions – estimate of the present value of future cash inflows 346.6 – – 346.6 Cash flows Premiums received 27.6 – – 27.6 Claims and other directly attributable expenses paid – – (92.0 ) (92.0 ) Total cash flows 27.6 – (92.0 ) (64.4 ) Insurance contract liabilities as at 31 December 2023 761.8 12.4 11.1 785.3 For the Waard Group, the full retrospective approach at transition has been applied to all insurance contracts. CHESNARAANNUALREPORTANDACCOUNTS2024215 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F4 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Waard Group (continued) (b) Insurance contract balances – analysis by measurement component – contracts not measured under PAA Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Insurance contract liabilities as at 1 January 2024 699.2 7.9 78.2 785.3 Changes that relate to current service CSM recognised for services provided – – (7.0 ) (7.0 ) Change in risk adjustment for non-financial risk for risk expired – (0.7 ) – (0.7 ) Experience adjustments 6.5 – – 6.5 Total changes that relate to current service 6.5 (0.7 ) (7.0 ) (1.2 ) Changes that relate to future service Contracts initially recognised in the period – – – – Changes in estimates that adjust the CSM (0.8 ) (3.3 ) 4.1 – Changes in estimates that result in losses or reversals of losses on onerous underlying contracts 2.7 0.1 – 2.8 Total changes that relate to future service 1.9 (3.2 ) 4.1 2.8 Insurance service result 8.4 (3.9 ) (2.9 ) 1.6 Net finance expenses from insurance contracts 20.5 0.1 2.6 23.2 Effect of movements in exchange rates (31.8 ) (0.3 ) (3.6 ) (35.7 ) Total amounts recognised in comprehensive income (2.9 ) (4.1 ) (3.9 ) (10.9 ) Cash flows Premiums received 31.0 – – 31.0 Claims and other directly attributable expenses paid (85.0 ) – – (85.0 ) Total cash flows (54.0 ) – – (54.0 ) Insurance contract liabilities as at 31 December 2024 642.3 3.8 74.3 720.4 216 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 439.3 3.2 21.2 463.7 Changes that relate to current service CSM recognised for services provided – – (7.0 ) (7.0 ) Change in risk adjustment for non-financial risk for risk expired – (0.9 ) – (0.9 ) Experience adjustments 2.3 – – 2.3 Total changes that relate to current service 2.3 (0.9 ) (7.0 ) (5.6 ) Changes that relate to future service Contracts initially recognised in the period (52.6 ) 6.4 46.2 – Changes in estimates that adjust the CSM (15.4 ) (2.2 ) 17.6 – Changes in estimates that result in losses or reversals of losses on onerous underlying contracts 6.7 0.6 – 7.3 Total changes that relate to future service (61.3 ) 4.8 63.8 7.3 Insurance service result (59.0 ) 3.9 56.8 1.7 Net finance expenses from insurance contracts 46.6 1.0 1.8 49.4 Effect of movements in exchange rates (9.9 ) (0.2 ) (1.6 ) (11.7 ) Total amounts recognised in comprehensive income (22.3 ) 4.7 57.0 39.4 Acquisitions – estimate of the present value of future cash inflows 346.6 – – 346.6 Cash flows Premiums received 27.6 – – 27.6 Claims and other directly attributable expenses paid (92.0 ) – – (92.0 ) Total cash flows (64.4 ) – – (64.4 ) Insurance contract liabilities as at 31 December 2023 699.2 7.9 78.2 785.3 The contracts initially recognised in the prior year relate to the acquisition of Conservatrix . CHESNARAANNUALREPORTANDACCOUNTS2024217 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F4 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Waard Group (continued) (c) Reinsurance contract balances – analysis by remaining coverage and incurred claims Assets for Assets for remaining incurred coverage claims Total £m £m £m Reinsurance contract assets as at 1 January 2024 2.8 1.6 4.4 Reinsurance expenses – allocation of reinsurance premiums paid (4.4 ) – (4.4 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – 2.4 2.4 Net (expenses)/income from reinsurance contracts held (4.4 ) 2.4 (2.0 ) Net finance expenses from reinsurance contracts – – – Effect of movements in exchange rates (0.1 ) (0.1 ) (0.2 ) Total amounts recognised in comprehensive income (4.5 ) 2.3 (2.2 ) Cash flows Premiums paid 3.5 – 3.5 Recoveries from reinsurance contracts held – (3.0 ) (3.0 ) Total cash flows 3.5 (3.0 ) 0.5 Reinsurance contract assets as at 31 December 2024 1.8 0.9 2.7 Assets for Assets for remaining incurred coverage claims Total £m £m £m Reinsurance contract assets as at 1 January 2023 1.6 1.9 3.5 Reinsurance expenses – allocation of reinsurance premiums paid (3.0 ) – (3.0 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – 3.4 3.4 Net (expenses)/income from reinsurance contracts held (3.0 ) 3.4 0.4 Net finance expenses from reinsurance contracts 0.1 – 0.1 Total amounts recognised in comprehensive income (2.9 ) 3.4 0.5 Cash flows Premiums paid 4.1 – 4.1 Recoveries from reinsurance contracts held – (3.7 ) (3.7 ) Total cash flows 4.1 (3.7 ) 0.4 Reinsurance contract assets as at 31 December 2023 2.8 1.6 4.4 For the Waard Group, the full retrospective approach at transition has been applied to all reinsurance contracts. 218 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (d) Reinsurance contract balances – analysis by measurement component – contracts not measured under PAA Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Reinsurance contract assets as at 1 January 2024 3.1 0.2 1.1 4.4 Changes that relate to current service CSM recognised for services received – – – – Change in risk adjustment for non-financial risk for risk expired – (0.1 ) – (0.1 ) Experience adjustments (1.4 ) – – (1.4 ) Total changes that relate to current service (1.4 ) (0.1 ) – (1.5 ) Changes that relate to future service Changes in estimates that adjust the CSM (0.2 ) 0.1 (0.3 ) – CSM adjustment for income on initial recognition of onerous underlying contracts – – (0.5 ) (0.5 ) Total changes that relate to future service 0.2 0.1 (0.8 ) (0.5 ) Net (expense)/income from reinsurance contracts held (1.2 ) – (0.8 ) (2.0 ) Net finance income from reinsurance contracts held – – – – Effect of movements in exchange rates (0.2 ) – – (0.2 ) Total amounts recognised in comprehensive income (1.4 ) – (0.8 ) (2.2 ) Cash flows Premiums paid 3.5 – – 3.5 Recoveries from reinsurance contracts held (3.0 ) – – (3.0 ) Total cash flows 0.5 – – 0.5 Reinsurance contract assets as at 31 December 2024 2.2 0.2 0.3 2.7 CHESNARAANNUALREPORTANDACCOUNTS2024219 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F4 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Waard Group (continued) (d) Reinsurance contract balances – analysis by measurement component – contracts not measured under PAA (continued) Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Reinsurance contract assets as at 1 January 2023 3.6 0.5 (0.6 ) 3.5 Changes that relate to current service CSM recognised for services received – – 2.2 2.2 Change in risk adjustment for non-financial risk for risk expired – (0.2 ) – (0.2 ) Experience adjustments (0.8 ) – – (0.8 ) Total changes that relate to current service (0.8 ) (0.2 ) 2.2 1.2 Changes that relate to future service Changes in estimates that adjust the CSM (0.2 ) (0.1 ) 0.3 – CSM adjustment for income on initial recognition of onerous underlying contracts – – (0.8 ) (0.8 ) Total changes that relate to future service (0.2 ) (0.1 ) (0.5 ) (0.8 ) Net (expense)/income from reinsurance contracts held (1.0 ) (0.3 ) 1.7 0.4 Net finance income from reinsurance contracts held 0.1 – – 0.1 Total amounts recognised in comprehensive income (0.9 ) (0.3 ) 1.7 0.5 Cash flows Premiums paid 4.1 – – 4.1 Recoveries from reinsurance contracts held (3.7 ) – – (3.7 ) Total cash flows 0.4 – – 0.4 Reinsurance contract assets as at 31 December 2023 3.1 0.2 1.1 4.4 220 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Insurance contracts recognised in the period (g) Expected recognition of CSM All insurance and reinsurance contracts recognised in 2023 are in respect of the Conservatrix In the tables that follow the CSM accrues interest at the locked-in rate for GMM portfolios and acquisition. There were no new contracts recognised in 2024. at current rates for VFA portfolios from the balance sheet date and is then amortised based on the coverage units of the contract groups to give the timeline of the expected recognition. Year Ended 31 December 2023 Non-onerous Onerous contracts contracts Total 31 December 2024 Insurance Reinsurance £m £m £m contracts contracts £m £m Estimates of the present value of future cash inflows (346.6 ) – (346.6 ) Not later than one year 4.1 (0.4 ) Estimates of the present value of future cash outflows Later than one year and not later than two years 3.7 0.4 Claims and other insurance service expenses payable 294.1 – 294.1 Later than two years and not later than three years 3.5 (0.1 ) Later than three years and not later than four years 3.2 (0.1 ) Total estimates of the present value of future net outflows (52.5 ) – (52.5 ) Later than four years and not later than five years 3.0 (0.1 ) Later than five years and not later than ten years 12.2 (0.2 ) Risk adjustment for non-financial risk 6.3 – 6.3 Later than ten years 44.6 – CSM 46.2 – 46.2 Total 74.3 (0.5 ) Losses recognised on initial recognition – – – (f) Reinsurance contracts recognised in the period 31 December 2023 Insurance Reinsurance contracts contracts There are no new reinsurance contracts recognised in the period for Waard. £m £m Not later than one year 4.9 (1.0 ) Later than one year and not later than two years 4.4 0.6 Later than two years and not later than three years 4.0 (0.2 ) Later than three years and not later than four years 3.7 (0.1 ) Later than four years and not later than five years 3.4 (0.1 ) Later than five years and not later than ten years 13.0 (0.3 ) Later than ten years 44.8 – Total 78.2 (1.1 ) CHESNARAANNUALREPORTANDACCOUNTS2024221 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F5 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Scildon (a) Insurance contract balances – analysis by remaining coverage and incurred claims Liabilities for remaining coverage Excluding Liabilities loss Loss for incurred component component claims Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 1,761.7 64.6 36.6 1,862.9 Changes in the statement of profit and loss Insurance revenue total (150.6 ) – – (150.6) Insurance service expenses Incurred claims and other directly attributable expenses – (20.9 ) 129.6 108.7 Losses and reversals of losses on onerous contracts – 32.8 – 32.8 Amortisation of insurance acquisition cash flows 3.7 – – 3.7 Insurance service expense total 3.7 11.9 129.6 145.2 Insurance service result (146.9 ) 11.9 129.6 (5.4) Net finance expenses from insurance contracts 188.9 0.5 – 189.4 Effect of movements in exchange rates (84.1 ) (3.3 ) (1.7 ) (89.1 ) Total amounts recognised in comprehensive income (42.1 ) 9.1 127.9 94.9 Investment components (133.2 ) – 133.2 – Cash flows Premiums received 208.2 – – 208.2 Claims and other directly attributable expenses paid - – (263.1 ) (263.1 ) Insurance acquisition cash flows (6.8 ) – – (6.8 ) Total cash flows 201.4 – (263.1 ) (61.7 ) Insurance contract liabilities as at 31 December 2024 1,787.8 73.7 34.6 1,896.1 222 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Liabilities for remaining coverage Excluding Liabilities loss Loss for incurred component component claims Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 1,633.1 76.3 42.0 1,751.4 Changes in the statement of profit and loss Insurance revenue total (115.0 ) – – (115.0 ) Insurance service expenses Incurred claims and other directly attributable expenses – (45.8 ) 120.9 75.1 Losses and reversals of losses on onerous contracts – 35.4 – 35.4 Amortisation of insurance acquisition cash flows 3.4 – – 3.4 Insurance service expense total 3.4 (10.4 ) 120.9 113.9 Insurance service result (111.6 ) (10.4 ) 120.9 (1.1 ) Net finance expenses from insurance contracts 162.6 0.4 – 163.0 Effect of movements in exchange rates (37.5 ) (1.7 ) (0.9 ) (40.1 ) Total amounts recognised in comprehensive income 13.5 (11.7 ) 120.0 121.8 Investment components (110.6 ) – 110.6 – Cash flows Premiums received 231.3 – – 231.3 Claims and other directly attributable expenses paid – – (236.0 ) (236.0 ) Insurance acquisition cash flows (5.6 ) – – (5.6 ) Total cash flows 225.7 – (236.0 ) (10.3 ) Insurance contract liabilities as at 31 December 2023 1,761.7 64.6 36.6 1,862.9 For Scildon, the full retrospective approach at transition has been applied to all insurance contracts. CHESNARAANNUALREPORTANDACCOUNTS2024223 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F5 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Scildon (continued) ( b) Insurance contract balances – analysis by measurement component – contracts not measured under PAA Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Insurance contract liabilities as at 1 January 2024 1,753.1 30.2 79.6 1,862.9 Changes that relate to current service CSM recognised for services provided – – (11.0 ) (11.0) Change in risk adjustment for non-financial risk for risk expired – (2.3 ) – (2.3) Experience adjustments (24.8 ) – – (24.8) Total changes that relate to current service (24.8 ) (2.3 ) (11.0 ) (38.1 ) Changes that relate to future service Contracts initially recognised in the period (7.7 ) 1.6 8.8 2.7 Changes in estimates that adjust the CSM (7.2 ) (10.7 ) 17.9 – Changes in estimates that result in losses or reversals of losses on onerous underlying contracts 31.1 (1.1 ) – 30.0 Total changes that relate to future service 16.2 (10.2 ) 26.7 32.7 Insurance service result (8.6 ) (12.5 ) 15.7 (5.4 ) Net finance expenses from insurance contracts 186.7 1.6 1.1 189.4 Effect of movements in exchange rates (83.9 ) (1.1 ) (4.1 ) (89.1 ) Total amounts recognised in comprehensive income 94.2 (12.0 ) 12.7 94.9 Cash flows Premiums received 208.2 – – 208.2 Claims and other directly attributable expenses paid (263.1 ) – – (263.1 ) Insurance acquisition cash flows (6.8 ) – – (6.8 ) Total cash flows (61.7 ) – – (61.7 ) Insurance contract liabilities as at 31 December 2024 1,785.6 18.2 92.3 1,896.1 224 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Insurance contract liabilities as at 1 January 2023 1,639.5 28.5 83.4 1,751.4 Changes that relate to current service CSM recognised for services provided – – (9.0 ) (9.0 ) Change in risk adjustment for non-financial risk for risk expired – (3.5 ) – (3.5 ) Experience adjustments (24.0 ) – – (24.0 ) Total changes that relate to current service (24.0 ) (3.5 ) (9.0 ) (36.5 ) Changes that relate to future service Contracts initially recognised in the period (11.2 ) 2.6 11.5 2.9 Changes in estimates that adjust the CSM 3.6 1.7 (5.3 ) – Changes in estimates that result in losses or reversals of losses on onerous underlying contracts 33.1 (0.6 ) – 32.5 Total changes that relate to future service 25.5 3.7 6.2 35.4 Insurance service result 1.5 0.2 (2.8 ) (1.1 ) Net finance expenses from insurance contracts 159.9 2.2 0.9 163.0 Effect of movements in exchange rates (37.5 ) (0.7 ) (1.9 ) (40.1 ) Total amounts recognised in comprehensive income 123.9 1.7 (3.8 ) 121.8 Cash flows Premiums received 231.3 – – 231.3 Claims and other directly attributable expenses paid (236.0 ) – – (236.0 ) Insurance acquisition cash flows (5.6 ) – – (5.6 ) Total cash flows (10.3 ) – – (10.3 ) Insurance contract liabilities as at 31 December 2023 1,753.1 30.2 79.6 1,862.9 CHESNARAANNUALREPORTANDACCOUNTS2024225 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F5 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Scildon (continued) (c) Reinsurance contract balances – analysis by remaining coverage and incurred claims Assets for remaining coverage Excluding Loss- Assets for loss-recovery recovery incurred component component claims Total £m £m £m £m Reinsurance contract assets as at 1 January 2024 (29.0 ) 6.2 7.9 (14.9 ) Reinsurance expenses – allocation of reinsurance premiums paid (22.7 ) – – (22.7 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – – 19.0 19.0 Changes in the loss-recovery component – (0.8 ) – (0.8 ) Net (expenses)/income from reinsurance contracts held (22.7 ) (0.8 ) 19.0 (4.5 ) Net finance expenses from reinsurance contracts (0.8 ) – – (0.8 ) Effect of movements in exchange rates 1.2 (0.3 ) (0.2 ) 0.7 Total amounts recognised in comprehensive income (22.3 ) (1.1 ) 18.8 (4.6 ) Cash flows Premiums paid 30.8 – – 30.8 Recoveries from reinsurance contracts held – – (25.9 ) (25.9 ) Total cash flows 30.8 – (25.9 ) 4.7 Reinsurance contract assets as at 31 December 2024 (20.5 ) 5.1 0.8 (14.6 ) Assets for remaining coverage Excluding Loss- Assets for loss-recovery recovery incurred component component claims Total £m £m £m £m Reinsurance contract assets as at 1 January 2023 (28.4 ) 4.5 8.7 (15.2 ) Reinsurance expenses – allocation of reinsurance premiums paid (21.8 ) – – (21.8 ) Amounts recoverable from reinsurers Recoveries of incurred claims and other directly attributable expenses – – 17.3 17.3 Changes in the loss-recovery component – 1.8 – 1.8 Net (expenses)/income from reinsurance contracts held (21.8 ) 1.8 17.3 (2.7 ) Net finance expenses from reinsurance contracts (3.4 ) – – (3.4 ) Effect of movements in exchange rates 0.6 (0.1 ) (0.2 ) 0.3 Total amounts recognised in comprehensive income (24.6 ) 1.7 17.1 (5.8 ) Cash flows Premiums paid 24.0 – – 24.0 Recoveries from reinsurance contracts held – – (17.9 ) (17.9 ) Total cash flows 24.0 – (17.9 ) 6.1 Reinsurance contract assets as at 31 December 2023 (29.0 ) 6.2 7.9 (14.9 ) For Scildon, the full retrospective approach at transition has been applied to all reinsurance contracts. 226 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (d) Reinsurance contract balances – analysis by measurement component – contracts not measured under PAA Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Reinsurance contract assets as at 1 January 2024 (51.8 ) 12.0 24.9 (14.9 ) Changes that relate to current service CSM recognised for services received – – (3.1 ) (3.1 ) Change in risk adjustment for non-financial risk for risk expired – (0.9 ) – (0.9 ) Experience adjustments (0.1 ) – – (0.1 ) Total changes that relate to current service (0.1 ) (0.9 ) (3.1 ) (4.1 ) Changes that relate to future service Contracts initially recognised in the period (2.3 ) 0.5 1.9 0.1 Changes in estimates that adjust the CSM (1.4 ) (4.1 ) 4.0 (1.5 ) CSM adjustment for income on initial recognition of onerous underlying contracts – – 0.5 0.5 Changes in recoveries of losses on onerous underlying contracts that adjust the CSM – – 0.5 0.5 Total changes that relate to future service (3.7 ) (3.6 ) 6.9 (0.4 ) Net (expense)/income from reinsurance contracts held (3.8 ) (4.5 ) 3.8 (4.5 ) Net finance income from reinsurance contracts held (1.8 ) 0.6 0.4 (0.8 ) Effect of movements in exchange rates 2.4 (0.5 ) (1.2 ) 0.7 Total amounts recognised in comprehensive income (3.2 ) (4.4 ) 3.0 (4.6 ) Cash flows Premiums paid 30.8 – – 30.8 Recoveries from reinsurance contracts held (25.9 ) – – (25.9 ) Total cash flows 4.9 – – 4.9 Reinsurance contract assets as at 31 December 2024 (50.1 ) 7.6 27.9 (14.6 ) CHESNARAANNUALREPORTANDACCOUNTS2024227 IFRS FINANCIAL STATEMENTS SECTION F INSURANCE AND REINSURANCE CONTRACTS F5 Insurance and reinsurance contracts – quantitative analysis of recognised amounts – Scildon (continued) (d) Reinsurance contract balances – analysis by measurement component – contracts not measured under PAA (continued) Present value of future Risk cash flows adjustment CSM Total £m £m £m £m Reinsurance contract assets as at 1 January 2023 (52.1 ) 10.7 26.2 (15.2 ) Changes that relate to current service CSM recognised for services received – – (2.7 ) (2.7 ) Change in risk adjustment for non-financial risk for risk expired – (1.3 ) – (1.3 ) Experience adjustments (1.0 ) – – (1.0 ) Total changes that relate to current service (1.0 ) (1.3 ) (2.7 ) (5.0 ) Changes that relate to future service Contracts initially recognised in the period (3.1 ) 0.9 2.2 – Changes in estimates that adjust the CSM 1.5 1.3 (2.8 ) – CSM adjustment for income on initial recognition of onerous underlying contracts – – 0.5 0.5 Changes in recoveries of losses on onerous underlying contracts that adjust the CSM – – 1.8 1.8 Total changes that relate to future service (1.6 ) 2.2 1.7 2.3 Net (expense)/income from reinsurance contracts held (2.6 ) 0.9 (1.0 ) (2.7 ) Net finance income from reinsurance contracts held (4.3 ) 0.6 0.3 (3.4 ) Effect of movements in exchange rates 1.1 (0.2 ) (0.6 ) 0.3 Total amounts recognised in comprehensive income (5.8 ) 1.3 (1.3 ) (5.8 ) Cash flows Premiums paid 24.0 – – 24.0 Recoveries from reinsurance contracts held (17.9 ) – – (17.9 ) Total cash flows 6.1 – – 6.1 Reinsurance contract assets as at 31 December 2023 (51.8 ) 12.0 24.9 (14.9 ) 228 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Insurance contracts recognised in the period (f) Reinsurance contracts recognised in the period Year Ended 31 December 2024 Non-onerous Onerous 2024 2023 contracts contracts Total £m £m £m £m £m Estimates of the present value of future cash inflows 11.2 12.5 Estimates of the present value of future cash inflows (92.5 ) (40.1 ) (132.6 ) Estimates of the present value of future cash outflows (13.6 ) (15.6 ) Risk adjustment for non-financial risk 0.5 0.9 Estimates of the present value of future cash outflows CSM 1.9 2.2 Claims and other insurance service expenses payable 1.2 1.0 2.2 Insurance acquisition cash flows 81.6 41.2 122.8 Total value of reinsurance contracts recognised in the period – – Total estimates of the present value of future cash outflows 82.8 42.2 125.0 All reinsurance contracts above are in respect of new business written and all contract groups were originally in a net cost position. Risk adjustment for non-financial risk 1.0 0.6 1.6 CSM 8.7 – 8.7 (g) Expected recognition of CSM In the tables that follow the CSM accrues interest at the locked-in rate for GMM portfolios and at Losses recognised on initial recognition – 2.7 2.7 current rates for VFA portfolios from the balance sheet date and is then amortised based on the coverage units of the contract groups to give the timeline of the expected recognition. Year Ended 31 December 2023 Non-onerous Onerous 31 December 2024 Insurance Reinsurance contracts contracts Total contracts contracts £m £m £m £m £m Estimates of the present value of future cash inflows (113.1 ) (46.2 ) (159.3 ) Not later than one year 9.4 (2.6 ) Later than one year and not later than two years 8.6 (2.4 ) Estimates of the present value of future cash outflows Later than two years and not later than three years 7.9 (2.2 ) Claims and other insurance service expenses payable 98.3 47.3 145.6 Later than three years and not later than four years 7.2 (2.1 ) Insurance acquisition cash flows 1.4 1.0 2.4 Later than four years and not later than five years 6.6 (1.9 ) Later than five years and not later than ten years 24.5 (7.7 ) Total estimates of the present value of future cash outflows 99.7 48.3 148.0 Later than ten years 28.1 (9.0 ) Risk adjustment for non-financial risk 1.9 0.8 2.7 Total 92.4 (27.9 ) CSM 11.5 – 11.5 Losses recognised on initial recognition – 2.9 2.9 31 December 2023 Insurance Reinsurance All insurance contracts above are in respect of new business written. contracts contracts £m £m Not later than one year 8.1 (2.3 ) Later than one year and not later than two years 7.5 (2.1 ) Later than two years and not later than three years 6.9 (2.0 ) Later than three years and not later than four years 6.3 (1.9 ) Later than four years and not later than five years 5.7 (1.7 ) Later than five years and not later than ten years 21.1 (6.9 ) Later than ten years 24.0 (8.0 ) Total 79.6 (24.9 ) CHESNARAANNUALREPORTANDACCOUNTS2024229 IFRS FINANCIAL STATEMENTS SECTION G BALANCE SHEET LIABILITIES G1 Other provisions G2 Lease liabilities The Group leases several assets including office buildings and an immaterial amount of office and 2024 2023 IT equipment and motor vehicles. £m £m Maturity analysis Carrying Balance at I January 23.2 8.7 31 December 2024 value 0-1 year 1-2 years 2-5 years Total Additions – Arising on acquisition – 12.3 £m £m £m £m £m Charge in the year 0.7 7.1 Amounts utilised during the year (3.0 ) (4.8 ) Non-investment property 0.6 0.3 0.1 0.2 0.6 Foreign exchange translation difference (0.6 ) (0.1 ) Total 0.6 0.3 0.1 0.2 0.6 Balance at 3I December 20.3 23.2 Current 0.3 The other provisions balance includes the following significant items: Non-current 0.3 (i) Liabilities acquired as part of the Conservatrix acquisition Total 0.6 The contracts acquired in the acquisition of Conservatrix by Waard Leven in the prior year include £12.5m as at 31 December 2024 (31 December 2023: £12.6m) of liabilities relating to obligations to former employees of Conservatrix under a now closed defined benefit pension scheme. Maturity analysis Carrying The liabilities are valued under IAS 19. 31 December 2023 value 0-1 year 1-2 years 2-5 years Total The pension scheme is closed to new entrants with no further benefits accruing and as such the £m £m £m £m £m exposure for Waard Leven is limited to the longevity risk of the contracts. Waard Leven is regulated Non-investment property 1.2 0.6 0.3 0.3 1.2 by De Nederlandsche Bank (DNB) and the Netherlands Authority for financial markets. As such, there is no requirement to hold plan assets against these liabilities, instead the liabilities are assessed Total 1.2 0.6 0.3 0.3 1.2 as part of the SII requirements and as a result of this assessment there are considered to be sufficient general account assets to meet the obligation related to these pension policies. Current 0.6 Non-current 0.6 (ii) Provision established for the costs associated with outsourced UK administration services During 2023, Chesnara initiated a Transition and Transformation (T&T) programme in respect of its Total 1.2 UK business. This programme includes activities and costs related to both (i) the integration of the acquired CASLP and Canada Life businesses into the standard UK model and (ii) the restructure of the administration outsourcing arrangements for the rest of the legacy UK business, including G3 Borrowings the migration of the policies onto a new platform architecture with SS&C. Group 2024 2023 An ongoing assessment of the proposed project costs at 31 December 2024 has been conducted 31 December £m £m in accordance with the requirements of IAS 37 and as a result of this assessment a provision of £2.9m is held in the balance sheet (31 December 2023: £4.6m). The timing of the outflow of economic Tier 2 debt 200.8 200.6 benefits is subject to the phased delivery of the programme, however as the majority of the costs Amount due in relation to financial reinsurance 2.4 5.3 provided for are in respect of contractual obligations with third parties, then the amount is not Term finance 1.6 2.0 expected to material change due to any required rephasing. Total 204.8 207.9 There are also provisions at the year end relating to the mis-selling of contracts in the UK £1.9m (31 December 2023: £2.7m). Current 1.4 2.8 Non-current 203.4 205.1 Total 204.8 207.9 The fair value of amounts due in relation to Tier 2 debt at 31 December 2024 was £166.1m (31 December 2023: £148.0m). The fair value of amounts due in relation to financial reinsurance at 31 December 2024 was £2.3m (31 December 2023: £5.1m). Term finance comprises capital amounts outstanding on mortgage bonds taken out over properties held in the unit-linked policyholder funds in the UK. The mortgage over each such property is negotiated separately, varies in term from 5 to 20 years, and bears interest at fixed or floating rates that are agreed at the time of inception of the mortgage. The fair value of the term finance is not materially different to the carrying value shown above. 230 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS G4 Deferred tax assets and liabilities 31 December 2022 Credit/ Recognised 2023 Deferred tax assets and liabilities comprise: Assets / (charge ) through Assets / (liabilities ) in year equity (liabilities ) 31 December 2024 2023 £m £m £m £m Asset Liability Asset Liability £m £m £m £m Deferred acquisition costs 1.5 (0.5 ) – 1.0 Deferred income 0.5 (0.1 ) – 0.4 Net deferred tax liabilities: Acquired value in-force (33.6 ) 19.6 – (14.0 ) UK and other Group activities 1.6 (24.7 ) 16.0 (24.3 ) Property, plant and equipment 0.1 – – 0.1 Movestic – – – – Tax losses on pensions business 1.2 (0.1 ) – 1.1 Waard Group 34.5 – 35.0 – Unrealised and deferred investment gains (13.7 ) (9.5 ) – (23.2 ) Scildon 2.8 – 3.6 – Excess expenses of management 12.5 14.4 – 26.9 Share-based payments 0.9 0.1 – 1.0 Total 38.9 (24.7 ) 54.6 (24.3 ) Right-of-use assets/lease liabilities 0.1 (0.1 ) – – Tax losses 4.7 (4.5 ) – 0.2 Current – – – – Difference in IFRS 4 and IFRS 17 reserves (3.1 ) 1.3 – (1.8 ) Non-current 38.9 (24.7 ) 54.6 (24.3 ) Total (28.9 ) 20.6 – (8.3 ) Total 38.9 (24.7 ) 54.6 (24.3 ) Comprising: Net deferred tax liabilities (28.9 ) 20.6 – (8.3 ) (a) CA and other Group activities: Recognised deferred tax assets and liabilities Total (28.9 ) 20.6 – (8.3 ) 31 December 2023 Credit/ Recognised 2024 Assets / (charge ) through Assets / On 31 December 2023, the long-term business of CASLP, along with the majority of the assets of (liabilities ) in year equity (liabilities ) the Company were transferred into CA via a Business Transfer Scheme under Part VII of the Financial £m £m £m £m Services and Markets Act 2000. Consequently, previously unrecognised losses (excess expenses of management) of CA have been recognised as deferred tax assets at 31 December 2023. This has Deferred acquisition costs 1.0 (0.3 ) – 0.7 Deferred income 0.4 (0.1 ) – 0.3 resulted in a £11.9m additional deferred tax asset being recognised at the balance sheet date. Acquired value in-force (14.0 ) 2.3 – (11.7 ) The 2024 IFRS 17 transitional adjustment liability is inclusive of a prior year adjustment of £0.4m Property, plant and equipment 0.1 – – 0.1 following refinement of this calculation on submission of the 2023 tax computation. Tax losses on pensions business 1.1 0.4 – 1.5 Unrealised and deferred investment gains (23.2 ) (10.3 ) – (33.5 ) The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. Excess expenses of management and The enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities recognised trade losses 26.9 (6.5 ) – 20.4 where relevant, being the rate of corporation tax that is expected to apply when the majority of Share-based payments 1.0 – 0.5 1.5 those deferred tax balances reverse. Tax losses 0.2 (0.2 ) – – IFRS 17 transitional adjustment (1.8 ) (0.6 ) – (2.4 ) Deferred tax balances have been updated to reflect changes to equity on transition to IFRS 17. The tax rate applied is that which is expected at the time of realisation. Total (8.3 ) (15.3 ) 0.5 (23.1) The deferred tax (charge)/credit to the Consolidated Statement of Comprehensive Income for the Comprising: year is classified as follows: Net deferred tax liabilities (8.3 ) (15.3 ) 0.5 (23.1) Year ended 31 December 2024 2023 Total (8.3 ) (15.3 ) 0.5 (23.1) £m £m Income tax (charge)/credit (15.3 ) 20.7 (b) CA and other Group activities: Items for which no deferred tax asset is recognised 31 December 2024 2023 £m £m Tax losses on pensions business 12.8 20.7 Trade losses 53.5 28.7 Total 66.3 49.4 CHESNARAANNUALREPORTANDACCOUNTS2024231 IFRS FINANCIAL STATEMENTS SECTION G BALANCE SHEET LIABILITIES G4 Deferred tax assets and liabilities (continued) (b) CA and other group activities: Items for which no deferred tax asset is recognised (continued) A deferred tax asset has not been recognised in respect of trading losses due to the uncertainty of future trading profits against which the losses could be offset. There are no aggregate temporary differences arising on the acquisition of subsidiaries or associated undertakings, for which deferred tax has not been recognised. (c) Movestic: Recognised deferred tax assets and liabilities As at the balance sheet date, Movestic had a recognised deferred tax liability of £Nil (31 December 2023: £Nil), in respect of fair value adjustments arising upon acquisition. Unrecognised deferred tax assets were £Nil at the balance sheet date in respect of corporation tax recoverable (31 December 2023: £Nil). (d) Waard Group: Recognised deferred tax assets and liabilities 31 December Foreign 2023 Credit / exchange 2024 Assets / Arising on (charge ) translation Assets / (liabilities ) acquisition in year difference (liabilities ) £m £m £m £m £m Fair value adjustments on acquisition 27.1 – (26.5 ) (0.6 ) – Defined benefit scheme obligations 1.2 – (0.1 ) (0.1 ) 1.0 Valuation differences 1.0 – 10.2 (0.2 ) 11.0 Valuation differences on investments 5.7 – 17.5 (0.7 ) 22.5 Total 35.0 – 1.1 (1.6 ) 34.5 Comprising: Net deferred tax asset 40.0 – (3.8 ) (1.7 ) 34.5 Net deferred tax liabilities (5.0 ) – 4.9 0.1 – Total 35.0 – 1.1 (1.6 ) 34.5 31 December Foreign 2022 Credit / exchange 2023 Assets / Arising on (charge ) translation Assets / (liabilities ) acquisition in year difference (liabilities ) £m £m £m £m £m Fair value adjustments on acquisition 2.1 28.9 (3.8 ) (0.1 ) 27.1 Defined benefit scheme obligations – 1.1 0.1 – 1.2 Valuation differences 2.0 – (0.9 ) (0.1 ) 1.0 Valuation differences on investments – 5.8 (0.1 ) – 5.7 Total 4.1 35.8 (4.7 ) (0.2 ) 35.0 Comprising: Net deferred tax asset 4.1 35.8 0.1 – 40.0 Net deferred tax liabilities – – (4.8 ) (0.2 ) (5.0 ) Total 4.1 35.8 (4.7 ) (0.2 ) 35.0 232 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Scildon: Recognised deferred tax assets and liabilities 31 December Foreign 2023 (Charge) / Recognised exchange 2024 Assets / credit through translation Assets / (liabilities ) in year equity difference (liabilities ) £m £m £m £m £m Deferred acquisition costs 6.1 – – (0.3 ) 5.8 Revaluation of buildings and investment properties (0.7 ) (0.1 ) – – (0.8 ) Valuation differences on technical provisions (30.4 ) (0.3 ) – 1.4 (29.3 ) Valuation differences on investments at fair value through profit and loss 23.0 (5.9 ) – (0.9 ) 16.2 Non-compensable losses within fiscal unity 5.6 4.3 1.3 (0.4 ) 10.8 Total 3.6 (2.0 ) 1.3 (0.2 ) 2.7 Comprising: Net deferred tax assets 10.5 5.5 1.3 (0.6 ) 16.7 Net deferred tax liabilities (6.9 ) (7.5 ) – 0.5 13.9 Total 3.6 (2.0 ) 1.3 (0.2 ) 2.7 31 December Foreign 2022 (Charge) / Recognised exchange 20243 Assets / credit through translation Assets / (liabilities ) in year equity difference (liabilities ) £m £m £m £m £m Deferred acquisition costs 6.1 0.1 – (0.1 ) 6.1 LAT reserve (1.8 ) 1.8 – – – Revaluation of buildings and investment properties (0.8 ) (0.1 ) – 0.2 (0.7 ) Valuation differences on technical provisions (35.5 ) 4.3 – 0.8 (30.4 ) Valuation differences on investments at fair value through profit and loss 36.9 (13.0 ) – (0.9 ) 23.0 Non-compensable losses within fiscal unity – – – 5.6 5.6 Total 4.9 (6.9 ) – 5.6 3.6 Comprising: Net deferred tax assets 4.9 – – 5.6 10.5 Net deferred tax liabilities – (6.9 ) – – (6.9 ) Total 4.9 (6.9 ) – 5.6 3.6 CHESNARAANNUALREPORTANDACCOUNTS2024233 IFRS FINANCIAL STATEMENTS SECTION G BALANCE SHEET LIABILITIES G5 Deferred income G6 Other current liabilities 31 December 2024 2023 31 December Restated £m £m 2024 2023 £m £m Balance at 1 January 2.8 3.5 Release to income (0.2 ) (0.6 ) Reinsurance payables Settlements (1.3 ) – Payables in respect of investment contracts 0.6 0.9 Foreign exchange translation difference – (0.1 ) Liabilities for assets withheld 40.0 45.5 Reinsurers share of deferred acquisition costs and claims deposits 0.1 0.1 Balance at 31 December 1.3 2.8 Sub-total 40.7 46.5 Current 0.2 0.2 Non-current 1.1 2.6 Payables related to investment contracts Accrued claims 21.0 19.9 Total 1.3 2.8 Policyholder liabilities 3.7 2.6 The release to income is included in fees and commission income (see Note D3). These are Sub-total 24.7 22.5 initial fees that relate to future provision of services that are deferred and amortised over the Other payables anticipated period. Accrued expenses 13.4 13.9 VAT 0.3 0.2 Employee tax 2.3 2.1 Other 21.8 27.7 Sub-total 37.8 43.9 Income taxes 26.5 18.8 Total 129.7 131.7 Current 74.5 131.7 Non-current 55.2 – Total 129.7 131.7 The carrying value of other payables is a reasonable approximation of fair value. 234 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION H SHAREHOLDER EQUITY H1 Share capital and share premium H3 Retained earnings Group 2024 2023 Group 2023 2023 31 December Number Share Number Share Year ended 31 December £m £m of shares capital of shares capital issued £m issued £m Retained earnings attributable to equity holders of the Parent Company comprise: Share capital 150,991,019 7.5 150,849,587 7.5 Balance at 1 January 167.0 183.1 Profit/(loss) for the year 3.9 18.6 Share-based payment 2.1 0.7 Share Share Dividends premium premium Final approved and paid for 2022 – (22.8 ) £m £m Interim approved and paid for 2023 – (12.6 ) Final approved and paid for 2023 (23.5 ) – 142.5 142.5 Interim approved and paid for 2024 (13.0 ) – Balance at 31 December 136.5 167.0 Merger Merger reserve reserve The interim dividend in respect of 2023, approved and paid in 2023, was paid at the rate of 8.36p £m £m per share. The final dividend in respect of 2023, approved and paid in 2024, was paid at the rate of 15.61p per share so that the total dividend paid to the equity shareholders of the Parent Company 36.3 36.3 in respect of the year ended 31 December 2023 was made at the rate of 23.97p per share. The number of shares in issue at the balance sheet date included Nil shares held in treasury The interim dividend in respect of 2024, approved and paid in 2024, was paid at the rate of 8.61p (31 December 2023: Nil). per share to equity shareholders of the Parent Company registered at the close of business on 20 September 2024, the dividend record date. The merger reserve is for presentation purposes only in order to show the correct share capital of Chesnara plc following the reverse acquisition in 2004. A final dividend of 16.08p per share in respect of the year ended 31 December 2024 payable on 20 May 2025 to equity shareholders of the Parent Company registered at the close of business on H2 Other reserves 4 April 2025, the dividend record date, was approved by the directors after the balance sheet date. The resulting total final dividend of £23.5m has not been provided for in these financial statements Group 2024 2023 and there are no income tax consequences. 31 December £m £m The following summarises dividends per share in respect of the year ended 31 December 2023 and Capital redemption reserve 0.1 0.1 31 December 2024: Foreign exchange translation differences (9.4 ) 5.9 Other items of comprehensive income 0.9 0.5 Year ended 31 December 2024 2023 P P Balance at 31 December (8.4 ) 6.5 Interim – approved and paid 8.61 8.36 The foreign exchange translation reserve represents the cumulative impact of exchange differences Final – proposed/paid 16.08 15.61 arising on translation of the financial results of Movestic, Scildon and Waard to sterling, with these Total 24 .6 9 2 3 . 97 exchange differences reported as other comprehensive income within each reporting period. The movement in the year is due to the strengthening of sterling against the euro and Swedish krona. CHESNARAANNUALREPORTANDACCOUNTS2024235 IFRS FINANCIAL STATEMENTS SECTION I ADDITIONAL DISCLOSURES I1 Employee benefit expense, including directors Year ended 31 December Waard Other Group UK Movestic Group Scildon activities 2024 2023 £m £m £m £m £m £m £m Wages and salaries 3.6 7.8 4.0 8.2 8.5 32.1 31.0 Social security costs 0.6 2.9 0.4 1.1 1.2 6.2 5.8 Pension costs-defined contribution plans 0.4 1.7 0.5 1.2 1.0 4.8 4.4 Total 4.6 12.4 4.9 10.5 10.7 43.1 41.2 Monthly average number of employees Company 82 62 Subsidiaries 273 325 Total 355 387 Directors Under the Company’s new defined contribution scheme, Scildon pays a contribution to the The Directors’ Remuneration Report and Note I2 provides detail of compensation to directors of scheme and subsequently has no further financial obligations with respect to this part of the scheme. the Company. This contribution is recognised as an expense when paid. UK Movestic UK-based employees are all employed by Chesnara plc. The Swedish business participates in a combined defined benefit and defined contribution scheme operated by Försäkringsbranschens Pensionskassa, ‘FPK’. (the Scheme). The Scheme is At the end of May 2005, the Group allowed eligible employees to enter a pension scheme known as a multi-employer scheme with participants including other Swedish insurance companies not the Chesnara plc Stakeholder Scheme, on a basis where employer contributions are made to the related to the Group. The Scheme provides, for those born in 1971 or earlier, benefits to employees Scheme at the same rate as would be payable had their membership of their predecessor scheme which are linked to their final salary and to the amount of time working for companies which continued, provided that employee contributions also continued to be made at the same rate. The are members of the Scheme. For those employees born in 1972 or later, the Scheme operates employee may opt to request the Company to pay employer contributions into a personal pension on a defined contribution basis. plan, in which instance, employer contributions will be made on the same terms as for the Chesnara plc Stakeholder Scheme. Assets and liabilities are held on a pooled basis and are not allocated by the Trustee to any individual company. Consequently, reliable information is not available to account for the Scheme as a The Group has, for the period covered by these financial statements, only made contributions to defined benefit scheme and therefore, in accordance with IAS 19 Employee Benefits, the Scheme defined contribution plans to provide pension benefits for employees upon retirement and, otherwise, is accounted for as a defined contribution scheme. has no residual obligation or commitments in respect of any defined benefit scheme. Contributions to the Scheme are based on the funding recommendations of the independent The Group has established frameworks for approved and unapproved discretionary share option qualified actuary: the contributions paid to the Scheme subsequent to the acquisition of the Swedish plans which may, at the discretion of the Remuneration Committee, be utilised for granting options business on 23 July 2009 and up to 31 December 2023, totalled £5.4m (SEK 74.2m). to executive directors and to other Group employees. Options have been granted to executive directors in the period, in relation to the share-based payment components of the new executive During 2024 further contributions of £0.4m were made. incentive schemes that was introduced under the 2014 terms. Further details can be found in the The employers within the Scheme are collectively responsible for the funding of the Scheme as a Directors’ Remuneration Report section and in Note I2. whole and therefore in the event that other employers exit from the Scheme, remaining employers Waard would be responsible for the ongoing funding. The collective nature of the Scheme results in all The Waard business participates in a defined contribution scheme. As a result of the Conservatrix participating entities sharing the actuarial risk associated with the Scheme. acquisition, Waard Leven assumed the obligations under a defined benefit pension scheme for Försäkringsbranschens Pensionskassa, ‘FPK’, issues an audited Annual Report (under Swedish a small number of former Conservatrix employees. This scheme is closed to new entrants with no law-limited IFRS) each year. The last available published report was as at 31 December 2022. further benefits accruing and as such the exposure for Waard Leven is limited to the longevity risk of the contracts. The liability is valued under IAS 19 and reported under ‘Other provisions’ in the The Annual Report states that the Scheme’s surplus is £260.1m (£339.3m as at 31 December 2023). balance sheet. As at 31 December 2023, the fund had assets under management of £1.3bn (31 December 2022: Scildon £1.3bn). During 2023 there were 97 (2022: 97) employer insurance companies participating in the Scildon operated a defined benefit pension scheme for the benefit of its present and past employees. Scheme and 22,000 (31 December 2022: 22,000) insured individuals. From the available information, This scheme was closed during 2019 and transferred into a defined contribution scheme. From it cannot be determined with certainty as to whether there would be a change in the required 1 October 2019, Scildon no longer bears any risks relating to the funding of the plan and all pension employer funding rate, although there is currently no deficit in the Scheme. assets were transferred to another administrator in 2020. Until that point, Scildon continued to bear only the fund administration costs. 236 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I2 Share-based payments (b) 2024 award made under the Long-Term Incentive Plan (LTIP) The Group issues equity-settled share-based payments to the executive directors and members of In 2024, the Group granted 708,094 Nil priced share options with a vesting period of 3 years. the senior management team based on the 2014 terms. Equity settled share-based payments are These awards were subject to performance conditions tied to the Company’s financial performance measured at fair value at the date of the grant, and expensed on a straight-line over the vesting in respect of growth in Economic Value, Commercial Cash Generation and Total Shareholder period, based on the Group’s estimate of shares that will eventually vest. The bonus scheme consists Return (TSR). of two components: The fair value of the non-market base condition was determined to be 150.26p, which was the average (a) Short-Term Incentive Scheme (STIS) weighted share price as at the grant date of the options. (b) Long-Term Incentive Plan (LTIP) Details of the share options outstanding during the year are as follows: The STIS is based upon a 1 year performance period measured against cash generation, EcV Earnings 2024 Long-Term Incentive Plan (LTIP) 2024 and strategic Group objectives. In relation to 2024, upon meeting the necessary performance Weighted targets, the Company granted an award in the form of a right to receive a cash amount of up to average 100% of the gross salary. In the event that the gross cash payment due is greater than £20,000, Options exercise a mandatory 35% of the cash award was deferred into shares, which had a vesting period of 3 years. number price Therefore the award was 65% settled in cash and 35% settled by a share option award, which 000 £ cannot be exercised for 3 years. Outstanding at the beginning of the year – – Under the LTIP, options are granted with a vesting period of 3 years. These awards are subject to Granted during the year 708,094 – performance conditions tied to the Company’s financial performance in respect of growth in EcV, Lapsed during the year – – Commercial Cash Generation and Total Shareholder Return (TSR). Outstanding at the end of the year 708,094 – For schemes with market performance criteria, the number of options expected to invest is adjusted only for expectations of leavers prior to vesting. Fair value of the options is measured by use of The weighted average contractual life is 10 years. the Monte Carlo model at the issuing date. The inputs into the Monte Carlo model are as follows: The LTIP also contains a target of EcV growth and Commercial Cash Generation. As these are non-market performance conditions, the number of options expected to vest is recalculated at each Valuation method Monte Carlo balance sheet date based on expectations of performance against target. The movement in Weighted average share price (pence) 266.50 cumulative expense since the previous balance sheet date is recognised in the income statement, Weighted average exercise price (pence) Nil with a corresponding entry in reserves. Weighted average fair value of options granted (pence) 152.46 Expected volatility 28.19 If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Expected life 3 years Furthermore, options are forfeited if the employee leaves the Group before options vest and is Risk-free rate 4.57% deemed to be a ‘Bad Leaver’. Expected dividend yield 0% (a) 2024 award made under the Short-Term Incentive Scheme (STIS) Expected volatility was determined by calculating the historical volatility of the Company’s share Details of the short-term incentive awards made in the year are as follows: price over the previous 10 years. The Group recognised total expense of £334,219 related to equity-settled share-based payments 2024 Short-Term Incentive Scheme (STIS) 2024 2023 transactions in 2024. Awards made in year £m £m Amount paid as cash bonus through the income statement (65%) 0.6 0.5 (c) 2023 award made under the Short-Term Incentive Scheme (STIS) Amount deferred into shares for 3 years and subject to forfeiture (35%) 0.3 0.3 The Group has recorded an expense of £60,825 (2023: £60,825) with regards to the 35% element that has been deferred over the vesting period. Total bonus award for the year 0.9 0.8 Amount of deferred expense recorded in the current year 0.1 0.1 The deferred share award will be made following the end of the performance period by the Remuneration Committee. The deferred amount will be divided by the share price on the award date and the number of share awards will be awarded. The share awards will be accounted for per IFRS 2, under Equity Settled share-based payments. CHESNARAANNUALREPORTANDACCOUNTS2024237 IFRS FINANCIAL STATEMENTS SECTION I ADDITIONAL DISCLOSURES (d) 2023 award made under the Long-Term Incentive Plan (LTIP) Details of the share options outstanding during the year are as follows: In 2023, the Group granted 571,645 Nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to the Company’s financial performanc e 2022 Long-Term Incentive Plan (LTIP) 2024 2023 in respect of growth in Economic Value, Commercial Cash Generation and Total Shareholder Weighted Weighted average average Return (TSR). Options exercise Options exercise The fair value of the non-market base condition was determined to be 154.53p, which was the number price number price average weighted share price as at the grant date of the options. 000 £ 000 £ Details of the share options outstanding during the year are as follows: Outstanding at the beginning of the year 253 – 253 – Granted during the year – – – – 2023 Long-Term Incentive Plan (LTIP) 2024 2023 Lapsed during the year (3 ) – – – Weighted Weighted average average Outstanding at the end of the year 250 – 253 – Options exercise Options exercise number price number price The weighted average contractual life is 10 years. 000 £ 000 £ The inputs into the Monte Carlo model are as follows: Outstanding at the beginning of the year 572 – – – Granted during the year – – 572 – Valuation method Monte Carlo Lapsed during the year (42 ) – – – Weighted average share price (pence) 284.00 Weighted average exercise price (pence) Nil Outstanding at the end of the year 530 – 572 – Weighted average fair value of options granted (pence) 162.50 Expected volatility 29.04 The weighted average contractual life is 10 years. Expected life 3 years Risk-free rate 2.24% The inputs into the Monte Carlo model are as follows: Expected dividend yield 0% Valuation method Monte Carlo Expected volatility was determined by calculating the historical volatility of the Company’s share Weighted average share price (pence) 268.00 price over the previous 10 years. Weighted average exercise price (pence) Nil Weighted average fair value of options granted (pence) 154.53 The Group recognised total expense of £115,033 (2023: £55,714) related to equity-settled Expected volatility 29.39 share-based payments transactions in 2023. Expected life 3 years Risk-free rate 5.70% (g) 2021 award made under the Short-Term Incentive Scheme (STIS) Expected dividend yield 0% The Group has recorded an expense of £76,913 (2023: £76,913) with regards to the 35% element that has been deferred over the vesting period. Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 10 years. (h) 2021 award made under the Long-Term Incentive Plan (LTIP) The Group recognised total expense of £335,807 (2023: £88,222) related to equity-settled In April 2021, the Group granted 260,000 Nil priced share options with a vesting period of 3 years. share-based payments transactions in 2024. These awards were subject to performance conditions tied to the Company’s financial performance in respect of growth in Economic Value and Total Shareholder Return (TSR). (e) 2022 award made under the Short-Term Incentive Scheme (STIS) The fair value of the non-market base condition was determined to be 278.50p, which was the share The Group has recorded an expense of £59,319 (2023: £59,319) with regards to the 35% elemen t price as at 28 April 2021, the grant date of the options. that has been deferred over the vesting period. Details of the share options outstanding during the year are as follows: (f) 2022 award made under the Long-Term Incentive Plan (LTIP) In April 2022, the Group granted 253,000 Nil priced share options with a vesting period of 3 years. 2021 Long-Term Incentive Plan (LTIP) 2024 2023 These awards were subject to performance conditions tied to the Company’s financial performanc e Weighted Weighted average average in respect of growth in Economic Value and Total Shareholder Return (TSR). Options exercise Options exercise The fair value of the non-market base condition was determined to be 284.00p, which was the number price number price share price as at 28 April 2022, the grant date of the options. 000 £ 000 £ Outstanding at the beginning of the year 342 – 532 – Exercised during the year (113 ) 2.54 (123 ) 2.78 Lapsed during the year (203 ) – (67 ) – Outstanding at the end of the year 26 – 342 – The weighted average contractual life is 10 years. 238 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The inputs into the Monte Carlo model are as follows: (k) 2019 award made under the Short-Term Incentive Scheme (STIS) The Group has recorded an expense of £nil (2023: £14,289) with regards to the 35% element that Valuation method Monte Carlo has been deferred over the vesting period. Weighted average share price (pence) 278.50 Weighted average exercise price (pence) Nil (l) 2019 award made under the Long-Term Incentive Plan (LTIP) Weighted average fair value of options granted (pence) 160.56 In April 2019, the Group granted 196,000 Nil priced share options with a vesting period of 3 years. Expected volatility 30.01 These awards were subject to performance conditions tied to the Company’s financial performance Expected life 3 years in respect of growth in Economic Value and Total Shareholder Return (TSR). Risk-free rate 0.48% Expected dividend yield 0% The fair value of the non-market base condition was determined to be 358.50p, which was the share price as at 28 April 2019, the grant date of the options. Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 10 years. Details of the share options outstanding during the year are as follows: The Group recognised total expense of £48,603 (2023: £45,085) related to equity-settled 2019 Long-Term Incentive Plan (LTIP) 2024 2023 share-based payments transactions in 2024. Weighted Weighted average average (i) 2020 award made under the Short-Term Incentive Scheme (STIS) Options exercise Options exercise The Group has recorded an expense of £14,775 (2023: £59,099) with regards to the 35% element number price number price 000 £ 000 £ that has been deferred over the vesting period. Outstanding at the beginning of the year – – – – (j) 2020 award made under the Long-Term Incentive Plan (LTIP) Lapsed during the year – – – – In April 2020, the Group granted 224,000 Nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to the Company’s financial performance Outstanding at the end of the year – – – – in respect of growth in Economic Value and Total Shareholder Return (TSR). The weighted average contractual life is 10 years. The fair value of the non-market base condition was determined to be 323.50p, which was the share price as at 28 April 2020, the grant date of the options. The inputs into the Monte Carlo model are as follows: Details of the share options outstanding during the year are as follows: Valuation method Monte Carlo Weighted average share price (pence) 358.50 2020 Long-Term Incentive Plan (LTIP) 2024 2023 Weighted average exercise price (pence) Nil Weighted Weighted Weighted average fair value of options granted (pence) 202.74 average average Expected volatility 25.35 Options exercise Options exercise Expected life 3 years number price number price Risk-free rate 1.110% 000 £ 000 £ Expected dividend yield 0% Outstanding at the beginning of the year 38 – 192 – Exercised during the year – – (28 ) 2.82 Expected volatility was determined by calculating the historical volatility of the Company’s share Lapsed during the year – – (126 ) – price over the previous 10 years. The Group recognised no expense related to equity-settled share-based payments transactions Outstanding at the end of the year 38 – 38 – in 2024. The weighted average contractual life is 10 years. (m) 2018 award made under the Short-Term Incentive Scheme (STIS) The inputs into the Monte Carlo model are as follows: The Group has recorded no expense with regards to the 35% element that has been deferred over the vesting period. Valuation method Monte Carlo Weighted average share price (pence) 323.50 (n) 2018 award made under the Long-Term Incentive Plan (LTIP) Weighted average exercise price (pence) Nil In April 2018, the Group granted 168,000 Nil priced share options with a vesting period of 3 years. Weighted average fair value of options granted (pence) 184.04 These awards were subject to performance conditions tied to the Company’s financial performance Expected volatility 28.51 in respect of growth in Economic Value and Total Shareholder Return (TSR). Expected life 3 years Risk-free rate 0.42% The fair value of the non-market base condition was determined to be 410.00p, which was the share Expected dividend yield 0% price as at 28 April 2018, the grant date of the options. Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 10 years. The Group recognised total expense of £nil (2023: £18,750) related to equity-settled share-based payments transactions in 2023. CHESNARAANNUALREPORTANDACCOUNTS2024239 IFRS FINANCIAL STATEMENTS SECTION I ADDITIONAL DISCLOSURES I2 Share-based payments (continued) The inputs into the Monte Carlo model are as follows: (n) 2018 award made under the Long-Term Incentive Plan (LTIP) (continued) Details of the share options outstanding during the year are as follows: Valuation method Monte Carlo Weighted average share price (pence) 382.75 2019 Long-Term Incentive Plan (LTIP) 2024 2023 Weighted average exercise price (pence) Nil Weighted Weighted Weighted average fair value of options granted (pence) 211.73 average average Expected volatility 26.97 Options exercise Options exercise Expected life 3 years number price number price Risk-free rate 0.70% 000 £ 000 £ Expected dividend yield 0% Outstanding at the beginning of the year – – – – Expected volatility was determined by calculating the historical volatility of the Company’s share Lapsed during the year – – – – price over the previous 10 years. Outstanding at the end of the year – – – – The Group recognised no expense related to equity-settled share-based payments transactions in 2024 and 2023. The weighted average contractual life is 10 years. (p) 2016 award made under the Long-Term Incentive Plan (LTIP) The inputs into the Monte Carlo model are as follows: In April 2016, the Group granted 255,000 Nil priced share options with a vesting period of 3 years. These awards were subject to performance conditions tied to the Company’s financial performance Valuation method Monte Carlo in respect of growth in Economic Value and Total Shareholder Return (TSR). Weighted average share price (pence) 410.00 Weighted average exercise price (pence) Nil The fair value of the non-market base condition was determined to be 312.00p, which was the share Weighted average fair value of options granted (pence) 229.78 price as at 28 April 2016, the grant date of the options. Expected volatility 25.77 Expected life 3 years Details of the share options outstanding during the year are as follows: Risk-free rate 1.190% Expected dividend yield 0% 2016 Long-Term Incentive Plan (LTIP) 2024 2023 Weighted Weighted Expected volatility was determined by calculating the historical volatility of the Company’s share average average Options exercise Options exercise price over the previous 10 years. number price number price The Group recognised no expense related to equity-settled share-based payments transactions 000 £ 000 £ in 2024. Outstanding at the beginning of the year – – 90 – Exercised during the year – – (90 ) 2.63 (o) 2017 award made under the Long-Term Incentive Plan (LTIP) In April 2017, the Group granted 174,000 Nil priced share options with a vesting period of 3 years. Outstanding at the end of the year – – – – These awards were subject to performance conditions tied to the Company’s financial performance in respect of growth in Economic Value and Total Shareholder Return (TSR). The weighted average contractual life is 10 years. The fair value of the non-market base condition was determined to be 382.75p, which was the share The inputs into the Monte Carlo model are as follows: price as at 28 April 2017, the grant date of the options. Details of the share options outstanding during the year are as follows: Valuation method Monte Carlo Weighted average share price (pence) 312.00 2017 Long-Term Incentive Plan (LTIP) 2024 2023 Weighted average exercise price (pence) Nil Weighted Weighted Weighted average fair value of options granted (pence) 179.72 average average Expected volatility 28.07 Options exercise Options exercise Expected life 3 years number price number price Risk-free rate 0.86% 000 £ 000 £ Expected dividend yield 0% Outstanding at the beginning of the year – – 26 – Expected volatility was determined by calculating the historical volatility of the Company’s share Exercised during the year – – (26 ) 2.63 price over the previous 10 years. Outstanding at the end of the year – – – – The Group recognised no expense related to equity-settled share-based payments transactions in 2024 and 2023. The weighted average contractual life is 10 years. 240 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I3 Earnings per share In addition to their salaries, the Company also provides non-cash benefits to directors and contributes Earnings per share are based on the following: to a post-employment defined contribution pension plan on their behalf, or where regulatory contribution limits are reached, pay an equivalent amount as an addition to base salary. Year ended 31 December Restated The following amounts were payable to directors in respect of bonuses and incentives: 2024 2023 (Loss)/profit for the year attributable to shareholders (£m) 3.9 18.7 2024 2023 Weighted average number of ordinary shares 150,938,024 150,528,597 £m £m Basic earnings per share 2.56 p 12.41 p Diluted earnings per share 2.52 p 12.29 p Annual bonus scheme (included in the short-term employee benefits above) 0.9 0.7 The weighted average number of ordinary shares in respect of the year ended 31 December 2024 These amounts have been included in accrued expenses as disclosed in Note G6. The amounts is based upon 150,991,019 shares. No shares were held in treasury. payable under the annual bonus scheme were payable within 1 year. The terms and conditions There were 2,330,118 share options outstanding at 31 December 2024 (2023: 1,537,582). attached to the annual bonus scheme can be found in the Remuneration section of the Corporate Accordingly, there is dilution of the average number of ordinary shares in issue in respect of 2024 Governance section of the Annual Report and Accounts. and 2023. (ii) Transactions with subsidiaries The Company undertakes centralised administration functions, the costs of which it charges back I4 Capital commitments to its operating subsidiaries. The following amounts which effectively comprised a recovery of There were no capital commitments as at 31 December 2024 or as at 31 December 2023. expenses at no mark-up were credited to the Statement of Comprehensive Income of the Company for the respective periods: I5 Related parties (a) Identity of related parties Year ended 31 December 2024 2023 The shares of the Company were widely held and no single shareholder exercised significant £m £m influence or control over the Company. The Company has related party relationships with: Recovery of expenses 7.2 5.4 (i) key management personnel who comprise the directors (including non-executive directors) (iii) Transactions between subsidiaries of the Company; In the Netherlands, Scildon owns a commercial property that has been occupied by its fellow Dutch (ii) its subsidiary companies; subsidiary Waard since October 2022. The following amounts of rental income were received from Waard by Scildon during the respective periods: (iii) other companies over which the directors have significant influence; and Year ended 31 December 2024 2023 (iv) transactions with persons related to key management personnel. £m £m (b) Related party transactions Rental income 0.1 0.1 (i) Transactions with key management personnel. Key management personnel comprise of the directors of the Company. This is on the basis that the (iv) Transactions with persons related to key management personnel Group’s governance map requires all strategically significant decisions to be approved by the Group During the year, there were no transactions with persons related to key management personnel Board. As such, they have the authority and responsibility for planning, directing and controlling the (31 December 2023: £Nil). activities of the Group. Key management compensation is as follows: 2024 2023 £m £m Short-term employee benefits 3.1 2.1 Post-employment benefits 0.1 0.1 Share-based payments 1.5 0.6 Total 4.7 2.8 The share-based payments charge comprises £0.3m (2023: £0.3m) of Short-Term Incentive Scheme (STIS), and £1.3m (2023: £0.2m) related to Long-Term Incentive Plan (LTIP), which is determined in accordance with IFRS 2 ‘Share-based Payment’. Further details on the share-based payment are disclosed in Note I2. CHESNARAANNUALREPORTANDACCOUNTS2024241 IFRS FINANCIAL STATEMENTS SECTION I ADDITIONAL DISCLOSURES I6 Group entities Control of the Group The issued share capital of Chesnara plc, the Group Parent Company, is widely held, with no single party able to control 20% or more of such capital or of the rights which such ownership confers. Group subsidiary companies Country of Ownership interest Ownership interest Functional Name incorporation 31 December 2024 31 December 2023 Currency Countrywide Assured plc United Kingdom 100% of all share capital (1) 100% of all share capital (1) Sterling Countrywide Assured Life Holdings Limited United Kingdom 100% of all share capital 100% of all share capital Sterling Countrywide Assured Services Limited United Kingdom 100% of all share capital (1) 100% of all share capital (1) Sterling Countrywide Assured Trustee Company Limited United Kingdom 100% of all share capital (1) 100% of all share capital (1) Sterling CASLP Limited United Kingdom 100% of all share capital 100% of all share capital Sterling CASFS Limited United Kingdom 100% of all share capital (2) 100% of all share capital (2) Sterling CASLPTS Limited United Kingdom 100% of all share capital (2) 100% of all share capital (2) Sterling Registered address 2nd Floor, Building 4, West Strand Business Park, West Strand Road, Preston, Lancashire PR1 8UY Movestic Livförsäkring AB Sweden 100% of all share capital 100% of all share capital Swedish krona Movestic Fonder AB Sweden 100% of all share capital (3) 100% of all share capital (3) Swedish krona Registered address Box 7853, S-103 99 Stockholm, Sweden Waard Leven N.V. Netherlands 100% of all share capital 100% of all share capital Euro Waard Schade N.V. Netherlands 100% of all share capital 100% of all share capital Euro Waard Verzekeringen B.V. Netherlands 100% of all share capital (4) 100% of all share capital (4) Euro Robein Leven N.V. Netherlands 100% of all share capital (4) 100% of all share capital (4) Euro Robein Effectendienstveriening N.V. Netherlands 100% of all share capital (4) 100% of all share capital (4) Euro Registered address Geert Scholtenslaan II 1687 CL Wognum, Netherlands Scildon N.V Netherlands 100% of all share capital 100% of all share capital Euro Registered address Laapersveld 68 Hilversum, Netherlands (1) Held indirectly through Countrywide Assured Life Holdings Limited. (2) Held indirectly through Countrywide Assured plc. (3) Held indirectly through Movestic Livförsäkring AB. (4) Held indirectly through Waard Leven N.V. CASLP Limited was dissolved on 14 January 2025. CASFS Limited (registered number: 02354894) and CASLPTS Limited (registered number: 01489455) are exempt from the requirements of the Companies Act 2006 relating to the audit of individual financial statements by virtue of s.479A of the Companies Act 2006. 242 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS I7 Portfolio acquisition On 23 December 2024, Chesnara announced it had reached an agreement to acquire the UK unit-linked bond and pension business of Canada Life Limited, representing approximately 17,000 policies. The transaction is initially in the form of a reinsurance agreement with the non-unit cash flows of the unit-linked policies ceded by Canada Life Limited and accepted by CA. The date of recognition of the reinsurance contract under IFRS 17 is 23 December 2024, however under the terms of the contract the economic impacts are backdated to 1 January 2024 and the cash flows from this date are accordingly recognised as a receivable in the December 2024 balance sheet. The initial commission paid by CA to Canada Life Limited for this reinsurance inwards transaction was £2.2m and was funded from internal group resources. As no inputs and processes have been transferred as part of the transaction it is not accounted for as a business combination, instead it is recognised at cost. The CSM on initial recognition has been calculated as £0.7m as at 31 December 2024. Customers’ policies are expected to transfer to CA in the future via a Part VII transfer, following Court approval. I8 Post balance sheet event The directors are not aware of any significant post balance sheet events that require disclosure in the financial statements. CHESNARAANNUALREPORTANDACCOUNTS2024243 IFRS FINANCIAL STATEMENTS COMPANY BALANCE SHEET 31 December 2024 2023 Note £m £m Assets Non-current assets Investments in subsidiaries J1 389.9 399.6 Deferred tax asset 1.5 0.9 Total non-current assets 391.4 400.5 Current assets Financial investments J2 104.0 114.6 Other assets 13.7 6.0 Cash and cash equivalents J4 4.8 5.7 Total current assets 122.5 126.3 Total assets 513.9 526.8 Current liabilities Lease contract liabilities – – Derivative financial instruments J3 0.3 4.4 Other current liabilities J6 5.0 4.4 Total current liabilities 5.3 8.8 Non-current liabilities Borrowings J5 200.8 200.6 Total non-current liabilities 200.8 200.6 Total liabilities 206.1 209.4 Net assets 307.6 317.4 Shareholders’ equity Share capital J7 7.5 7.5 Share premium J7 142.5 142.5 Other reserves J8 0.1 0.1 Retained earnings J9 157.5 167.3 Total shareholders’ equity 307.6 317.4 The Notes and information on pages 247 to 249 form part of these financial statements. Approved by the Board of Directors and authorised for issue on 26 March 2025 and signed on its behalf by: Luke Savage Steve Murray Chair Chief Executive Officer Company number: 04947166 In accordance with the exemption allowed by Section 408 of the Companies Act 2006, the Company has not presented its own income statement or statement of other comprehensive income. The Company reported a profit of £24.7m (2023: £26.8m) during the year. The retained profits of the Company at 31 December 2024 was £157.5m (31 December 2023: £167.3m). 244 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 PARENT COMPANY FINANCIAL STATEMENTS COMPANY STATEMENT OF CASH FLOWS Year ended 31 December 2024 2023 £m £m Profit/(loss) for the year 24.7 26.8 Adjustments for: Tax expense/(recovered) (1.8 ) 0.2 Interest expense 10.5 10.3 Share-based payment 2.1 0.7 Dividends receivable (49.0 ) (71.3 ) Depreciation on right-of-use assets 0.1 0.1 Impairment on investment in subsidiary 4.0 14.4 Fair value (gains)/losses on financial assets (9.3 ) (7.2 ) Adjustment total (43.4 ) (52.8 ) Changes in operating assets and liabilities: Increase in other assets (4.6 ) (4.0 ) Decrease/(increase) in prepayments – – Decrease/(increase) in financial assets 19.7 (1.0 ) Increase in other current liabilities (1.6 ) 9.4 Net cash utilised by operations (5.2 ) (21.6 ) Income tax paid – – Net cash utilised by operating activities (5.2 ) (21.6 ) Cash flows from investing activities Capital contribution received from subsidiary companies 5.8 – Dividends received from subsidiary companies 45.3 71.3 Net cash generated by investing activities 51.1 71.3 Cash flows from financing activities Net proceeds from the issue of share capital – 0.2 Repayment of principal under lease liabilities – (0.1 ) Dividends paid (36.5 ) (35.4 ) Interest paid (10.3 ) (10.1 ) Net cash utilised by financing activities (46.8 ) (45.4 ) Net (decrease)/increase in net cash and cash equivalents (0.9 ) 4.3 Net cash and cash equivalents at beginning of period 5.7 1.4 Net cash and cash equivalents at end of the period 4.8 5.7 Note. Net cash and cash equivalents includes overdrafts. The Notes and information on pages 247 to 249 form part of these financial statements. CHESNARAANNUALREPORTANDACCOUNTS2024245 IFRS FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2024 Share Share Other Retained capital premium reserves earnings Total £m £m £m £m £m Equity shareholders’ funds at 1 January 2024 7.5 142.5 0.1 167.3 317.4 Profit for the year and total comprehensive income – – – 24.7 24.7 Dividends paid – – – (36.5 ) (36.5 ) Share-based payment – – – 2.0 2.0 Equity shareholders’ funds at 31 December 2024 7.5 142.5 0.1 157.5 307.6 Year ended 31 December 2023 Share Share Other Retained capital premium reserves earnings Total £m £m £m £m £m Equity shareholders’ funds at 1 January 2023 7.5 142.3 0.1 175.2 325.1 Profit for the year and total comprehensive income – – – 26.8 26.8 Issue of share premium – 0.2 – – 0.2 Dividends paid – – – (35.4 ) (35.4 ) Share-based payment – – – 0.7 0.7 Equity shareholders’ funds at 31 December 2023 7.5 142.5 0.1 167.3 317.4 The Notes and information on pages 247 to 249 form part of these financial statements. 246 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS SECTION J COMPANY NOTES TO THE FINANCIAL STATEMENTS J1 Investment in subsidiary 31 December 2023 Amortised FVTPL – FVTPL – Company cost designated mandatory Total £m £m £m £m Year ended 31 December 2024 2023 £m £m Financial investments Holdings in collective investment schemes – – 114.6 114.6 Cost Debt securities – non government bonds – – – – Balance at 1 January 439.0 439.0 Disposals (5.7 ) (4.8 ) Total – – 114.6 114.6 Balance at 31 December 433.3 439.0 Derivatives and other financial assets Other assets 6.0 – – 6.0 Impairment Cash and cash equivalents – 5.7 – 5.7 Balance at 1 January (39.4 ) (25.0 ) Impairment for the year (4.0 ) (14.4 ) Total financial investments and financial assets 6.0 5.7 114.6 126.3 Balance at 31 December (43.4 ) (39.4 ) Financial liabilities Borrowings 200.6 – – 200.6 Carrying amounts Derivative financial instruments – – 4.4 4.4 At 1 January 399.6 414.0 Other current liabilities 4.4 – – 4.4 At 31 December 389.9 399.6 Total financial liabilities 205.0 – 4.4 209.4 During the year the Company carried out a review of the recoverable amount of its subsidiaries, with EcV used as the basis to determine the recoverable amount and from this assessment it was (b) Financial investment fair values concluded that its investment in Countrywide Assured plc was impaired. As a result, an impairment Fair value is the amount for which an asset or liability could be exchanged between willing parties loss of £4.0m (31 December 2023: £14.4m) has been recognised in the year. The impairment, which in an arm’s length transaction. The tables below show the determination of fair value according was expected, has primarily arisen as a result of Countrywide Assured plc’s policy of distributing its to a three-level valuation hierarchy. Fair values are generally determined at prices quoted in active surplus capital up to Chesnara plc as it becomes available over time. Further details regarding the markets (Level 1). However, where such information is not available, the Group applies valuation assessment are reported in Note A5(j). techniques to measure such instruments. These valuation techniques make use of market-observable data for all significant inputs where possible (Level 2), but in some cases it may be necessary to J2 Financial investments estimate other than market-observable data within a valuation model for significant inputs (Level 3). (a) Financial investments by classification The carrying amounts of the financial investments and other financial assets and liabilities held by Fair value measurement at Level 1 Level 2 Level 3 Total the Group at the balance sheet date are as follows: 31 December 2024 £m £m £m £m Financial assets 31 December 2024 Amortised FVTPL – FVTPL – Holdings in collective investment schemes 93.9 – – 93.9 cost designated mandatory Total Debt securities – non government bonds 10.1 – – 10.1 £m £m £m £m Total 104.0 – – 104.0 Financial investments Holdings in collective investment schemes – – 93.9 93.9 Current 104.0 – – 104.0 Debt securities – non government bonds – – 10.1 10.1 Non-current – – – – Total – – 104.0 104.0 Total 104.0 – – 104.0 Derivatives and other financial assets Financial liabilities Other assets 13.7 – – 13.7 Derivative financial instruments – 0.3 – 0.3 Cash and cash equivalents – 4.8 – 4.8 Total – 0.3 – 0.3 Total financial investments and financial assets 13.7 4.8 104.0 122.5 Financial liabilities Borrowings 200.8 – – 200.8 Derivative financial instruments – – 0.3 0.3 Other current liabilities 5.2 – – 5.2 Total financial liabilities 206.0 – 0.3 206.3 CHESNARAANNUALREPORTANDACCOUNTS2024247 IFRS FINANCIAL STATEMENTS SECTION J COMPANY NOTES TO THE FINANCIAL STATEMENTS J2 Financial investments (continued) (b) Financial investment fair values (continued) J5 Borrowings Fair value measurement at Level 1 Level 2 Level 3 Total 31 December 2024 2023 31 December 2023 £m £m £m £m £m £m Financial assets Tier 2 debt 200.8 200.6 Holdings in collective investment schemes 114.6 – – 114.6 Debt securities – non government bonds – – – – Total 200.8 200.6 Total 114.6 – – 114.6 Current – – Non-current 200.8 200.6 Current 114.6 – – 114.6 Non-current – – – – Total 200.8 200.6 Total 114.6 – – 114.6 In 2022, an existing bank loan was fully repaid and replaced by Tier 2 Subordinated Notes Debt. The notes have a maturity date of 4 February 2032. The fair value of amounts due in relation Financial liabilities to Tier 2 debt at 31 December 2024 was £166.1m (31 December 2023: £148.4m) and is classified Derivative financial instruments – 4.4 – 4.4 as Level 1 in the fair value hierarchy. Total – 4.4 – 4.4 J6 Other current liabilities J3 Derivative financial instruments 31 December 2024 2023 £m £m 31 December 2024 2023 Other payables Asset Liability Asset Liability Accrued expenses 5.0 4.4 £m £m £m £m Total 5.0 4.4 Foreign currency hedge – – – 4.4 Exchange traded futures – 0.3 – – Current 5.0 4.4 Non-current – – Total – 0.3 – 4.4 Total 5.0 4.4 Current – 0.3 – 4.4 Non-current – – – – The carrying value of other payables is a reasonable approximation of fair value. Total – 0.3 – 4.4 J7 Share capital and share premium Cash collateral of £2.4m is pledged in respect of the foreign currency hedge as at the balance sheet date (31 December 2023: £4.4m). 31 December 2024 2023 Number Share Number Share of shares capital of shares capital J4 Cash and cash equivalents issued £m issued £m 31 December 2024 2023 Authorised £m £m Ordinary shares of 5p each 201,000,000 10.1 201,000,000 10.1 Bank and cash balances 4.8 5.7 Issued Ordinary shares of 5p each 150,991,019 7.5 150,849,587 7.5 Total cash and cash equivalents 4.8 5.7 Cash and cash equivalents in the statement of cash flows 4.8 5.7 Share Share premium premium Short-term bank deposits are subject to a combination of fixed and variable interest rates, with £m £m an average maturity of 1 day (31 December 2023: 1 day). All deposits included in cash and cash equivalents were due to mature within 1 month of their acquisition. All balances are current and 142.5 142.5 available on demand. The number of shares in issue at the balance sheet date included Nil shares held in treasury (31 December 2023: Nil). 248 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS J8 Other reserves 31 December 2024 2023 £m £m Capital redemption reserve 0.1 0.1 Balance at 31 December 0.1 0.1 J9 Retained earnings Year ended 31 December 2024 2023 £m £m Retained earnings attributable to equity holders of the Parent Company comprise: Balance at 1 January 167.3 175.2 Profit/(loss) for the year 24.6 26.8 Share-based payment 2.1 0.7 Dividends Final approved and paid for 2022 – (22.8 ) Interim approved and paid for 2023 – (12.6 ) Final approved and paid for 2023 (23.5 ) – Interim approved and paid for 2024 (13.0 ) – Balance at 31 December 157.5 167.3 CHESNARAANNUALREPORTANDACCOUNTS2024249 ADDITIONAL INFORMATION 250 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 252 Financial calendar 252 Key contacts 253 Notice of the Annual General Meeting 255 Explanatory notes to the Notice of the Annual General Meeting 259 Appendix to AGM Notice 260 Alternative Performance Measures 262 Operational and other performance measures 263 Reconciliation of metrics 265 Glossary 266 Note on terminology 267 Cautionary and forward-looking statements and MSCI disclaimer CHESNARAANNUALREPORTANDACCOUNTS2024251 ADDITIONAL INFORMATION FINANCIAL CALENDAR KEY CONTACTS 27 March 2025 Registered and head office Joint Stockbrokers and Results for the year ended 2nd Floor, Building 4 Corporate Advisors 31 December 2024 announced West Strand Business Park Panmure Liberum West Strand Road 25 Ropemaker Street Preston London 3 April 2025 Lancashire EC2Y 9LY Ex-dividend date PR1 8UY RBC Capital Markets T +44 (0)1772 972050 100 Bishopsgate 4 April 2025 www.chesnara.co.uk London Dividend record date EC2N 4AA Advisors 22 April 2025 Burness Paull LLP Bankers Last date for dividend reinvestment Exchange Plaza National Westminster Bank plc plan elections 50 Lothian Road 135 Bishopsgate Edinburgh London EH3 9WJ EC2M 3UR 13 May 2025 Annual General Meeting Lloyds Bank plc Auditor 3rd Floor, Black Horse House Deloitte LLP Medway Wharf Road 20 May 2025 Statutory Auditor Tonbridge Dividend payment date 1 City Square Kent Leeds TN9 1QS LS1 2AL Public Relations Consultants Registrars FWD MUFG Corporate Markets 15 St Helen’s Place (formerly Link Group) London Central Square EC3A 6DQ 29 Wellington Street Leeds LS1 4DL 252 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION NOTICE OF THE ANNUAL GENERAL MEETING This document is important and requires your immediate attention If you are in any doubt as to the action you should take, you should immediately consult your If you have sold or otherwise transferred all of your shares in Chesnara plc, please pass this stockbroker, bank manager, solicitor, accountant or other independent professional advisor document as soon as possible to the purchaser or transferee, or to the person who arranged authorised under the Financial Services and Markets Act 2000 if you are resident in the United the sale or transfer so they can pass these documents to the person who now holds the shares. Kingdom or, if you reside elsewhere, another appropriately authorised financial advisor. Chesnara plc has a policy of not paying to have access to governance and sustainability analysts’ databases on which voting recommendations and reports are produced. We encourage early, open and timely engagement to ensure the accuracy of the information contained in any analysis and reports issued in respect of Chesnara plc. Company No. 4947166 with the individual amount authorised for each of (a) to (c) above being limited to £50,000. Any such amounts may comprise sums paid or incurred in one or more currencies. Any sum paid or incurred Notice is given that the 2025 Annual General Meeting of Chesnara plc will be held at the offices in a currency other than sterling shall be converted into sterling at such rate as the Board may decide of Panmure Liberum, 25 Ropemaker Street, London, EC2Y 9LY on 13 May 2025 at 11am, for is appropriate. Terms used in this resolution have, where applicable, the meanings that they have the business set out below. Shareholders will be kept informed via the Regulatory News System in Part 14 of the Companies Act 2006. (RNS) should arrangements need to be changed for any reason. 14. That, from the passing of this resolution until the earlier of the close of business on 30 June 2026 Resolutions 1 to 14 inclusive and 18 will be proposed as ordinary resolutions and Resolutions 15 and the conclusion of the Company’s next Annual General Meeting, the directors be and are hereby to 17 inclusive, 19 and 20 will be proposed as special resolutions. generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the Act), to exercise all the powers of the Company, to allot shares in the Company and/or to grant 1. To receive and adopt the audited accounts for the financial year ended 31 December 2024, rights to subscribe for or to convert any security into shares in the Company (Allotment Rights): together with the reports of the directors and auditor thereon. (a) up to an aggregate nominal amount of £2,516,517 such amount to be reduced by the aggregate 2. To approve the Directors’ Remuneration Report for the year ended 31 December 2024. nominal amount of any equity securities allotted pursuant to the authority in paragraph (b) below in excess of £2,516,517; and 3. To declare a final dividend of 24.69 pence per ordinary share for the financial year ended (b) up to an aggregate nominal amount of £5,033,034 (such amount to be reduced by the 31 December 2024. aggregate nominal amount of any shares allotted or rights granted pursuant to the authority in paragraph (a) above) in connection with an offer: 4. To re-appoint Steve Murray as a director. i) to holders of ordinary shares in proportion (as nearly as may be practicable) to their 5. To re-appoint Carol Hagh as a director. respective holdings; and ii) to holders of other equity securities as required by the rights of those securities or as the 6. To re-appoint Karin Bergstein as a director. directors otherwise consider necessary, 7. To re-appoint Luke Savage as a director. but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal or practical 8. To re-appoint Eamonn Flanagan as a director. problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange, provided that this authority shall, unless renewed, varied or revoked by the Company, 9. To re-appoint Tom Howard as a director. expire at the conclusion of the Company’s next Annual General Meeting (or, if earlier, at the close of business on 30 June 2026) save that the Company may, before such expiry, make offers or 10. To appoint Gail Tucker as a director. agreements which would or might require securities to be allotted or Allotment Rights to be granted after such expiry and the directors may allot securities or grant Allotment Rights in pursuance of 11. To re-appoint Deloitte LLP as auditor of the Company to hold office until the conclusion of the next such offer or agreement notwithstanding the expiry of the authority conferred by this resolution. general meeting of the Company at which accounts are laid before shareholders. 15 . That, subject to the passing of Resolution 14 in this notice, the directors be and are hereby 12. To authorise the directors to determine the auditor’s remuneration. empowered pursuant to Section 570 of the Companies Act 2006 (the Act) to allot equity securities (as defined in Section 560 of the Act) for cash, pursuant to the authority conferred on them by 13. That, from the passing of this Resolution 13 until the earlier of the close of business on Resolution 14 of this notice or by way of a sale of treasury shares as if Section 561 of the Act did 30 June 2026 and the conclusion of the Company’s next Annual General Meeting, the Company not apply to any such allotment, provided that this power is limited to: and all companies which are its subsidiaries at any time during such period are authorised: (a) to make donations to political parties or independent election candidates; (b) to make donations to political organisations other than political parties; and (c) to incur political expenditure up to an aggregate total amount of £50,000, CHESNARAANNUALREPORTANDACCOUNTS2024253 ADDITIONAL INFORMATION NOTICE OF THE ANNUAL GENERAL MEETING (a) the allotment of equity securities in connection with any rights issue or open offer (each as (e) the Company may enter into contracts or contracts to purchase ordinary shares under the referred to in the Financial Conduct Authority’s listing rules) or any other pre-emptive offer that authority hereby conferred prior to the expiry of such authority which will or may be completed is open for acceptance for a period determined by the directors to the holders of ordinary wholly or partly after the expiry of such authority, and may make a purchase of ordinary shares shares on the register on any fixed record date in proportion to their holdings of ordinary shares in pursuance of any such contract or contracts. (and, if applicable, to the holders of any other class of equity security in accordance with the rights attached to such class), subject in each case to such exclusions or other arrangements 18. That, in addition to the authority granted pursuant to Resolution 14 (if passed), the directors as the directors may deem necessary or appropriate in relation to fractions of such securities, be and are hereby generally and unconditionally authorised in accordance with Section 551 of the the use of more than one currency for making payments in respect of such offer, any such shares Companies Act 2006 (the Act), to exercise all the powers of the Company to allot shares in the or other securities being represented by depositary receipts, treasury shares, any legal or Company and/or grant rights to subscribe for or to convert any security into shares in the Company: practical problems in relation to any territory or the requirements of any regulatory body or any (a) up to an aggregate nominal value of £2,516,517 in relation to any issues of Restricted Tier 1 (RT1) stock exchange; and Instruments where the directors consider that such an issuance of RT1 Instruments would (b) the allotment of equity securities (other than pursuant to paragraph (a) above) with an aggregate be desirable, including in connection with, or for the purposes of, complying with or maintaining nominal value of £754,955, and shall expire on the revocation or expiry (unless renewed) of the compliance with the regulatory requirements or targets applicable to the Company and its authority conferred on the directors by Resolution 14 of this notice, save that, before the expiry subsidiaries from time to time; of this power, the Company may make any offer or agreement which would or might require (b) subject to applicable law and regulation, at such allotment, subscription or conversion prices (or equity securities to be allotted after such expiry and the directors may allot equity securities such maximum or minimum allotment, subscription or conversion price methodologies) as under any such offer or agreement as if the power had not expired. may be determined by the directors from time to time, and unless previously renewed, varied or revoked by the Company, this authority shall apply in addition to all other authorities under 16. That, subject to the passing of Resolution 14 of this notice and, in addition to the power contained in Section 551 of the Act until the conclusion of the Company’s next Annual General Meeting (or, Resolution 15 of this notice, the directors be and are hereby empowered pursuant to Section 570 if earlier, at the close of business on 30 June 2026), save that the Company may, before such of the Companies Act 2006 (the Act) to allot equity securities (as defined in Section 560 of the Act) expiry, make offers or agreements which would, or might, require securities to be allotted or rights for cash, pursuant to the authority conferred on them by Resolution 14 of this notice or by way of to be granted after such expiry and the directors may allot securities or grant such rights in sale of treasury shares as if Section 561 of the Act did not apply to any such allotment, provided that pursuance of such offer or agreement notwithstanding the expiry of the authority conferred by this power is: this resolution. (a) limited to the allotment of equity securities up to an aggregate nominal value of £754,955; and 19. That, subject to the passing of Resolution 18 in this notice, the directors be and are hereby generally (b) used only for the purposes of financing (or refinancing, if the power is to be exercised within empowered, pursuant to Section 570 of the Companies Act 2006 (the Act), to allot equity securities 12 months after the date of the original transaction) a transaction which the directors determine (as defined in Section 560 of the Act and is to be interpreted in accordance with Section 560(2) of to be an acquisition or other capital investment of a kind contemplated by the Statement of the Act) for cash, pursuant to the authority conferred on them by Resolution 18 of this notice up to Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group an aggregate nominal value of £2,516,517 in relation to any issues of RT1 Instruments, as if Section prior to the date of the notice of this meeting, and shall expire on the revocation or expiry 561 of the Act did not apply to any such allotment, and shall expire on the revocation or expiry (unless renewed) of the authority conferred on the directors by Resolution 14 of this notice save (unless renewed) of the authority conferred on the director by Resolution 18 of this notice save that, that, before the expiry of this power, the Company may make any offer or agreement which before the expiry of this power, the Company may make any offer or agreement which would or would or might require equity securities to be allotted after such expiry and the directors may might require equity securities to be allotted after such expiry and the directors may allot equity allot equity securities under any such offer or agreement as if the power had not expired. securities under any such offer or agreement as if the power had not expired. 1 7. That the Company be and is hereby generally and unconditionally authorised for the purposes of This authority is in addition to the authorities conferred by Resolutions 15 and 16 in this notice. Section 701 of the Companies Act 2006 (the Act) to make one or more market purchases (as defined in Section 693(4) of the Act) of ordinary shares in the capital of the Company, provided that: 20. That a general meeting of the Company (other than an Annual General Meeting) may be called on not less than 14 clear days’ notice. (a) the maximum aggregate number of ordinary shares hereby authorised to be purchased is £15,099,102; By order of the Board (b) the minimum price (exclusive of expenses) which may be paid for such ordinary shares is its nominal value; (c) the maximum price (exclusive of expenses) which may be paid for such ordinary shares is the maximum price permitted under the Financial Conduct Authority’s listing rules or, in the case of a tender offer (as referred to in those rules), 5% above the average of the middle market Alastair Lonie quotations for those shares (as derived from the Daily Official List of London Stock Exchange plc) Chief of Staff and Company Secretary for the 5 business days immediately preceding the date on which the terms of the tender offer 2nd Floor, Building 4 are announced; West Strand Business Park (d) the authority hereby conferred shall expire at the conclusion of the Company’s next Annual West Strand Road General Meeting (or, if earlier, at the close of business on 30 June 2026); and Preston Lancashire PR1 8UY 26 March 2025 254 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING Arrangements for the 2025 AGM The Company is pleased to be able to invite members to attend the AGM in person in May where a presentation on business progress will be given. A results presentation will also be recorded on 27 March 2025 and made available on the corporate website. The Company continues to strongly encourage shareholders to vote electronically. Instructions on voting are attached to the Notice of AGM sent out to shareholders and can also be found on the Company’s website. Shareholders may also wish to submit questions in advance via email to [email protected]. We will endeavour to respond to questions raised directly, or by publishing responses on our website. 1. Any member who is entitled to attend and vote at this Annual General Meeting is entitled to appoint 4. Proxymity voting – if you are an institutional investor you may also be able to appoint a proxy another person, or two or more persons in respect of different shares held by the shareholder, electronically via the Proxymity platform, a process which has been agreed by the Company as their proxy to exercise all or any of their rights to attend and to speak and to vote at the Annual and approved by the Registrar. For further information regarding Proxymity, please go to General Meeting. Members who wish to appoint a proxy are encouraged to appoint the Chair www.proxymity.io. Your proxy must be lodged by 11am on Friday 9 May 2025 in order to be of the meeting as their proxy and give your instructions on how you wish the Chair of the meeting considered valid or, if the meeting is adjourned, by the time which is 48 hours before the time of to vote on the proposed resolutions. Appointing the Chair as your proxy will not prevent you the adjourned meeting. Before you can appoint a proxy via this process, you will need to have from attending and voting in person at the AGM but will ensure that your vote is able to be cast in agreed to Proxymity’s associated terms and conditions. It is important that you read these carefully accordance with your wishes should you (or any other person who you might otherwise choose as you will be bound by them and they will govern the electronic appointment of your proxy. to appoint as your proxy) be unable to attend for any reason. Members are strongly encouraged to An electronic proxy appointment via the Proxymity platform may be revoked completely by sending vote electronically. Unless otherwise indicated on the Form of Proxy, CREST, Proxymity or any an authenticated message via the platform instructing the removal of your proxy vote. other electronic voting instruction, the proxy will vote as they think fit or, at their discretion, withhold from voting. 5. CREST members who wish to appoint one or more proxies through the CREST system may do so by using the procedures described in ‘the CREST voting service’ section of the CREST Manual. 2. You will not receive a form of proxy for the AGM in the post. Instead, you will receive instructions CREST personal members or other CREST sponsored members, and those CREST members who to enable you to vote electronically and how to register to do so. You may request a physical have appointed one or more voting service providers, should refer to their CREST sponsor or copy proxy form directly from the registrars, MUFG Corporate Markets, PXS 1, Central Square, voting service provider(s), who will be able to take the appropriate action on their behalf. In order for 29 Wellington Street, Leeds, LS1 4DL (email: [email protected], a proxy appointment or a proxy instruction made using the CREST voting service to be valid, the telephone number: 0371 664 0300. Calls are charged at the standard geographic rate and will vary appropriate CREST message (a ‘CREST proxy appointment instruction’) must be properly authenticated by provider. Calls outside the United Kingdom will be charged at the applicable international rate. in accordance with the specifications of CREST’s operator, Euroclear UK & International Limited Lines are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and (‘Euroclear’), and must contain all the relevant information required by the CREST Manual. To be valid, Wales). If you request a physical copy proxy form, it must be completed in accordance with the the message (regardless of whether it constitutes the appointment of a proxy or is an amendment instructions that accompany it and then delivered (together with any power of attorney or other to the instruction given to a previously appointed proxy) must be transmitted so as to be received authority under which it is signed, or a certified copy of such item) to MUFG Corporate Markets, by MUFG Corporate Markets, (ID RA10), by 11am on Friday 9 May 2025, which is acting as the PXS 1, Central Square, 29 Wellington Street, Leeds, LS1 4DL so as to be received by 11am on Company’s ‘issuer’s agent’. After this time, any change of instruction to a proxy appointed through Friday 9 May 2025. the CREST system should be communicated to the appointee through other means. The time of the message’s receipt will be taken to be when (as determined by the timestamp applied by the CREST 3. Any member wishing to vote at the Annual General Meeting without attending in person or (in the Applications Host) the issuer’s agent is first able to retrieve it by enquiry through the CREST system case of a corporation) through its duly appointed representative, must appoint a proxy to do so. in the prescribed manner. Euroclear does not make available special procedures in the CREST system A proxy need not be a member of the Company, but as noted above, members should appoint the for transmitting any particular message. Normal system timings and limitations apply in relation Chair of the meeting as their proxy to ensure that their vote is able to be cast in accordance with to the input of CREST proxy appointment instructions. It is the responsibility of the CREST member their wishes should they (or any other persons who members might otherwise choose to appoint concerned to take (or, if the CREST member is a CREST personal member or a CREST sponsored as their proxy) be unable to attend for any reason. Members may appoint a proxy online by following member or has appointed any voting service provider(s), to procure that his CREST sponsor or voting the instructions for the electronic appointment of a proxy at www.signalshares.com by entering service provider(s) take(s)) such action as is necessary to ensure that a message is transmitted the Company name ‘Chesnara plc’ and following the on-screen instructions. To be a valid proxy by means of the CREST system by any particular time. CREST members and, where applicable, their appointment, the member’s electronic message confirming the details of the appointment completed CREST sponsors or voting service providers should take into account the provisions of the CREST in accordance with those instructions must be transmitted so as to be received by 11am on Friday Manual concerning timings as well as its section on ‘Practical limitations of the system’. In certain 9 May 2025. Members who hold their shares in uncertificated form may also use the ‘CREST’ voting circumstances, the Company may, in accordance with the Uncertificated Securities Regulations service to appoint a proxy electronically, as explained below. 2001 or the CREST Manual, treat a CREST proxy appointment instruction as invalid. CHESNARAANNUALREPORTANDACCOUNTS2024255 ADDITIONAL INFORMATION EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING 6. Copies of (i) directors’ service contracts and letters of appointment; and (ii) a copy of the Company’s 12. Under Section 527 of the Companies Act 2006, members meeting the threshold requirements set Articles of Association are available for inspection at the registered office of the Company during out in that section have the right to require the Company to publish on a website a statement in normal business hours each business day subject to prevailing public health measures. They will accordance with Section 528 of the Companies Act 2006 setting out any matter relating to (i) the also be available for inspection at the Annual General Meeting for at least 15 minutes prior to and audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that during the Annual General Meeting. are to be laid before the Annual General Meeting or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and 7. The time by which a person must be entered on the register of members in order to have the right reports were laid in accordance with Section 437 of the Companies Act 2006. The Company may not to vote at the Annual General Meeting (and for the purpose of the determination by the Company require the members requesting any such website publication to pay its expenses in complying of the votes they may cast) is close of business on Friday 9 May 2025. Changes to entries on the with Sections 527 or 528 of the Companies Act 2006. register of members after that time will be disregarded in determining the right of any person to Where the Company is required to place a statement on a website under Section 527 of the attend or vote at the Annual General Meeting. Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt 8. The right to appoint proxies does not apply to persons nominated to receive information rights under with at the Annual General Meeting includes any statement that the Company has been required Section 146 of the Companies Act 2006; as such rights can only be exercised by the member under Section 527 of the Companies Act 2006 to publish on a website. concerned. Any person nominated to enjoy information rights under Section 146 of the Companies Act 2006 who has been sent a copy of this notice of Annual General Meeting is hereby informed, 13. Members meeting the threshold requirements in Sections 338 and 338A of the Companies Act in accordance with Section 149(2) of the Companies Act 2006, that they may have a right under an 2006 have the right to require the Company (i) to give to members entitled to receive notice of the agreement with the registered member by whom they were nominated to be appointed, or to have meeting notice of a resolution which may properly be moved and is intended to be moved at the someone else appointed, as a proxy for this Annual General Meeting. If they have no such right, or meeting and/or (ii) to include in the business to be dealt with at the meeting any matter (other than do not wish to exercise it, they may have a right under such an agreement to give instructions to a proposed resolution) which may be properly included in the business. A resolution may properly the member as to the exercise of voting rights. Nominated persons should contact the registered be moved or a matter may properly be included in the business unless (a) (in the case of a resolution member by whom they were nominated in respect of these arrangements. only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company’s constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous 9. As at 20 March 2025 (being the last practicable date prior to the publication of this document), the or vexatious. Such a request may be in hard copy form or in electronic form, must identify the Company’s issued share capital consisted of 150,991,019 ordinary shares, carrying one vote each. resolution of which notice is to be given or (as applicable) the matter to be included in the business, No shares were held by the Company in treasury. Therefore, the total voting rights in the Company must be authenticated by the person or persons making it, must be received by the Company not as at 20 March 2025 (being the last practicable date prior to the publication of this document) later than 11am on 1 April 2025, and (in the case of a matter to be included in the business only) must were 150,991,019. be accompanied by a statement setting out the grounds for the request. 10. Information regarding this Annual General Meeting, including information required by Section 311A The notes on the following pages give an explanation of the proposed resolutions: of the Companies Act 2006, is available at www.chesnara.co.uk. Any electronic address provided either in this notice or any related documents may not be used to communicate with the Company for any purposes other than those expressly stated. 11. In accordance with Section 319A of the Companies Act 2006, any member attending the Annual General Meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the Annual General Meeting, but no such answer need be given if (a) to do so would interfere unduly with the preparations for the Annual General Meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question or (c) it is undesirable in the interests of the Company or the good order of the Annual General Meeting that the question be answered. The Company encourages shareholders to submit their questions electronically in advance of the meeting via [email protected]. 256 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION Resolution 1 Resolution 13 Report and Accounts Political donations The Companies Act 2006 requires the directors of a public company to lay its Annual Report It has always been the Company’s policy that it does not make political donations. This remains the and Accounts before the Company in general meeting, giving shareholders the opportunity to ask Company’s policy. questions on the contents. The Annual Report and Accounts comprise the audited financial Part 14 of the Companies Act 2006 (the Act) imposes restrictions on companies making political statements, the Auditor’s Report, the Directors’ Report, the Directors’ Remuneration Report, and donations to any political party or other political organisation or to any independent election candidate the Directors’ Strategic Report. unless they have been authorised to make donations at a general meeting of the Company. Whilst the Company has no intention of making such political donations, the Act includes broad Resolution 2 and ambiguous definitions of the terms ‘political donation’ and ‘political expenditure’ which may Approval of the Directors’ Remuneration Report apply to some normal business activities which would not generally be considered to be political In accordance with the Companies Act 2006, the Company proposes ordinary Resolution 2 to approve in nature. the Directors’ Remuneration Report for the financial year ended 31 December 2024. The Directors’ Remuneration Report can be found on pages 110 to 126 of the 2024 Annual Report and Accounts and, The directors therefore consider that, as a purely precautionary measure, it would be prudent to for the purposes of this resolution, does not include the parts of the Directors’ Remuneration obtain the approval of the shareholders to make donations to political parties, political organisations Report containing the Directors’ Remuneration Policy. The vote on this resolution is advisory only and and independent election candidates and to incur political expenditure up to the specified limit. the directors’ entitlement to remuneration is not conditional on it being passed. The Companies The directors intend to seek renewal of this approval at future Annual General Meetings but wish to Act 2006 requires the Directors’ Remuneration Policy to be put to shareholders for approval annually emphasise that the proposed resolution is a precautionary measure for the above reason and unless the approved policy remains unchanged, in which case it need only be put to shareholders that they have no intention of making any political donations or entering into party political activities. for approval at least every 3 years. The Company is not proposing any changes to the Directors’ Remuneration Policy approved at the Annual General Meeting in 2023. Resolution 14 Power to allot shares Resolution 3 The Companies Act 2006 provides that the directors may only allot shares if authorised by Final dividend shareholders to do so. The directors’ current allotment authority is due to lapse at the 2025 Annual The declaration of the final dividend requires the approval of shareholders in general meeting. If the General Meeting. The Board is, therefore, seeking to renew its authority over shares having an 2025 Annual General Meeting approves Resolution 3, the final dividend of 16.08 pence per share aggregate nominal amount of £2,516,517, representing approximately one-third of the issued ordinary will be paid on 20 May 2025 to ordinary shareholders who are on the register of members at the close share capital of the Company (excluding treasury shares) as at 20 March 2025 (being the latest of business on 12 April 2025 in respect of each ordinary share. practicable date prior to the publication of this document). The Board is also seeking authority to allot shares having an aggregate nominal amount of £5,033,034, representing approximately two-thirds Resolutions 4 – 10 inclusive of the issued share capital of the Company (excluding treasury shares) as at 20 March 2025 by way Appointment and re-appointment of directors of pre-emptive offer to existing shareholders. The Company’s Articles of Association provide that all directors retire at each Annual General Meeting The allotment authority sought is in line with the Share Capital Management guidelines issued by and that those wishing to continue to serve shall submit themselves for re-appointment or the Investment Association. For the avoidance of doubt, the authority sought pursuant to this appointment by the shareholders. In line with this, all directors will be retiring at this year’s AGM resolution will give the directors the ability to allot shares (or grant rights to shares) up to a maximum and will be standing for re-appointment, with the exception of Jane Dale who will step down from aggregate nominal amount of £5,033,034. the Board at the end of the AGM. Gail Tucker will stand for appointment at this year’s AGM, following her appointment as a director, subject to regulatory approval (announced to shareholders on As at 20 March 2025, the Company held no treasury shares. 29 January 2025). The Board is satisfied that the performance of each of the directors proposed The authority will expire at the earlier of the conclusion of the Company’s next Annual General Meeting continues to be effective and important to the Company’s long-term sustainable success and and the close of business on 30 June 2026. demonstrates commitment to their responsibilities. This is supported by the annual performance evaluation that was undertaken recently. The Board unanimously recommend that each of these Passing Resolution 14 will ensure that the directors have flexibility to take advantage of any directors be appointed or re-appointed as a director of the Company. appropriate opportunities that may arise in pursuit of the Company’s strategic objective of acquiring life and pensions businesses. In accordance with the Code, the Board has reviewed the independence of its non-executive directors and has determined that they remain fully independent of management. Resolutions 15 and 16 (special resolution) Disapplication of statutory pre-emption rights Resolutions 11 and 12 If the directors wish to allot shares, or grant rights to subscribe for, or convert securities into, Re-appointment and remuneration of auditor shares, or sell treasury shares for cash (other than pursuant to an employee share scheme), they The Company is required to appoint an auditor, at each general meeting before which accounts must first offer them to existing shareholders in proportion to their existing shareholdings. In order are laid, to hold office until the end of the next such meeting. The Board (through its Audit & Risk to give directors flexibility to finance business opportunities by allotting shares without making a Committee) has recommended the re-appointment of Deloitte LLP and has confirmed that such pre-emptive offer to existing shareholders and, in accordance with the updated Statement of recommendation is free from influence by a third party and that no restrictive contractual terms have Principles (PEG Statement of Principles) published by the Pre-Emption Group in November 2022, been imposed on the Company. Deloitte LLP has indicated that it is willing to continue to act as Resolutions 15 and 16 ask shareholders to grant a limited waiver of their pre-emption rights as the Company’s auditor. referenced below. If the directors elect to exercise powers granted under Resolutions 15 and 16 in Resolution 11, therefore, proposes Deloitte’s reappointment as auditor to hold office until the relation to a non-pre-emptive offer, they shall follow the shareholder protections in Part 2B of the next general meeting at which the Company’s accounts are laid before shareholders. Resolution 12 PEG Statement of Principles. authorises the directors to determine the auditor’s remuneration. Resolutions 15 and 16 will be proposed as special resolutions. CHESNARAANNUALREPORTANDACCOUNTS2024257 ADDITIONAL INFORMATION EXPLANATORY NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING Resolution 15, if passed, will allow the directors to (a) allot shares in the Company for cash in desirable to improve the capital structure of the Company and its subsidiaries. However, the request connection with a rights issue or other pre-emptive offer; and (b) otherwise allot shares in the for authority in Resolution 18 should not be taken as an indication that the Company will or will not Company for cash up to a maximum aggregate nominal value of £754,955, in each case as if the issue any, or any given amount of, RT1 Instruments. pre-emption rights of Section 561 of the Companies Act 2006 did not apply. This aggregate This authority is in addition to the authority proposed in Resolution 14, which is the usual authority nominal amount equates to approximately 10% of the issued ordinary share capital of the Company sought on an annual basis in line with the guidance issued by the Investment Association. (excluding treasury shares) as at 20 March 2025 (being the latest practicable date prior to the publication of this Notice of Annual General Meeting). This authority will expire at the earlier of the conclusion of the Company’s next Annual General Meeting and the close of business on 30 June 2026. The directors may seek a similar authority in In line with the PEG Statement of Principles, the Company is seeking authority, under Resolution 16, the future. to issue up to an additional 10% of its issued ordinary share capital for cash without pre-emption rights applying. In accordance with the Statement of Principles, the Company will only allot shares Resolution 19 (special resolution) under this additional authority in connection with an acquisition or specific capital investment Disapplication of pre-emption rights in relation to an issue (within the meaning given in the Statement of Principles) which is announced contemporaneously of Restricted Tier 1 (RT1) Instruments with the allotment, or which has taken place in the preceding 12 month period and is disclosed in Resolution 19, which will be proposed as a special resolution, proposes that, in addition to any the announcement of the allotment. authority conferred by Resolution 15, the directors be empowered to allot equity securities (as defined The authority granted under Resolutions 15 and 16 will expire at the earlier of the conclusion of the in Section 560 of the Companies Act 2006) for cash up to a nominal value of £2,516,517 in relation Company’s next Annual General Meeting and the close of business on 30 June 2026. to the issue of RT1 Instruments, which is equivalent to one-third of the issued ordinary share capital of the Company as at 20 March 2025 (being the latest practicable date prior to the publication of Resolution 17 (special resolution) this notice of Annual General Meeting), as if Section 561 of the Companies Act 2006 did not apply Authority to purchase own shares to any such allotment. This resolution, which will be proposed as a special resolution, seeks to renew the Company’s Resolution 19, if passed, would permit the Company the flexibility necessary to allot equity securities authority to purchase its own shares. It specifies the maximum number of shares which may be pursuant to any proposal to issue RT1 Instruments without the need to comply with the pre-emption acquired as 10% of the Company’s issued ordinary share capital (excluding treasury shares) as rights of Section 561 of the Companies Act 2006 did not apply. Resolution 18 is intended to provide at 20 March 2025, being the latest practicable date prior to the publication of this document, and the directors with the continued flexibility to issue RT1 Instruments which may convert into specifies the minimum and maximum prices at which shares may be bought. ordinary shares. This will enhance the Company’s ability to manage its capital. Further information The directors will only use this authority if, in light of market conditions prevailing at the time, on the Restricted Tier 1 Instruments is given in the AGM Notice. they believe that the effect of such purchases will be (where such shares are to be purchased for This authority will expire at the earlier of the conclusion of the Company’s next Annual General cancellation) to increase earnings per share, and that taking into account other investment Meeting and the close of business on 30 June 2026. The directors may seek a similar authority in opportunities, purchases will be in the best interests of the shareholders generally. Any shares the future. purchased in accordance with this authority will be cancelled or held in treasury for subsequent transfer to an employee share scheme. The directors have no present intention of exercising this Any exercise of the authorities in Resolutions 14, 15 and 16 (if passed) would be separate from and authority, which will expire at the earlier of the conclusion of the Company’s next Annual General in addition to the exercise of any powers under Resolutions 18 and 19 and would also have a dilutive Meeting and the close of business on 30 June 2026. effect on existing shareholdings. The Company has options and awards outstanding under existing share schemes over an aggregate Resolution 20 (special resolution) of 1,531,582 ordinary 5p shares, representing 1.02% of the Company’s issued ordinary share capital Notice of general meetings (excluding treasury shares) as at 20 March 2025 (the latest practicable date prior to the publication The Companies Act 2006 requires the notice period for general meetings of the Company to be at of this document). This would represent approximately 1.13% of the Company’s issued share capital least 21 days, but, as a result of a resolution which was passed by the Company’s shareholders (excluding treasury shares) if the proposed authority being sought at the Annual General Meeting at last year’s Annual General Meeting, the Company is currently able to call general meetings (other to buy back 15,099,102 ordinary shares was exercised in full (and all the repurchased ordinary than an Annual General Meeting) on not less than 14 clear days’ notice. In order to preserve this shares were cancelled). ability, shareholders must once again approve the calling of meetings on not less than 14 clear days’ notice. Resolution 20 seeks such approval. The approval will be effective until the Company’s next Resolution 18 Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company Authority to allot new ordinary shares in relation to an issue will also need to meet the statutory requirements for electronic voting before it can call a general of Restricted Tier 1 (RT1) Instruments meeting on less than 21 days’ notice. Resolution 18, will, if passed, grant authority to directors to allot ordinary shares in the Company or grant rights to subscribe for, or to convert any security into, ordinary shares in the Company, The shorter notice period would not be used as a matter of routine for general meetings, but only in accordance with Section 551 of the Companies Act 2006, up to an aggregate nominal amount where the flexibility is merited by the business of the meeting and is thought to be to the advantage of £2,516,517 in connection with the issue of RT1 Instruments (as defined in the AGM Notice) of shareholders as a whole. which is, in aggregate, equivalent to approximately one-third of the issued ordinary share capital of the Company as at 20 March 2025 (being the latest practicable date prior to the publication of Directors’ recommendation this notice of Annual General Meeting). The directors recommend all shareholders to vote in favour of all of the above resolutions, as the directors intend to do in respect of their own shares (save in respect of those matters in which The directors believe that it is in the best interests of the Company to have the flexibility to issue they are interested), and consider that all resolutions are in the best interests of the Company and RT1 Instruments from time to time and the authority sought in Resolution 18 may be used if, in its shareholders as a whole. the opinion of the directors, at the relevant time, such an issuance of RT1 Instruments would be 258 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION APPENDIX TO AGM NOTICE Further information on Restricted Tier 1 Instruments What are ‘Restricted Tier 1 Instruments’? How can the issue of Restricted Tier 1 Instruments provide Solvency II-compliant Restricted Tier 1 Instruments, structured as contingent convertible securities, a more efficient capital structure? the terms of which will provide that, upon the occurrence of certain trigger events, the securities The Group can satisfy its Tier 1 Capital requirements through, among other things, the issue of will be irrevocably converted into ordinary shares. ordinary shares, retention of profits and the issue of Restricted Tier 1 Instruments. Satisfying the Group’s Tier 1 Capital requirements in part through the issue of Restricted Tier 1 Instruments could Why is the Company seeking authorities in connection with be a cost-effective means of raising capital, therefore enabling the Group to reduce its overall cost the issuance of Restricted Tier 1 Instruments? of capital. This would, in turn, be expected to be more beneficial for existing shareholders than if The Group is subject to the Solvency II regulatory framework which came into force on 1 January 2016 the Group were to satisfy its Tier 1 Capital requirements through the issue of ordinary shares or the and which has been retained in the United Kingdom following the end of the Brexit implementation retention of profits alone. period on 31 December 2020. Under Solvency II, the Group is required to hold sufficient capital to absorb losses in periods of stress and to provide a buffer to increase resilience against unexpected At what price will Restricted Tier 1 Instruments be converted losses, thereby protecting the interests of policyholders. At least half of the Group’s overall capital into or exchanged for ordinary shares? requirements may only be met with certain types of high-quality capital (referred to as ‘Tier 1 The terms and conditions of any Restricted Tier 1 Instruments issued will specify a conversion price Capital’), including share capital, retained profits and, for up to 20% of Tier 1 Capital, instruments that or a mechanism for setting a conversion price, which is the rate at which the Restricted Tier 1 are written down, or, in the case of Restricted Tier 1 Instruments, instruments that are converted Instruments will be exchanged into ordinary shares. The resolutions enable the directors to set the into ordinary shares, in the event that the Group’s capital position falls below defined levels (referred specific terms and conditions of the Restricted Tier 1 Instruments (including a conversion price or to as a ‘Trigger Event’). The Group may issue Restricted Tier 1 Instruments to satisfy part of its mechanism for setting a conversion price) after considering market conditions at the time of issuance. Tier 1 Capital requirements. Any issue of Restricted Tier 1 Instruments would form part of the Group’s Given the nature of the Trigger Events and the implications on the Group’s business at the time any overall strategy to maintain a strong Capital Base from which it can achieve its objectives. Trigger Event occurs, the Group’s expectation is that the conversion price at the time of conversion would exceed the market price of the ordinary shares at such time. What is a ‘Trigger Event’ and what will happen if a Trigger Event occurs? A Trigger Event will occur if the Group determines, in consultation with the Prudential Regulation How have you calculated the size of the authorities you are seeking? Authority, that it has ceased to comply with its capital requirements under Solvency II in a significant These authorities are set at a level which, based on the share price of the Group as at 20 March way. This may occur if the amount of capital held by the Group falls below 75% of its capital 2025 (being the latest practicable date prior to the publication of this document) corresponds requirements, if the Group fails to comply with its capital requirements for a continuous period of approximately to the Group’s regulatory headroom for Restricted Tier 1 Instruments as at the same 3 months or more or if the Group fails to comply with other minimum capital requirements date (limited to 20% of Tier 1 Capital). applicable to it. Only if a Trigger Event occurs (and not under any other circumstances) will any Restricted Tier 1 Instruments issued by the Group convert into new ordinary shares. The holders of any Restricted Tier 1 Instruments will not have the option to require conversion of the Restricted Tier 1 Instruments at their discretion. The Group may, if permitted by law and regulation and if considered appropriate at the relevant time, issue Restricted Tier 1 Instruments that include in their terms and conditions a mechanism through which the Group may elect to give existing shareholders the opportunity to purchase the ordinary shares issued on conversion of the Restricted Tier 1 Instruments in proportion to their existing shareholdings in the Company (subject to legal, regulatory or practical restrictions). What steps can the Group take on or before a Trigger Event? If the Group’s capital position were to deteriorate, a number of steps are available to the Group to improve its capital position before the occurrence of a Trigger Event. These could include reducing the Group’s liabilities or raising extra share capital from investors by way of a rights issue. If the Company were, in the future, to launch a rights issue, the Company’s existing shareholders would be offered the opportunity to acquire new ordinary shares in proportion to their existing shareholding. CHESNARAANNUALREPORTANDACCOUNTS2024259 ADDITIONAL INFORMATION ALTERNATIVE PERFORMANCE MEASURES Throughout our Annual Report and Accounts, we use Alternative Performance Measures ( APMs ) to supplement the assessment and reporting of the performance of the Group. These measures are those that are not defined by statutory reporting frameworks, such as IFRS or Solvency II. The APMs aim to assess performance from the perspective of all stakeholders, providing additional insight into the financial position and performance of the Group and should be considered in conjunction with the statutory reporting measures such as IFRS and Solvency II. The following table identifies the key APMs used in this report, how each is defined and why we use them. Further information can be found throughout the overview section, with detailed reference within the financial review on pages 49 to 54. APM WHAT IS IT? WHY DO WE USE IT? REF Commercial Cash Cash generation is used by the Group as a measure of assessing Commercial Cash Generation provides stakeholders with See cash generation Generation how much dividend potential has been generated, subject to enhanced insight into cash generation, drawing out components on page 49 ensuring other constraints are managed. of the result relating to technical complexities or exceptional items. The result is deemed to better reflect the Group’s view of Commercial Cash Generation excludes the impact of technical commercial performance, showing key drivers within that. adjustments and modelling changes; representing the inherent commercial cash generated by the business. Base Cash Base Cash Generation is used by the Group as a measure of Base Cash Generation is a key measure, because it is the net See cash generation Generation assessing how much dividend potential has been generated, cash flows to Chesnara from its life and pensions businesses which on page 49 and subject to ensuring other constraints are managed. support Chesnara’s dividend-paying capacity and acquisition reconciliation on strategy. Cash generation can be a strong indicator of how we page 264 Base Cash Generation is calculated as the movement in are performing against our stated objective of ‘maximising the Group’s surplus Own Funds above the Group’s internally value from existing business’. required capital, as determined by applying the Group’s Capital Management Policy, which has Solvency II rules at its heart. Divisional Cash Divisional Cash Generation represents the movement in It is an important indicator of the operating performance of the See cash generation Generation surplus Own Funds above local capital management policies business before the impact of Group level operations and on page 49 within the three operating divisions of Chesnara. Divisional consolidation adjustments. Cash Generation is used as a measure of how much dividend potential a division has generated, subject to ensuring other constraints are managed. Economic Value EcV is a financial metric that is derived from Solvency II Own EcV reflects the market-related value of in-force business and See EcV analysis (EcV) Funds. It provides a market consistent assessment of the net assets of the non-insurance business and hence is an on page 50 value of existing insurance businesses, plus adjusted net asset important reference point by which to assess the Group’s value. value of the non-insurance business within the Group. A life and pensions group may typically be characterised as trading at a discount or premium to its Economic Value. Analysis We define EcV as Own Funds adjusted for contract boundaries, of EcV provides additional insight into the development of the risk margin and restricted with-profit surpluses. As such, business over time. The EcV development of the Group over time EcV and Own Funds have many common characteristics and can be a strong indicator of how we have delivered to our tend to be impacted by the same factors. strategic objectives. Economic Value The principal underlying components of the EcV Earnings are: By recognising the market-related value of in-force business See EcV Earnings (EcV) Earnings (in-force value), a different perspective is provided in the analysis on page 51 – The expected return from existing business (being performance of the Group and on the valuation of the business. the effect of the unwind of the rates used to discount the EcV Earnings are an important KPI as they provide a longer-term value in-force); measure of the value generated during a period. The EcV Earnings – Value added by the writing of new business; of the Group can be a strong indicator of how we have delivered – Variations in actual experience from that assumed in the against all three of our core strategic objectives. opening valuation; – The impact of restating assumptions underlying the determination of expected cash flows; and – The impact of acquisitions. 260 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION APM WHAT IS IT? WHY DO WE USE IT? REF EcV Operating This is the element of EcV Earnings that is generated from the EcV Operating Earnings provide an indication of the underlying See EcV Earnings Earnings Company’s ongoing core business operations, excluding any value generated by the business. This measure can identify analysis on page 51 profit earned from investment market conditions in the period profitable activities and also inefficient processes and potential and any economic assumption changes in the future. management actions. EcV Economic This is the element of EcV Earnings that is derived from EcV Economic Earnings are important in order to measure the See EcV Earnings Earnings investment market conditions in the period and any economic additional value generated from investment market factors. analysis on page 51 assumption changes in the future. New Business Contribution A more commercially relevant measure of new business profit This provides a fair commercial reflection of the value added by See business review Note: This measure was previously than that recognised directly under the Solvency II regime, new business operations and is more comparable with how new section on pages referred to as ‘commercial new allowing for a modest level of return, over and above risk-free, business is reported by our peers, improving market consistency. 40 to 45 business’. There has been no change and exclusion of the incremental risk margin Solvency II to the basis of calculation. assigns to new business. Solvency Solvency is a fundamental financial measure which is of paramount Solvency gives policyholders comfort regarding the security See capital importance to investors and policyholders. It represents the of their provider. This is also the case for investors, together with management section relationship between the value of the business as measured on giving them a sense of the level of potential surplus available on pages 46 to 48 a Solvency II basis and the capital the business is required to to invest in the business or distribute as dividends, subject to other hold – the Solvency Capital Requirement (SCR). Solvency can be considerations and approvals. reported as an absolute surplus value or as a ratio. Assets Under AuA reflects the value of the financial assets that the business AuA provides an indication of the scale of the business, and the See Consolidated Administration (AuA) manages, as reported in the IFRS Consolidated Balance Sheet. potential future returns that can be generated from the assets Balance Sheet on Note: This measure was previously that the Group manages and administers on behalf of customers. page 149 referred to as ‘Funds under Management’ (FuM). There has been no change to the basis of calculation. Leverage A financial measure that demonstrates the degree to which the This measure indicates the overall level of indebtedness of See IFRS balance Company is funded by debt financing versus equity capital, the Group and is also a key component of the bank covenant sheet on page 52 presented as a ratio. It is defined as debt divided by debt plus arrangements held by Chesnara. equity, with the equity denominator adding back the net of tax CSM liability, as measured under IFRS. IFRS Capital Base IFRS net equity plus the consolidated CSM net of reinsurance It is a more appropriate measure of the value of the business See IFRS income and tax. than net equity as it allows for the store of deferred profits held statement on page 53 in the balance sheet, as represented by the CSM, including those as yet unrecognised profits from writing new business and acquisitions. Policies/policy count Policy count is the number of policies that the Group manages This is important to show the scale of the business, particularly to See Introduction to on behalf of customers. provide context to the rate at which the closed-book business is Chesnara on page 8 maturing. In our open businesses, the policy count shows the net impact of new business versus policy attrition. CHESNARAANNUALREPORTANDACCOUNTS2024261 ADDITIONAL INFORMATION OPERATIONAL AND OTHER PERFORMANCE MEASURES In addition to financial performance measures, this Annual Report and Accounts includes measures that consider and assess the performance of all our key stakeholder groups. The diagram below summarises the performance measures adopted throughout the Annual Report and Accounts. KEY STAKEHOLDERS Measure What is it and why is it important? Page Customer How well we service our customers is of paramount importance and so through various means we aim to assess service levels customer service levels. The business reviews within the Annual Report and Accounts refer to a number of indicators 40-45 of customer service levels. Broker Broker satisfaction is important because they sell our new policies, provide ongoing service to their customers and satisfaction influence book persistency. We include several measures within the Annual Report and Accounts, including direct 40-45 broker assessment ratings for Movestic and general assessment of how our brands fare in industry performance awards in the Netherlands. Policy investment performance Industry performance assessments Emissions and energy usage Assets Under Administration † Policyholder Investor Regulators Business partner This is a measure of how the assets are performing that underpin policyholder returns. It is important as it indicates to the customer the returns that their contributions are generating, and options available to invest in funds that focus 40-45 on environmental, social and governance factors. This is a comparative measure of how well our investments are performing against the rest of the industry, which 40-45 provides valuable context to our performance. Tracking our scope 1/2/3 emissions is a core part of our transition to be a net zero and sustainable Group. 87-90 This shows the value of the investments that the business manages. This is important because scale influences operational sustainability in run-off books and operational efficiency in growing books. Assets Under Administration 8 are also a strong indicator of fee income. Policy count † Policy count is the number of policies that the Group manages on behalf of customers. This is important to show the scale of the business, particularly to provide context to the rate at which the closed-book business is maturing. 8 In our open businesses, the policy count shows the net impact of new business versus policy attrition. Total Shareholder This includes dividend growth and yield and shows the return that an investor is generating on the shares that they hold. 55 Returns It is highly important as it shows the success of the business in translating its operations into a return for shareholders. New business This shows our ability to write profitable new business which increases the value of the Group. This is an important 40-45 profitability indicator given one of our core objectives is to ‘enhance value through profitable new business’. New business This shows our success at writing new business relative to the rest of the market and is important context for 40-45 market share considering our success at writing new business against our target market shares. Leverage ratio The leverage is a financial measure that demonstrates the degree to which the Company is funded by debt financing versus equity capital, presented as a ratio. It is defined as debt divided by debt plus equity, with the equity denominator 52-56 adding back the net of tax CSM liability, as measured under IFRS. Knowledge, skills This is a key measure given our view that the quality, balance and effectiveness of the Board of Directors has a direct and experience of the bearing on delivering positive outcomes to all stakeholders. This includes holding the management teams accountable Board of Directors 94-95 for the delivery of set objectives and the proper assessment of known and emerging risks and opportunities, e.g. those arising from climate change. KEY For the purposes of this key performance indicator assessment, business partners refers to major suppliers and outsource partners. † Alternative Performance Measure (APM) used to enhance understanding of financial performance. Further information on APMs Primary interest Secondary interest can be found in the additional information section of this Annual Report and Accounts. 262 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION RECONCILIATION OF METRICS The diagram below shows the interaction between the IFRS metrics and the Alternative Performance Measures used by the Group. FINANCIAL STATEMENTS ADDITIONAL METRICS Solvency II valuation I R IFRS net assets (Own Funds) Capital requirements Solvency Capital SCR plus Requirement management buffer P R B II IFRS profits EconomicValueSolvency BalancesheetPercentage EarningsAbsolute Stakeholder focus: P Policyholders B Business partners I I B I Investors Key performance indicators NewbusinessCashgeneration R Regulators EcVGroup ContributionDivisional As shown above, the key interaction between our statutory reporting rules under IFRS and the Alternative Performance Measures is with the Solvency II valuation and the Own Funds balance. A reconciliation from IFRS net assets to Solvency II Own Funds is shown below: £m 31 Dec 2024 31 Dec 2023 Rationale Group IFRS net assets 314.5 359.9 Removal of intangible assets; AVIF, DAC and DIL (86.0) (94.9) Intangible assets that cannot be sold separately have no intrinsic value under Solvency II rules. Removal of IFRS reserves, net of reinsurance 11,721.8 11,071.0 Net liabilities are calculated differently between the two methodologies and hence IFRS reserves are replaced with Solvency II technical provisions. The main differences in methodology are discussed further below. Inclusion of SII technical provisions, net of reinsurance (11,468.0) (10,853.3) Other valuation differences (4.4) 0.4 Other valuation differences. Mortgage loan valuation difference 34.5 32.3 Valuation difference of the Mortgage debt between IFRS and SII. Deferred tax valuation differences (12.2) (8.1) These are the deferred tax impacts as a result of the adjustments above. Under Solvency II rules, future ‘foreseeable dividends’ are required to be recognised within Own Funds. Under Foreseeable dividends (24.3) (23.5) IFRS rules, dividends are recognised when paid. Tier 2 debt valuation differences 34.7 52.2 Valuation difference of Tier 2 debt between IFRS and SII. Tier 2 debt under SII 166.1 148.4 Tier 2 capital plus the restriction placed on the subordinated debt within Own Funds under Solvency II requirements. Tier 2/3 restrictions (32.1) (0.3) Ring-fenced surpluses (1.9) (0.5) Solvency II requires that Own Funds are reduced by any surpluses that are restricted. For Chesnara, this relates to surpluses within the two S&P with-profits funds, which are temporarily restricted. These restrictions are removed Group SII Own Funds 642.7 683.6 through periodic capital transfers. The main differences between the two methodologies for calculating actuarial net liabilities are as follows: – Under IFRS 9, the value of investment contracts is taken as the unit liability, whilst under Solvency II, a non-unit reserve and Risk Margin are required. – Best estimate assumptions are used for both IFRS 17 and Solvency II; however, the former requires the CSM to be held for which there is no equivalent under Solvency II. – Both bases require a margin for adverse deviation, respectively the Risk Adjustment and the Risk Margin, but whilst the approach used is very similar, the cost of capital applied is different. – For the most part, the yield curves adopted for discounting under IFRS 17 are very similar to those used in Solvency II, the exception being that for certain Dutch ‘savings mortgage’ products the IFRS 17 liabilities use a yield curve derived from mortgage rates available in the market. – The reserve for future expenses held in Chesnara plc under Solvency II is not permitted under IFRS. – Other valuation differences relate to the definition of contract boundary and the allowability, or otherwise, of certain expenses such as investment management expenses on products where no investment service is provided. CHESNARAANNUALREPORTANDACCOUNTS2024263 ADDITIONAL INFORMATION RECONCILIATION OF METRICS Solvency II position Solvency II is the solvency regime that applies to the Group. Over and above IFRS, Solvency II imposes The closing Solvency II position at 31 December 2024 reflects the payment of an interim dividend a capital requirement on the Group. of £13.0m paid during the year and reflects a foreseeable dividend of £24.3m due to be paid in 2025. As these are distributions to shareholders, akin to IFRS profit reporting, these do not form part of A summary of the solvency position of the Group at 31 December 2024 and 31 December 2023 the cash generation metric and should be excluded. Consequently, Base Cash Generation can be is as follows: derived as follows: £m 31 Dec 2024 31 Dec 2023 £m Group SII Own Funds (OF) 642.7 683.7 Closing surplus available for distribution less opening available Solvency Capital Requirement (SCR) 315.8 332.7 surplus for distribution (15.9 ) Solvency surplus 326.8 351.0 Add back: Movement in Tier 3 asset and restrictions 30.2 Solvency ratio 203% 205% Add back: Interim dividend paid 13.0 Add back: Foreseeable year end dividend 24.3 Cash generation Cash generation is used by the Group as a measure of assessing how much dividend potential has Base Cash Generation 51.6 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 Symmetric adjustment 6.5 capital, as determined by applying the Group’s Capital Management Policy, which has Solvency II WP restriction look through 1.5 rules at its heart. For further information on cash generation please refer to page 260 and the financial Commercial Cash Generation 59.6 review section. Cash generation can be derived from the opening and closing solvency positions as follows: £m Opening Solvency II surplus: Own Funds – 31 Dec 2023 683.7 Remove Tier 2 debt at book value (200.0 ) SCR – 31 Dec 2023 (332.7 ) Add back Own Funds Restriction 0.5 Additional capital to meet normal internal operating range (40% of SCR) (133.1 ) Surplus available for distribution – 31 Dec 2023 18.4 Closing Solvency II surplus: Own Funds – 31 Dec 2024 642.7 Remove Tier 2 debt at book value (200.0 ) SCR – 31 Dec 2024 (315.8 ) Add back Own Funds Restriction 1.9 Additional capital to meet normal internal operating range (40% of SCR) (126.3 ) Surplus available for distribution – 31 Dec 2024 2.5 264 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION GLOSSARY AGM Annual General Meeting. LACDT Loss Absorbing Capacity of Deferred Tax. ALM Asset Liability Management – management of risks that arise due to mismatches Leverage A financial measure that demonstrates the degree to which the Company is funded by between assets and liabilities. debt financing versus equity capital, usually presented as a ratio, defined as debt divided APE Annual Premium Equivalent – an industry-wide measure that is used for measuring by debt plus equity, with the equity denominator adding back the net of tax CSM the annual equivalent of regular and single premium policies. liability, as measured under IFRS. Base Cash This represents the cash that has been generated in the period. The cash generating London Stock London Stock Exchange plc. Generation capacity of the Group is largely a function of the movement in the solvency position Exchange of the insurance subsidiaries within the Group and takes account of the buffers that LTI P Long-Term Incentive Plan – a reward system designed to incentivise executive directors’ management has set to hold over and above the solvency requirements imposed by long-term performance. our regulators. Cash generation is reported at a Group level and also at an underlying Movestic Movestic Livförsäkring AB. divisional level reflective of the collective performance of each of the divisions prior New business The present value of the expected future cash inflows arising from business written to any Group level activity. in the reporting period. BLAGAB Basic life assurance and general annuity business. Official List The Official List of the Financial Conduct Authority. CA Countrywide Assured plc. Operating profit A measure of the pre-tax profit earned from a company’s ongoing core business operations, CALH Countrywide Assured Life Holdings Limited and its subsidiary companies. excluding any profit earned from investment market conditions in the period and any CASLP Sanlam Life & Pensions UK. economic assumption changes in the future (alternative performance metric – APM). Commercial Cash generation excluding the impact of technical adjustments, modelling changes and Ordinary shares Ordinary shares of 5 pence each in the capital of the Company. Cash Generation exceptional corporate activity; the inherent commercial cash generated by the business. ORSA Own Risk and Solvency Assessment. Core Surplus Absolute surplus movement of the divisions including Chesnara entity but adjustments Own Funds In accordance with the UK’s regulatory regime for insurers, it is the sum of the Emergence will be made for the impact of items such as FX, T2/T3 restrictions, acquisition impacts individual capital resources for each of the regulated related undertakings less the book- and shareholder dividends as deemed appropriate. value of investments by the Company in those capital resources. Note: Any adjustments will be subject to Board approval (and Remco (Remuneration PAA Premium Allocation Approach – a simplified measurement model which can be applied Committee) approval if they impact remuneration) and will be transparently reported. to short-term contracts. CSM Contractual Service Margin (CSM) represents the unearned profit that an entity expects PRA Prudential Regulation Authority. to earn on its insurance contracts as it provides services. QRT Quantitative Reporting Template. Divisional Cash This represents the cash generated by the three operating divisions of Chesnara (UK, RA Risk adjustment is the additional reserve held for non-financial risks. Generation Sweden and the Netherlands), exclusive of Group level activity. RCF 3 year Revolving Credit Facility of £150m (currently unutilised) renewed in July 2024. Dividend Cover Defined as Commercial Cash Generation divided by the total of the interim and final proposed shareholder dividend for the financial year. Resolution The resolution set out in the notice of General Meeting set out in this document. DNB De Nederlandsche Bank is the central bank of the Netherlands and is the regulator of our RMF Risk Management Framework . Dutch subsidiaries. Robein Leven Robein Leven N.V. DORA Digital Operational Resilience Act (European Union regulation). Scildon Scildon N.V. DPF Discretionary Participation Feature – a contractual right under an insurance contract to Shareholder(s) Holder(s) of ordinary shares. receive, as a supplement to guaranteed benefits, additional benefits whose amount Solvency II A fundamental review of the capital adequacy regime for the European insurance or timing is contractually at the discretion of the issuer. industry. Solvency II aims to establish a set of EU-wide capital requirements and risk Dutch business Scildon and the Waard Group, consisting of Waard Leven N.V., Waard Schade N.V. and management standards and has replaced the Solvency I requirements. Waard Verzekeringen B.V. Solvency A measure of how much the value of the Company (Own Funds) exceeds the level of Economic profit A measure of pre-tax profit earned from investment market conditions in the period and (absolute) surplus capital it is required to hold. any economic assumption changes in the future (alternative performance measure – APM). Standard Formula The set of prescribed rules used to calculate the regulatory SCR where an internal EcV Economic Value is a financial metric that is derived from Solvency II Own Funds. model is not being used. It provides a market consistent assessment of the value of existing insurance businesses, STIS Short-Term Incentive Scheme – a reward system designed to incentivise executive plus adjusted net asset value of the non-insurance business within the Group. directors’ short-term performance. EcV Earnings Measure of the value generated by the Group in a period. SCR In accordance with the UK’s regulatory regime for insurers, it is the sum of individual FCA Financial Conduct Authority. capital resource requirements for the insurer and each of its regulated undertakings. FI Finansinspektionen, being the Swedish Financial Supervisory Authority. Swedish business Movestic and its subsidiaries and associated companies. Form of proxy The form of proxy relating to the General Meeting being sent to shareholders with S&P Save & Prosper Insurance Limited and Save & Prosper Pensions Limited. this document. TCF Treating Customers Fairly – a central PRA principle that aims to ensure an efficient and FSMA The Financial Services and Markets Act 2000 of England and Wales, as amended. effective market and thereby help policyholders achieve fair outcomes. GMM General Measurement Model – the default measurement model which applies to Tier 2 Term debt capital (Tier 2 Subordinated Notes) issued in February 2022 with insurance contracts with limited or no pass-through of investment risks to policyholders. a 10.5 year maturity and 4.75% coupon rate. Group Chesnara plc and its existing subsidiary undertakings. Transfer ratio The proportion of new policies transferred into the business in relation to those Group Centre Parent Company operations of Chesnara plc. transferred out. Group In accordance with the UK’s regulatory regime for insurers, it is the sum of the individual TSR Total Shareholder Return, measured with reference to both dividends and capital growth. Own Funds capital resources for each of the regulated related undertakings less the book value UK or The United Kingdom of Great Britain and Northern Ireland. of investments by the Group in those capital resources. United Kingdom Group SCR In accordance with the UK’s regulatory regime for insurers, it is the sum of individual UK business CA, S&P and CASLP. capital resource requirements for the insurer and each of its regulated undertakings. VA The Volatility Adjustment is a measure to ensure the appropriate treatment of insurance Group solvency Group solvency is a measure of how much the value of the Company exceeds the level products with long-term guarantees under Solvency II. It represents an adjustment to the of capital it is required to hold in accordance with Solvency II regulations. rate used to discount liabilities to mitigate the effect of short-term volatility bond returns. HCL HCL Insurance BPO Services Limited. VFA Variable Fee Approach – the measurement model that is applied to insurance contracts IFRS International Financial Reporting Standards. with significant investment-related pass-through elements. IFA Independent Financial Advisor. Waard The Waard Group. KPI Key performance indicator. CHESNARAANNUALREPORTANDACCOUNTS2024265 ADDITIONAL INFORMATION NOTE ON TERMINOLOGY As explained in Note C to the IFRS Financial Statements, the principal reporting segments of the Group are: CA which comprises the original business of Countrywide Assured plc, the Group’s original UK operating subsidiary; City of Westminster Assurance Company Limited, which was acquired by the Group in 2005, the long-term business of which was transferred to Countrywide Assured plc during 2006; S&P which was acquired on 20 December 2010. This business was transferred from Save & Prosper Insurance Limited and Save & Prosper Pensions Limited to Countrywide Assured plc on 31 December; and Protection Life Company Limited which was acquired by the Group in 2013, the long-term business of which was transferred into Countrywide Assured plc in 2014, as well as the portfolio of policies acquired from Canada Life on 16 May 2023 and reinsured into Countrywide Assured plc; CASLP – ‘SLP’ Sanlam Life & Pensions UK which was acquired on 28 April 2022. CASLP was dissolved by court order on 14 January 2025; Movestic which was purchased on 23 July 2009 and comprises the Group’s Swedish business, Movestic Livförsäkring AB and its subsidiary and associated companies; The Waard Group which was acquired on 19 May 2015 and comprises two insurance companies; Waard Leven N.V. and Waard Schade N.V.; and a service company, Waard Verzekeringen; Robein Leven N.V. acquired on 28 April 2022; and the insurance portfolio of Conservatrix acquired on 1 January 2023; Scildon which was acquired on 5 April 2017; and Other Group activities which represents the functions performed by the Parent Company, Chesnara plc. Also included in this segment are consolidation adjustments. 266 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024 ADDITIONAL INFORMATION CAUTIONARY AND FORWARD-LOOKING STATEMENTS AND MSCI DISCLAIMER Cautionary and forward-looking statements MSCI disclaimer This document has been prepared for the members of Chesnara plc and no one else. Chesnara plc, Certain information contained herein (the ‘Information’) is sourced from/copyright of MSCI Inc., its directors or agents do not accept or assume responsibility to any other person in connection MSCI ESG Research LLC, or their affiliates (‘MSCI’), or information providers (together the ‘MSCI with this document and any such responsibility or liability is expressly disclaimed. Nothing in this Parties’) and may have been used to calculate scores, signals, or other indicators. The Information document should be construed as a profit forecast or estimate. is for internal use only and may not be reproduced or disseminated in whole or part without prior written permission. The Information may not be used for, nor does it constitute, an offer to buy This document may contains, and we may make other statements (verbal or otherwise) containing, or sell, or a promotion or recommendation of, any security, financial instrument or product, trading forward-looking statements with respect to certain of the plans and current expectations relating strategy, or index, nor should it be taken as an indication or guarantee of any future performance. to the future financial condition, business performance, and results, strategy and/or objectives Some funds may be based on or linked to MSCI indexes, and MSCI may be compensated based on (including without limitation, climate-related plans and goals) of Chesnara plc. the fund’s assets under management or other measures. MSCI has established an information Statements containing the words ‘believes’, intends’, ‘will’, ‘expects’, plans’, ‘aims’, ‘seeks’, ‘targets’, barrier between index research and certain Information. None of the Information in and of itself can ‘continues’ and ‘anticipates’ or other words of similar meaning are forward-looking. be used to determine which securities to buy or sell or when to buy or sell them. The Information is provided ‘as is’ and the user assumes the entire risk of any use it may make or permit to be made By their nature, all forward-looking statements involve risk and uncertainty because they relate of the Information. No MSCI Party warrants or guarantees the originality, accuracy and/or completeness to future events and circumstances that are beyond the control of Chesnara plc including, amongst of the Information and each expressly disclaims all express or implied warranties. No MSCI Party other things, UK domestic, Swedish domestic, Dutch domestic and global economic, political, shall have any liability for any errors or omissions in connection with any Information herein, or any social, environmental and business conditions, market-related risks such as fluctuations in interest liability for any direct, indirect, special, punitive, consequential or any other damages (including rates, currency exchange rates, inflation, deflation, the impact of competition, changes in customer lost profits) even if notified of the possibility of such damages. preferences, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory In addition to the terms and conditions of any license agreement for MSCI information, services or authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which products (‘MSCI Products’) entered into with MSCI Inc. and/or its affiliates (‘MSCI’) by customers Chesnara plc and its subsidiaries operate. As a result, Chesnara plc’s actual future condition, (‘Customer(s)’), each Customer must comply with the terms and conditions required by third party business performance and results may differ materially from the plans, goals and expectations suppliers (‘Supplier(s)’) regarding Customer’s use of Supplier content, data, software and other expressed or implied in these forward-looking statements. materials (‘Materials’) within MSCI Products. Customers may also be required to pay additional fees associated with Supplier Materials. If a customer does not comply with a Supplier’s terms, a Supplier No representation is made with regard to forward-looking statements, including that any future may enforce such terms and/or require MSCI to terminate Customer’s access to that Supplier’s results will be achieved. As a result, you are cautioned not to place undue reliance on such Materials, without any remedy to Customer. forward-looking statements contained in this document. Chesnara undertakes no obligation to update any of the forward-looking statements contained within this document or any other Additional terms and conditions required by Suppliers with respect to its Materials are provided forward-looking statements we make. Forward-looking statements in this report are current only in the expanders below. If Customer receives Materials from a Supplier not listed below via MSCI as of the date on which such statements are made. Products, additional terms and conditions related to such Materials may apply. Notwithstanding anything to the contrary set forth below, none of the additional terms and conditions of MSCI Suppliers The climate metrics used in this document should be treated with special caution, as they are more shall supersede (nor shall MSCI waive) any MSCI proprietary and/ or intellectual property rights uncertain than, for example, historical financial information and given the wider uncertainty around in MSCI Products. the evolution and impact of climate change. Climate metrics include estimates of historical emissions and historical climate change and forward-looking climate metrics (such as ambitions, targets, climate scenarios and climate projections and forecasts). Our understanding of climate change and its impact continue to evolve. Accordingly, both historical and forward-looking climate metrics are inherently uncertain and Chesnara expects that certain climate disclosures made in this document are likely to be amended, updated, recalculated or restated in the future. CHESNARAANNUALREPORTANDACCOUNTS2024267 ADDITIONAL INFORMATION Registered and head office 2nd Floor, Building 4 West Strand Business Park West Strand Road Preston Lancashire PR1 8UY T+ 44 (0)1772 972050 www.chesnara.co.uk Registered Number: 04947166 Designed by The Chase 268 CHESNARA ANNUAL REPORT AND ACCOUNTS 2024
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