Chesnara acquisition to give an uplift of £18m to Economic Value (LON:CSN)

Hardman & Co

Chesnara plc (LON:CSN) is the topic of conversation when Hardman and Co’s Financial Analyst Dr Brian Moretta caught up with DirectorsTalk for an exclusive interview.

Q1: Chesnara recently announced another acquisition. Can you tell us a little about it?

A1: As listeners may recall, CSN is an active consolidator of life insurance companies, predominantly those that are closed. It has agreed to buy Netherlands life insurer known as Conservatrix, a writer of funeral plans, annuities, and term insurance. The company was based in Utrecht, and they bought it out of bankruptcy.

Q2: What’s the background to Conservatrix going into bankruptcy?

A2: It is an unfortunate story. The company had been around since 1872, but, in 2017, it was sold to a US investment group. After this purchase, Conservatrix reinsured much of the risk, but these contracts failed. This led to large losses and bankruptcy. So the failure was a strategic one. While we can’t tell if it was just bad luck with the reinsurer, or incompetence, the underlying book of business was still sound after some writing down of benefits.

Q3:What are the terms of the acquisition?

A3:CSN is buying the company for a nominal sum. Of course, the bankruptcy arose because Conservatrix didn’t have enough capital; so Chesnara will have to inject some capital. It will invest £35m, of which £14m is in the Waard subsidiary, which is the purchasing entity, and £21m will come from the parent company. It is maybe worth adding that capital is there as a backup and not going to policyholders – so, if all goes well, this will come back to Chesnara in due course.

Q4: And what does Chesnara get out of this?

A4: Financially, it is expected to give an uplift of £18m to Economic Value on completion. This is about 3% of the year-end value. On an ongoing basis, it will add around £4m a year to CSN’s cashflow, which is an uplift of almost 10% of our steady-state forecast for 2022. It will also bring some additional scale to Waard, almost doubling its assets under administration and increasing its policy count by 70%. At a group level, it’s much smaller, but not trivial.

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Q5: And what about the outlook?

A5: With the interims due at the end of this month, the company did not supply any trading information. We do note that equity markets were weak in the first half, especially in Sweden so it is likely that Economic Value will be down on the end of 2021 total. For acquisitions, in March, they said it had over £100m available, so there is at least £65m of capacity for further deals.

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