Chesnara plc (CSN) Earnings Call Transcript
November 6, 2026
Earnings Call Speaker Segments
Good morning, and welcome to this Chesnara conference call, where we'll cover our latest acquisition. I'm Steve Murray, Group CEO; and with me are Tom Howard, our Group CFO; and Sam Perowne, Head of Investor Relations and Strategic Development. On our interim 2026 results presentation, we highlighted to investors and analysts that our M&A pipeline remained positive and that we continue to actively evaluate opportunities. And earlier this morning, we announced the proposed acquisition of MetLife U.K. Limited from MetLife Group, a $65 billion market cap global financial services company. This is our fourth deal in the last 2 years and 17th announced since Chesnara began. Together, we expect these recent transactions will help bring the own funds of the group to over GBP 1 billion. So why is this another attractive deal for investors? It adds the scale and value to our U.K. business. MetLife U.K. Limited brings GBP 1.7 billion of AUA and around 18,000 customers. The financial returns are attractive with an estimated uplift in Solvency II own funds of around GBP 45 million with a broadly similar impact expected on the IFRS CSM. This uplift is around 5% of the group's total own funds and close to 10% of the group's CT1. The acquisition is also expected to add lifetime cash flows of approximately GBP 90 million, with half of these cash flows estimated to emerge in the first 5 years post deal completion. Operationally, these customers' policies are already administered via SS&C, who are a key strategic partner for us in the U.K. As part of the deal, we plan to migrate these policies from the older SS&C platform they're currently on to our more modern SS&C supported version and the associated rate card. Within these policies with optional investment guarantees, MetLife U.K. Limited has an existing external reinsurance agreement with AAA-rated European reinsurer, which will remain in place following completion. This provides comprehensive cover for the guarantee risk associated with the portfolio. We're highly confident that we have the capacity and capability to manage this closed book and associated separation and migration well. The acquisition is also expected to have a broadly neutral impact on the group's Solvency II ratio. And for the avoidance of doubt, there's no material financing or capital contribution required from Chesnara for the deal, and there is no change to our available firepower either. Finally, the consideration payable is not expected to be material and reflects our ability to source attractive opportunities and create value as larger groups dispose of noncore portfolios. In terms of the next steps on the proposed acquisition, the transaction is expected to complete by the end of the first half of 2027 and remains subject to customary regulatory approvals. We've already begun the work required to support change control approval, separation of this business from the wider MetLife Group and to ultimately move this closed book to our U.K. target operating model supported by SS&C. This work will continue at pace over the coming weeks and months. I also thought it would be useful to provide a very short update on other areas of strategic execution. We remain fully on track to deliver the migration of Chesnara Life data from HSBC onto our own target operating model by the end of the year. And we continue to anticipate change of control for Scottish Widows Europe in and around the end of 2026 as well. Looking forward, we continue to see a healthy pipeline of M&A opportunities across Europe and the U.K., and we remain highly confident in our ability to execute further transactions at attractive terms for our investors. So the proposed acquisition of MetLife U.K. adds further scale to our U.K. business, enhances our future cash flows and is expected to deliver a highly attractive return for investors. And our fourth announced acquisition in the last 2 years shows we remain the consolidation partner of choice for blue-chip financial services counterparties. I'm pleased with the continued momentum in our M&A strategy with another complementary U.K. deal. And I strongly believe there's a lot to look forward to here at Chesnara. So with that introduction, we'll now open up for questions. Please let the operator know if you have a question.
[Operator Instructions] Now take our first question from Michael Huttner of Berenberg.
I have two. The first one is, can you talk us through -- I mean, the deal sounds so attractive. It's -- what's the special sauce, if you like, that makes Chesnara the partner of choice? I'm assuming it's patience because when I spoke very briefly to wonderful colleague, he said the -- it had been -- talking starting around February. So we're now in November. So -- but anything? And then a similar kind of train of thought. Are there any competing buyers out there in this kind of pool?
Thanks, Michael, and thanks for joining this morning. Yes. So I think, look, what -- why are we an attractive counterparty for some of these large firms? And we think there's a few things. But stating the obvious, we now have a huge amount of experience as a group of executing M&A and right the way across the deal spectrum from some larger deals that we've done recently, including the HSBC Life U.K. transaction. But we are very happy to look at deals across that deal size, and that intend to mean that we're in a unique position to provide solutions for some of these smaller portfolios like this one. Secondly, whilst I think Chesnara is a very important firm and that we've grown materially, we aren't seen as a competitor to these very large firms. If you take MetLife, I mean, an incredibly successful global organization over GBP 65 billion sort of market capitalization. So there's never sort of a worry, I think, around them engaging with a firm like us around whether that sort of gives a competitive advantage to somebody else, and we can work through the problem. I think we can be patient. I think we've got a playbook now where we can work through sort of complexities in a really good way with other people. The final thing, we -- the U.K. operating platform that we have was a very, very important part of this deal. But also upfront, when we enter into these engagement, we just try and be very, very clear with the organizations we're dealing with around how we'll do things, but also what we need from a risk return perspective and also from a migration perspective as well. So I think when you build those things together, we think that makes us an attractive partner, and we were really pleased that MetLife has sort of chosen us to partner with them on this book. In terms of the competition, I'll probably repeat some of the things, Michael, that you will have heard us say at the half year. So certainly, since I joined and I've recently celebrated my 5-year anniversary as the Group CEO of Chesnara, there's certainly a bit less competition than there was certainly when I joined. And I think we've always said for some of the sort of smaller deals that there's relatively limited competition there in the market. And that's what we're continuing to see as we engage with counterparties and we look across all the markets that we're operating in. So hopefully, that gives you a sense of how we're seeing things at the moment.
We'll now take our next question from Ben Cohen of RBC.
I had a couple of questions. The first was just on the price that you're going to pay for the deal. Can you just talk us through what the sort of the swings and round abouts are on completion that are going to need to be settled? I presume it relates to actually the assets that you -- the net assets that you take on? The second thing I wanted to ask was just on the on the book that you're acquiring. I think you mentioned that the variable annuities are reinsured. How are the optional guarantees kind of treated? And in terms of the book as a whole, what impact is it going to have to the Solvency II sensitivities? Presumably, it's more market risk is the main area that you're taking on the unit-linked policies.
Yes. Thanks, Ben, and thanks for joining. I think, Tom, those are like 2 questions for you, if I can hand those over to you both on the -- I suppose that sort of completion mechanism, what might move around a little bit and then a little bit more detail on the policies and how that reinsurance protects it. So can I hand to you, Tom?
Yes. Thanks, Steven. Yes, thanks for the questions. I'll actually take the second one first, if that's okay. So yes, I mean, in terms of the product set, these were originally marketed as variable annuity contracts. They have the mutual guarantee guaranteed accumulation and income benefits associated with those product types. However, as you say, those optional -- those features, those guaranteed features are fully reinsured to an external reinsurer. So from our perspective and from an economic perspective, these products behave exactly like unit-linked products and in fact, exactly like the unit-linked products that we currently have within the U.K. portfolio. And actually, as a result of that, they diversify really well and are very complementary to that U.K. portfolio. So the overall sensitivity of the Solvency II balance sheet to things like market risk, which you've correctly pointed out is the main risk we would look at, those sensitivities are actually largely unaffected. And you'll see as well this morning, one of the data points we brought out was the fact that the Solvency II ratio of the group is in effective actually buying a deal, and that's largely down to the fact that these risks are diversified so well into the existing U.K. portfolio. In terms of the completion mechanism, I mean, in terms of process, it's a customary completion process. So we'll work through change of control and we have sort of various steps to take before we finalize that. And as we said in the announcement, I mean, in terms of pricing, there will be various steps to go through, which may have a slight impact on the ultimate sort of economic transfer when we get to closing. But as we said, we do expect the sort of ultimate financing requirements here to be relatively immaterial. And we've looked at various different scenarios between here and closing that could affect that. And our view is that we won't see a material sort of call on financing between here and closing as we work through those steps.
We'll now take our next question from Abid Hussain of Panmure Liberum.
I've got a few questions, if I may. The first one is on the lifetime cash. Where do you see further upside to the EUR 90 million possible capital actions? I'm just wondering, is mass lapse less relevant in this case down the line? And then the second question is on firepower. It looks like today's deal doesn't impact that firepower. And if that's true, I'm just wondering how does the pipeline look for large deals into 2027? And then thirdly, I was just wondering if it's worth calling out if there's anything different about this deal. It does feel slightly different to the previous 3 that you did. Is there anything different? For example, these policies are already on SS&C was that a factor? And then just a final question, if I may. Apologies, there's quite a few questions. The final question is, is this a one-and-done deal with MetLife? Or do you foresee the opportunity to come back for other things with MetLife Group?
Thanks, Abid, and thanks for your note in the title this morning. What I'll do, Tom, why don't I pick up the last couple, and then I'll maybe pass back to you for the lifetime sort of cash flow and mass lapse, and you can talk about where we see sort of maybe firepower as well. But if I pick up sort of pipeline, anything different in this deal, then we can do that in the sort of one and done piece. So on the one and done, we've obviously found historically that when you work at close quarters with another partner, that can lead to other things happening. And we certainly saw that with the Canada Life team, and we were really pleased with that when you spend a lot of time with people and you develop a good working relationship, you hope that, that means if other things become available that you'll be well placed to do that. And we would certainly hope that's the situation here. We said before that the work to do smaller portfolios can be the same as larger deals and actually, it can be more complexity. And I've certainly been really impressed with the way that the broader MetLife team and the broader Chesnara team has worked together very positively to find a solution for this portfolio. So I think that hopefully stands in good stead going forward. And they are clearly a very, very large successful financial services organization. In terms of what was different on this deal, I think the one thing that was the fact that the policies are already administered by part of SS&C, and we haven't -- we sometimes come across that. But I think in the U.K., it's the first time really that we've seen that an anger on a deal. And all the work and investment and effort that we've been putting into building that relationship, the target operating model, executing migrations really has been a very important supporting factor for the deal. So the fact that we can move that from what's an older version of the outsourcing model there running onto our new platform has been a sort of core part of how we're able to create value here. So I think that's the one thing Abid that I would probably point to here that was perhaps a little bit more different in terms of the transaction. In terms of pipeline, I sort of alluded to it in my opening remarks, but we're continuing to see a positive pipeline. There's plenty going on in our part of the market by way of transactions. So we don't see sort of the sourcing of portfolios and companies being a challenge going forward. It's always the time that these things take. You need a willing selling, you need to sort of strike the right price and the deal parameters and what have you. But we remain positive about what we're seeing in the market. And as I've said to people before, I've got enough gray hair to know that trying to predict when these things drop as a fool's errand, but we continue to be busy looking at things and continue to believe we will have some great opportunities to execute. Tom, do you want to pick up that sort of firepower question to where are we? I think we've confirmed there's no change, but we can maybe remind people how we see firepower and then where we see potential upside from a lifetime cash flow and maybe what's in there, too?
Yes, sure. I mean from a firepower perspective, as we've been saying, I think we talked about at our last results presentation, we retain enough firepower to do something of the size of the Scottish Willows Europe transaction. That remains the case because as we said earlier, this deal, we don't expect to give rise to any material form of financing requirements. So that firepower position still holds. In terms of the lifetime cash flows, Abid, yes, I mean, the disclosures we put out today reflects a pretty, I would say, prudent projection of the cash flows that we expect under our ownership. So they reflect an assumption of the long-term run rate cost profile. So when we ultimately do migrate this business onto our modern SS&C platform, we've made what I would say is a pretty prudent assumption about the level of costs associated with that. What we haven't done is assumed any future capital management actions. So you mentioned mass laps. And obviously, there are other things we could do in there as well. But we see those as potential further sources of upside. And we'll be having a look at those between and completion, that's kind of -- that's one of the steps we'll be working through between signing and completion and along with the other steps I mentioned earlier on.
[Operator Instructions] And we'll now take a follow-up question from Michael Huttner of Berenberg.
Just two. One, a cheeky one is you mentioned Europe ahead of the U.K. in your opening remarks on pipeline. Is that significant? Or is that just because of the Alphabet? And then the second is the GBP 45 million, is that a pretax or post-tax number?
I'll let Tom pick up the details. It probably is more in relation to the Alphabet, Michael. But what I would say is, look, we're continuing to see good opportunities across European territories and the U.K. And I should probably say for the avoidance of doubt, we are -- this deal provides us with the flexibility to continue to look at U.K. acquisitions. We've got flexibility around when the migrations and things might happen because it's SS&C to SS&C. That was another important factor in the deal for us because it allows us to continue to look at interesting opportunities in the U.K. in the near term as well. So as you know, if we can find opportunities to provide a nice return for investors and we can manage them, we'll certainly look at them across the territories we're currently in, and we're still open to looking at other markets as well. Tom, do you want to sort of just pick up the -- that sort of technical question on the own funds?
Yes, Michael, I mean, straightforward, actually. So the balance sheet impacts of both the IFRS and the Solvency II impacts are both post-tax.
Thank you. With no further questions from the line, I will now hand it back to the management team for closing remarks.
Thanks very much. I just wanted to add my thanks to the MetLife and the Chesnara teams who have worked tirelessly over the last few months to make this deal happen. It really has been great to see 2 teams working so proactively together. So before we finish the call, I just wanted to make sure that I put my thanks on the record for all of them. So just in summary, the proposed acquisition of MetLife U.K. adds further scale to our U.K. business, enhances our future cash flows and is expected to deliver a highly attractive return for investors. And our fourth announced acquisition in the last 2 years shows we remain the consolidation partner of choice for blue-chip financial services counterparties. Thank you for dialing in this morning, and I continue to believe there's a lot to look forward to here at Chesnara.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
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