Chesnara plc ($CSN)

Welcome to the Chesnara Full Year 2025 Results Presentation. I'm Steve Murray, Group Chief Executive. And with me is Tom Howard, our Group Chief Financial Officer. So what will we cover today? Well, I'll begin with an overview of what has been delivered in a major period of strategic transformation. Tom will then step through the financials in more detail, including how the group balance sheet looks post the completion of Chesnara Life, formerly known as HSBC Life U.K. I'll then finish with a recap of what the group has delivered over the last 5 years, where we are now and why we believe we're only just getting started. We'll have plenty of time for questions at the end of our presentation, starting with the people here with us in RBC's London office. And for those of you joining online, you can type questions into the Q&A function via your browsers. Our focused 3-pillar strategy set out on this slide has continued to serve the group well. And the last year or so has seen a further increase in the scale and pace of our delivery. We undertook a major restructuring of our Dutch business with the merger of our two main Dutch insurance entities and transfer of our DC pensions portfolio to Allianz. We announced our largest ever acquisition, HSBC Life U.K., alongside GBP 140 million rights issue. Our successful inaugural RT1 bond raising GBP 150 million provided additional flexibility to finance further M&A. The group then entered the FTSE 250 for the first time in its history. In January this year, we completed the HSBC Life U.K. acquisition at an attractive discount to own funds. This business now rebranded as Chesnara Life is expected to add over GBP 800 million of future lifetime cash flows. Then in February this year, we announced the proposed acquisition of Scottish Widows Europe, a Luxembourg-based business that broadens our European footprint and supports our longer-term consolidation ambitions. We're targeting completion in and around the end of 2026 with the acquisition expected to add a further EUR 250 million of lifetime cash flows to the group. The group has also delivered a strong set of results across all our key financial measures with the contribution from new business also increasing. You'll see throughout the presentation, we're using our updated financial metrics for the first time. We believe these should allow investors to more easily understand the group's performance and also more readily compare it with peers. Tom will run through these financial results in more detail shortly, including the expected impact of recent M&A on the group's pro forma balance sheet. Our strong track record of dividend growth continues. As previously highlighted to investors, we're announcing a 6% increase in the final 2025 dividend, up to 14.8p per share. Given the strong financial performance of the group and also the financial benefits that we anticipate from Chesnara Life, we also expect the 2026 interim dividend to rise by a further 6%. This represents a one-off acceleration of the group's historic dividend growth trajectory. Total shareholder returns for 2025 were also materially higher, demonstrating the value that we continue to create for our investors. So let me hand over to Tom, who will take us through the financial results in more detail.

Thanks, Steve, and good morning, everyone. So 2025 was a year of very strong performance for the group, achieved alongside significant strategic and operational milestones. We are yet again reporting a strong set of financial results, and we are increasing returns to our shareholders. Before I dive into the detail, it's worth noting that today's results do not include the day 1 impacts of the Chesnara Life acquisition as this transaction completed after the year-end. We have, however, included pro forma results in this presentation, and I'll cover these later. Also, and Steve has referenced this already, you'll see that we're presenting today's results in line with our updated financial framework. This further simplifies our investor story by moving to a smaller number of financial metrics anchored around our three performance pillars of cash, capital and value. We held an information session at the end of February to bring some of you through the detail of these changes, and you can find the definitions and more detail in our accounts and on our website. So turning to our performance and starting with cash. The group delivered operating capital generation of GBP 94 million, an increase of 19% compared to the prior year. We also saw increased cash remittances from our business units to Group Centre, increasing to GBP 58 million compared to GBP 45 million in 2024. From a capital perspective, the group's Solvency II balance sheet remains resilient to a wide range of economic and demographic shocks. At full year '25, the solvency coverage ratio was materially higher than the upper end of our operating range, and the group's own funds increased by 34% to GBP 859 million. And finally, our sources of future value continue to grow. Assets under administration grew to GBP 15 billion and adjusted operating profits grew by 42% to GBP 56 million. The group is successfully delivering against all areas of our financial framework. And this enables an increase in the final dividend per share of 6% to 14.8p per share. Turning now to operating capital generation in more detail. The group's OCG growth was particularly strong, increasing by 19% to GBP 94 million with increased year-on-year contributions from each of our business units. In the U.K., OCG benefited from a combination of positive operating performance and capital optimization actions. In Sweden, we saw another year of strong operational performance with positive contributions from disciplined expense management and improved persistency experience. And finally, merger synergies alongside robust operating performance supported improved year-on-year results in the Netherlands. The group solvency coverage ratio increased materially during the year to 257%. The two capital raises completed in the second half significantly contributed to growth in the group's solvency surplus. And this was supported by strong operating performance from our business units, as I outlined in the previous slide. Nonoperating variances were primarily driven by macro factors, namely the impact of a weaker U.S. dollar on the value of customer asset holdings in Sweden and movements in the yield curve in the U.K. After factoring in Solvency II tiering adjustments and the final dividend, the group solvency coverage ratio remains comfortably above our operating range of 140% to 160%. We expect the coverage ratio to remain above the upper end of this range on a pro forma basis after allowing for the day 1 impact of the Chesnara Life acquisition. The group's own funds increased by 34% year-on-year, reaching GBP 859 million after allowing for the dividend and the impact of Solvency II tiering restrictions. Positive contributions from the operating performance of our business units and nonoperating contributions from favorable market conditions drove growth in own funds. Now on this slide, we show the group's central liquidity after allowing for the completion of the Chesnara Life acquisition in January. The balance of GBP 266 million remains comfortably above our buffer levels with material headroom available to the group to deploy on further M&A opportunities. Over 2025, liquidity was supported by the capital raises and increased remittances from our business units. As I pointed out earlier, cash remittances increased by 30% to GBP 58 million, reflecting the sustained improvement in operating performance across the group's business units. Moving next to IFRS. Adjusted operating profit increased by 42% to GBP 56 million, and the IFRS capital base grew significantly to GBP 694 million compared to GBP 449 million at full year '24. Again, we saw robust operating performance from each of our business units with a material year-on-year increase in the Netherlands, where the insurance results also benefited from merger and simplification synergies. Leverage reduced by 9 percentage points to 22%, comfortably meeting the group's long-term ambition of 30% or less. Now as I mentioned earlier, the preceding results reflect the group's full year '25 position. And as such, they don't include the day 1 impact of the Chesnara Life acquisition, which completed in January. And for clarity, these pro formas do not include the impact of our recently announced proposed acquisition of Scottish Widows Europe or later-stage capital and expense synergies from the integration of Chesnara Life. So taking the Solvency II and IFRS balance sheets in turn. We expect the group's own funds to increase to circa GBP 1 billion and the solvency coverage ratio to remain above the upper end of our operating range. The IFRS capital base is expected to increase to over GBP 800 million. And within this, the contractual services margin will rise to circa GBP 200 million, materially increasing the store of future value from our insurance portfolios. The group's leverage ratio will be comfortably within our long-term ambition of 30% or less. So hopefully, this demonstrates how the steps we've been taking are transforming the financial profile of the group, whilst maintaining a robust balance sheet, attractive leverage and the financial firepower to support further attractive M&A opportunities. Thank you all. And with that, I'll pass back to Steve.

Thanks, Tom. As Tom and I have highlighted, this has been an exceptional period of strategic delivery for the group. On this slide, I thought it was useful to remind investors about the key areas of activity we've been undertaking over the last 4 or 5 years here at Chesnara. Firstly, we restarted the M&A machine and have materially increased the cadence of deals announced with 8 acquisitions, including the recently announced Scottish Widows Europe transaction. This activity has been supported by the raising of further capital from debt investors and shareholders. And as a reminder, together, Chesnara Life and Scottish Widows Europe are expected to contribute around GBP 1 billion of future lifetime cash flows to the group. Secondly, we've improved the foundations of the business. We combined our two main Dutch insurance entities and also transferred our DC pension portfolio to Allianz. We've been implementing a new U.K. operating platform with 4 successful migrations completed so far. We've significantly strengthened the senior leadership team here with 11 out of 12 positions now having new role holders. And we also set ourselves new and ambitious sustainability targets with delivery against these on track. And finally, we've more proactively executed management actions, including FX hedging for the first time as well as expanding our new business relationships, particularly in Sweden. So where does that leave us today? As you can see on this slide, we've significantly increased our assets under administration and customer numbers. We also anticipate a near doubling in the value from new business in 2026 following the addition of Chesnara Life to the group. Our balance sheet has grown substantially. And as Tom highlighted earlier, we retain a strong solvency position well above our normal operating range of 140% to 160%. Cash generation and dividend coverage have also materially improved, including the impact of our recent rights issue. And we've continued to grow the dividend above longer-term inflation rates and deliver a higher level of shareholder return. On Scottish Widows Europe, we expect this deal to further enhance our assets under administration, cash flows and own funds position. Our solvency is also expected to remain above our normal operating range post deal completion. And we retain immediately available firepower to execute another Scottish Widows Europe sized deal without the need for further external financing. With assets under administration of over GBP 20 billion, owned funds of over GBP 1 billion, solvency above our normal operating range and recent M&A expected to add a further GBP 1 billion in future lifetime cash flows, we have a strong foundation for further growth. The strategic focus we've had over the last few years continues in 2026. It's very important we deliver the integration of Chesnara Life, which we expect by the end of 2026. We then have further work in 2027 on the remaining U.K. portfolio migrations we have planned onto our new U.K. operating platform. We're already progressing the work for the change of control of Scottish Widows Europe, and we have a range of available management actions across the group that we're actively working on to optimize the balance sheet further, including across the businesses that we've acquired. We continue to see a positive M&A pipeline in 2026 and are already assessing some interesting opportunities. We're pushing forward with the next phases of restructuring of our Dutch business, and all of this will continue to be underpinned by the work we're doing to become a more sustainable Chesnara, more details of which can be found in our annual sustainability report on our website. I wanted to provide a further update on where we are on the integration of Chesnara Life and the change of control process for Scottish Widows Europe. On Chesnara Life, we expect the assets under administration and own funds at completion to be a little ahead of the position that we shared with investors in July. The work to migrate policies onto our U.K. target operating model is in full flight. Jackie Ronson, our U.K. CEO, is leading a designated internal team here with strong support from SS&C. And this work is expected to complete by the end of 2026. Delivering this important stream of activity will then ensure we have further operational capacity to onboard future M&A in the U.K. On Scottish Widows Europe, under Tom's sponsorship, we're already pushing ahead with the work to deliver change of control and deal completion as well as the planning required for the business' separation from Lloyds Banking Group. And we're targeting change of control approval in and around the end of 2026. It's important to highlight that there's relatively limited overlap between the delivery teams on the Chesnara Life integration and those working on change of control for Scottish Widows Europe. Our recent transactions have been conducted with some of the largest financial services firms in the world. Lloyds Banking Group joins HSBC, Sanlam and Canada Life as another major institution that has chosen to trust us to support their customers going forward. We continue to see a positive M&A market and pipeline that provides great opportunities to build on our track record of strong deal execution. And we're already seeing interesting targets to assess in the early part of 2026. We remain very focused on ensuring that we successfully complete the work required to onboard our latest acquisitions, not least to showing that we can continue to safely and efficiently look after these customers will allow us to execute more M&A in the future. Investors will have heard me talk previously about the proactive investments we've been making to build out our leadership capability and wider capacity. This allows us to handle multiple deal processes and the associated integration activity. We've also previously shared that a typical deal tends to take around 9 to 12 months at least from initiation to completion. Given that, we are certainly in the position where we can and should be looking at new opportunities now. And we will, of course, remain disciplined in our approach to assessing and executing any acquisitions, ensuring we have a high degree of confidence that will add value for investors. So we've delivered a strong set of financial results, supporting a 6% increase in the final dividend. We've completed the largest acquisition in our history, the restructure of our Dutch business and announced another material transaction. And we're continuing to see a positive M&A pipeline as we look forward into 2026 and beyond. These strong results wouldn't have been achieved without the outstanding efforts of colleagues across the group. I want to thank them for all their hard work in what's been a fantastic period of delivery. We begin 2026 with the group in a strong position with further opportunities to grow. And I continue to believe that there's a lot to look forward to here at Chesnara.

Thank you for your presentation. We've had a number of questions pre-submitted. [Operator Instructions] And so to begin with, the company has had a strong dividend track record. What underpins its sustainability from here? And just another question similar to that. I mainly hold this for income. Is my dividend properly safe? Or should I be worried?

So thanks very much for the questions, and it's great to be spending some time with you all this afternoon. So when I talk about sort of historically why we have the best dividend track record in U.K. and European insurance over the last 21 years. And then Tom can talk about how we think about sort of dividend policy and future cash flow that we brought into the business. And hopefully, that will deal with the dividend security question as well. So I think one of the unique things about Chesnara is the way that we have consecutively increased the dividend since we floated on the stock exchange since 2004. And I know a number of you that have dialed in will have held the shares since then. Some of you may have joined more recently, including as part of the rights issue that we did to support the acquisition. And if you look at how the balance sheet overall has been positioned throughout that time and continues to be, on the asset side, it's pretty conservatively positioned. If we think about the holdings that we have, we don't have any material exposure to things like private credit. private equity and some of those more sort of esoteric asset classes. And we've been sort of pretty prudent in the way overall that the business has been managed. So in times where the cash generation and the operating capital generation have been very strong, we've tended to sort of make sure that we've got a consistent and growing dividend at around 3% historically. And that means that similarly in times when perhaps the cash generation hasn't been as strong, there's been plenty of capacity within the balance sheet and also when we think about the future cash generation of the group to continue that track record. So that is why historically, you've seen the continuation of that strong track record. What we've been doing more recently then is seeking out opportunities to restart the M&A machine and add cash flows to the group that should extend into the longer term, the sort of sustainability of that approach to dividend. The historic dividend track record has also provided investors with good inflation protection. So the broadly sort of 3% growth rate that we've had sort of each year has certainly beaten longer-term rates of inflation in the U.K., and we're really sort of pleased to have given investors that protection. In the presentation, you'll have heard both Tom and I talk about some of the sort of transformative deals that we've done in the last year. And particularly, a couple of metrics we'd point to there would be the sort of GBP 1 billion plus of lifetime cash generation that we expect the two acquisitions, the HSBC Life U.K. deal that has now completed and also the Scottish Widows Europe deal that we announced in February to add to the group. So that certainly provides a lot of support for that longer-term dividend policy. And you can see from the numbers that Tom talked through, and I'll ask him to sort of share his views of where the balance sheet is and that longer-term cash flow profile. you can see the balance sheet continues to be conservatively positioned. So we think that gives investors a lot of comfort around the security of the dividend. We certainly have strong line of sight to the underlying sources of capital generation as well. So the dividend track record is one that we're proud of, and we would expect that to continue going forward. Tom, what did I miss?

Not a lot. Look, there are two things that really support the dividend and have done actually for 20 years in this business. The first is operating capital generation. So one of the things you might have seen me talk about this morning was the fact that we've reported a very, very strong growth in OCG in 2025. So that's up 19% to GBP 94 million. So OCG is really the capital that we generate in a given year from doing the basics. So running our books efficiently, managing our expense base, collecting premiums, paying claims and doing that in an efficient manner. And that really is one of the aspects that allows us to build up the reserves, if you like, to support the payment of the dividend. The second thing is having a robust balance sheet. So if you have a balance sheet that is pretty robust with -- when lots of things happen as we're seeing right now, for example, in the economy where we have lots of things happening in the market, it means that actually that gives you a very solid base to think about distributing capital back to shareholders. You can use quite a bit of that OCG to distribute in the form of dividend when you know you have a very solid balance sheet behind you. And actually, I think one of the interesting aspects of the Chesnara balance sheet, particularly in current times, is we are very, very defensively positioned, which basically means that we are far less sensitive to many other businesses than a lot of the things we're seeing happening in the markets right now, such as, the stresses we're seeing in the equity markets, we're seeing movements in interest rates. We're seeing movements in credit spreads. All of those things affect our balance sheet. But actually, we do a lot of work on this. When you look at those in aggregate, and we've been obviously looking at them very closely, particularly in recent weeks, they actually have a pretty negligible impact on the strength of our balance sheet. So that gives us a lot of confidence in terms of our ability not just to pay dividends now, but actually to pay dividends at an attractive level into the long term. And that's before we think about the impact and the incremental opportunity we have from the two deals, one of which we've completed, which is HSBC and the other which we intend and hope to complete by the end of this year, which will give us further gas in the tank, if you like, in terms of our ability to potentially distribute dividends going forward.

Do you want to maybe just touch on dividend cover as well because that's probably the other part of the equation here, I think.

Yes, sure. I mean it's very, very linked in that the way we think about dividend cover is, obviously, we look at the dividend level and we look at that OCG I talked about. And what you have seen in this morning's results is a very healthy dividend cover over 1.7x if you compare the OCG to the dividend. That's not to say that we're targeting 1.7x and above into the long term because within the OCG, there will be years where it's a little bit higher, it's a little bit lower. There will also be some one-offs within that OCG number. So we take what we call capital optimization actions from time to time when the markets allow for that, which actually will boost the OCG number. But the way we think about this really into the long term, and we are a long-term business is we're comfortable with a divi coverage level of about 1.5x or more. We think that's sustainable into the long term. That's something we've delivered historically, and we've actually grown that, I think, pretty significantly over the last 5 years and are confident that's roughly the level that we will be operating at into the long term and into the future.

And moving on to our next question. Is this a growing income story or just a very well-managed runoff?

It's a great question. So we think it's a growth story. Obviously, we've just talked about dividend and the fact that we have grown that dividend and that income over such a long period of time. If we look at the sort of shareholder register, a number of U.K. income funds and European income funds hold the stock, but they've also been interested in some of the growth potential predominantly that's coming from acquisitions as well. And one of the slides in the presentation that we gave today that was a new one talked about the sort of the journey that we've been on since full year 2020 and where we think we are now. And you can see the own funds position on the balance sheet and own funds for those that aren't familiar with some of the insurance terms is in effect, an NPV calculation that takes the policies that are on the balance sheet today, projects those forward, sees what the cash coming through and sort of discounts that back. So there's been a very material increase in the own funds of the business. We've grown the assets under administration substantially, sort of over doubled in the last 5 years as well. Tom has talked about the sort of dividend coverage having improved. You can see the OCG today, that operating capital generation having increased materially as well. So we would say all of those point to the fact that there has been material growth through M&A in the business. You may have heard me talk in the presentation about the fact that we are seeing a positive M&A pipeline in 2026 as well. So we do see further acquisition opportunities looking forward. So you get this very nice balance, we believe, with Chesnara of having the strong dividend track record, that dependable income, but also opportunities for growth as well. And you've seen all of that within the last period.

Are you still finding good deals or are things getting more competitive?

So if anything, so when I joined as CEO of the company almost 5 years ago now, one of the things that I was a little bit nervous about at the time was potentially private markets players, private equity players sort of entering particularly the U.K. market, but also Continental Europe as well. And I was joining Chesnara from Royal London. And those of you that have been following some of the things happening at that time may recall that Liverpool Victoria was in the market and Royal London were rumored to be bidding for that business and Bain Capital were taken forward as the preferred partner. And they were sort of bidding about the onetime zone funds for that business with no synergies available either on asset management or within the business itself. So when I came into Chesnara, it was one of the risks that I pointed to the Board was to say, if we're seeing private markets players coming into the market, that could be a sign that the M&A market has got very, very competitive and that valuations might not be right for Chesnara given that was one of the sort of three things that we've obviously been trying to do strategically. We haven't really seen that come to pass since. And when we think about the recent opportunities, there's been relatively limited competition certainly compared to 3 or 4 years ago either from in-market players or from private equity as well. So we think we're in this sort of nice spot where there are still interesting opportunities coming to market, less competition than we've seen before and at a valuation point, which should be attractive for investors. So overall, we sort of like that competitive dynamic. We've made some investment in the business to ensure that we can look at multiple deal processes at the same time and also conduct multiple integration processes at the same time. So for Chesnara Life, that will be led by our U.K. CEO, Jackie Ronson. And then for Scottish Widows Europe, Tom is taking a leading role in the sponsorship of that. And we've now got some of that senior leadership bandwidth, but also more underlying capacity and capability in the organization to handle those things. So combined with that relatively positive sort of competition dynamic, that's why you're hearing a sort of positive outlook for us for M&A.

And just on M&A, to what extent, if at all, does the current market volatility impact your approach to the M&A pipeline?

So it doesn't materially impact the approach at the moment. I think if you saw a prolonged period where you had interest rates going up and up and up or equity markets falling dramatically for a much longer period of time, I can imagine if you were looking to sort of sell a book of business in that environment, you may well sort of pause for thought. I think what we've seen historically through shorter-term periods of volatility, we saw this around the time of this trust budget. If we go back as far as the global financial crisis and sort of after that, we've still continued really to see M&A activity happening. And this is not the only period of market volatility that we've had. I'm sure a number of you over the last 3 or 4 years when you've been looking at your portfolio, have seen some pretty violent movements in equity markets and interest rates and spreads and things like that. So we're not anticipating in our part of the market there being a particularly material impact. And certainly, any of the early engagement we're having on M&A opportunities at the moment, we don't see there being any disruption to that. I don't know, Tom, if there's anything that you'd want to add?

No.

With the introduction of new metrics, is it to make things clearer or to make things look better?

Do you want to take that one?

No. Look, it's absolutely to make things clearer. And maybe give you a slightly personal perspective on this. When I came into Chesnara about 2 years ago, I think one of the things that really struck me about the business on the very much the positive side was a sense of purpose within the business. But actually, what we do is quite simple. We are here to meet the needs of our policyholders. So we accept premiums and we pay claims. And actually, whilst there's a bit of complexity under the bonnet, that's fundamentally our purpose. But what I -- my observation was that actually the financial story wasn't following the simplicity of how we actually operate. So I felt there was some work to do on that. And secondly, I just felt in terms of comparing our performance to our peers, we were operating with actually a vastly different set of financial KPIs in some areas to our peers. And in some respects, there's nothing wrong with that. But actually, it made it quite challenging for -- certainly for Steve and I to talk about how we're performing relative to some of our peers in the market as well, but also actually how we can differentiate ourselves because we felt within our investor and equity story, there were some very interesting features that we're actually struggling to get out because actually the whole financial ecosystem of KPIs were actually getting in the way. So we actually spent quite a bit of time internally looking at how we could strip out some of that complexity, really slim the story down into the 5 or 6 numbers that actually matter and just make sure we're wrapping that around a very, very simple story that is appealing to a very broad range of investors. So what we wanted to do ultimately was take the story away from the preserve of a smaller number of insurance technical specialists and broaden it so that actually could be explained to anyone who has an interest in investing in high-growth, high-income stock.

Do you think that there will be more competition in market in the coming years?

So from an M&A perspective, so we don't know. If we look today, we aren't seeing the signs of sort of new entrants coming in. If we take the different markets that we're in, so taking the U.K. first, one of the sort of big thematic trends in our market is larger insurance companies and private market providers sort of entering this bulk purchase annuity space where insurance companies provide an insurance policy to DB pension schemes in exchange for managing those liabilities and assets going forward. And there are sort of 14 or 15 large to medium insurance companies, some backed by very large sort of U.S. sort of private markets firms sort of going after that space and looking to deploy capital there. And that's because they see better returns from that than potentially from participating in M&A. So that suits us. So long may that continue in terms of those firms sort of deploying capital there because that should mean there's a little bit less competition. And in Europe, again, we aren't seeing sort of as much sort of private equity and private markets participation there as we've seen historically. So currently, where we are, we're seeing the competitive environment being a good one for us to operate in. If we're seeing sort of higher interest rates for a little bit longer, that's likely to mean that the cost of debt for people is a little bit more expensive. So that might also mean there's a slightly higher barrier for entry for people looking to enter into our space. And the final thing I would say is that regulators, particularly in Europe, are very, very interested in people that are owning sort of customer assets that have got sort of long policy terms, particularly sort of 20, 30 years. And there is consultation out at the moment around whether private equity firms are suitable owners for those sorts of books of assets. So when we look at all those things together, we think that sort of is helpful for an organization like us. But sort of Tom and I are sort of positively paranoid every day in terms of sort of trying to figure out where there might be some people coming into our space and providing more competition. But at the moment, it feels like that's in a good place.

[Operator Instructions] So moving on, how sensitive is your capital position to market shocks or interest rates?

Do you want to take that?

Yes. The good news is relatively insensitive. And maybe just to give you a sense, this is something that we test very, very frequently. So we have formal and actually informal processes. There's a formality with our regulator where we have to test the resilience of the entire group's balance sheet to very extreme shocks on a regular basis. So we do that. We discuss that in quite a bit of detail with the Board as well. And then as we work through periods of, let's say, temporary volatility like we are working through right now, we will do ad hoc testing just to ensure that, frankly, we're not missing anything. So really, when we look at the balance sheet, there are probably three areas that we look at. The first is what's happening in equity markets and how does that impact the valuation in the balance sheet. The second interest rates. And then outside of that, it's mainly credit spreads and foreign exchange impacts. Quickly working through each of them. On equity markets, there's a particular feature within our capital structure, which means that when equity markets fall, whilst that's not good from an own funds perspective because it reduces the valuation within the funds that are subject to those equity falls, we actually have to hold less capital against those funds. So net-net, in a situation like we have right now where equity markets are falling, our solvency ratio actually goes up. Now solvency surplus falls, but the percentage ratio will actually go up because we get the benefit of that dampening effect within the capital rules. From an interest rate perspective, we're seeing interest rates go up generally right now, and that's actually positive for our balance sheet because it reduces the long-term value of the liabilities. So we have roughly a similar-ish valuation of assets against a lower valuation of liabilities, and that's good for the balance sheet. And then from a credit spreads perspective, if we did see a widening of credit spreads over a prolonged period, that would be negative to the balance sheet. But to give you a sense of the quantum, a 50 basis point credit spread widening would cost us about 5% on the solvency ratio. And from a solvency ratio of in excess of 250%, you can see actually that that's not a material impact as we're structured right now. So I guess if you step back from all of that, it means actually because we are defensively structured, we actually trade really well through volatile situations like this and actually have done in the past. So we've seen situations like COVID, post trust budget in the U.K., the GFC. And actually, part of the reason we've been able to deliver a very, very reliable, sustainably growing level of dividend through those really stress scenarios is because the balance sheet is structured in a way to actually withstand those short-term volatilities. And we're seeing that in operation right now as the Middle Eastern crisis develops.

How do you view the current government's economic policy and its effect on Chesnara?

So some of our team actually had the opportunity to be part of a lunch with Rachel Reeves recently. We also participated in some lunches with the opposition parties as well, just to sort of hear about their economic plans. So look, the sentiment is if the government can find ways to drive growth, we see that as a net positive for Chesnara, not least because we should continue to see people contributing monies into some of the policies that we run and particularly, we're opening new business now in the U.K. and have been for a few years with an onshore bond, which we think is an attractive product, helping people sort of manage wealth. So if there's further growth in the economy and more money in people's pockets, we would see that overall as a net positive. In a strange way, the fact that the -- some of the changes that were made in a couple of budgets previous tightened some of the sort of tax rules and reduce some of the benefits of other saving products. We've actually seen that benefit coming through for our onshore bond product. So we've actually seen higher flows into that proposition than we have historically. So I think that's as far as I should go in terms of commenting any further on sort of government policy, but we certainly welcome anything that can be stimulating growth, encouraging sort of growth in wealth and ultimately then further investment both in the U.K., but also allowing people to sort of save for the longer term. And that's something that we do for customers, both in the U.K. and Continental Europe, where we have 1.4 million customers today.

Would you look at acquisitions outside of your current markets in the U.K., Netherlands or Sweden?

So we've just announced such an acquisition. So whilst it's in wider Benelux and the Scottish Widows Europe deal, that business is headquartered in Luxembourg. That's a market that we've looked at for a little while. So we've been aware of a number of sort of international financial services group having books of business that have sort of run out of Luxembourg. There are other territories like that, including Dublin that we've been interested in as well. That book of business actually historically was written from the Clerical Medical With-Profits Fund in the U.K. Some of you may have been policyholders of that fund in the past. And when Brexit happened, it ultimately became illegal to have a branch structure out of a U.K. fund sort of managing customers in Europe. So people had a decision to make and a number of people put a holding company into Luxembourg or Dublin or other territories. So we will be entering an adjacent territory through that acquisition, which we expect to complete sort of in and around the end of 2026. The financial returns from that deal on a stand-alone basis are attractive. We're acquiring a material discount to own funds. We're expecting that business to add well over GBP 200 million of lifetime cash flows to the group as well. But we do see broader strategic opportunities having a platform in that market. There's a new administrative platform with a team operating there potentially that gives us access to a broader pool of acquisition opportunities. So it's early days. Tom is sort of sponsoring all our efforts there, and our main focus is ensuring that we clear the change of control process with the CAA, with the Luxembourg regulator and also doing the early planning of separating that business from the wider Lloyds Banking Group. But we're excited about the acquisition. We were pleased to announce that in February, and we'll keep everybody up to date as we progress with that.

So a couple more on M&A. Is the M&A pipeline long and deep enough that a further equity raise could be necessary? And on M&A, could Chesnara become a target itself?

So if we talk about firepower, just overall first and how we think about it. And those of us that have -- those of you that have followed Chesnara for a while will have heard us talk about the financial framework that we operate here and that we run across acquisition opportunities. So we have around GBP 100 million of remaining firepower. So that is capital resources that we can deploy immediately without having to go back to sort of debt investors or shareholders for additional funding. And the reason that we still have material firepower is the way that we funded the HSBC Life U.K. deal. We were aware of having a very strong pipeline of opportunities. So as well as sort of raising GBP 150 million through a rights issue. We followed up on that shortly with the issue of an RT1 bond, which raised a further GBP 150 million of capital. We also have an overdraft facility at group, we call it the RCF that is a sort of 3-year facility that we can also utilize for M&A as well. So that means despite the fact that we've deployed a lot of capital this year already on M&A, we do still have material internal resources available. When we look at the pipeline overall, there are a range of sort of size and shapes of deals across different territories. Some of those we could fund off the balance sheet. Some of those, we would need to look at coming back to the market and maybe financing those in a different way. We would obviously only do that if we saw a very attractive return profile, and that's what we saw with the HSBC Life U.K. deal. So when we came forward with that rights issue, we felt that, that business, the sort of cash flow profile was attractive. The scale that it brought into the group and the U.K. business was attractive as well. And therefore, we wanted to make sure that shareholders had access to that upside, but that meant also asking them for additional funding as well. And we were really, really pleased with the support that we had of that rights issue. And I know a number of you will have acquired additional shares as part of that. So we've got a lot of financial flexibility. So any future M&A doesn't automatically mean that we need to raise additional debt or come back to shareholders. But if we saw the right opportunity, we would certainly consider that going forward. And actually, a number of the conversations that we had, particularly with institutional investors off the back of the HSBC Life U.K. deal was they were sort of encouraging us to look at a wide range of opportunities given the attractive returns that they see coming from that HSBC Life deal that we since rebranded that business as Chesnara Life.

We're now moving to our final question for today. If you have any further questions, please e-mail the Chesnara team who will respond to any questions that weren't covered this afternoon. So shares have taken a dip. Is this in line with the market? Or is there a particular direct reason?

Yes. So if we look at sort of share price since the start of the year, that's probably the best place to look. I think we've seen sort of the U.K. sort of listed insurers, we've all seen some sort of drop in share price over part of that period. Actually, what we saw with the Chesnara shares is a period of outperformance in the early part of the year. So if you look at where the share price is today, it's in and around actually where we started the year. When we were updating our Board yesterday on the results, when we were looking at the peer group, we were sort of down over the period about 2% versus the peer group that were down on average closer to 10%. So whilst we have seen a little bit of a drop in share price overall, actually, we've seen the Chesnara shares sort of outperforming. That is obviously a pretty narrow window of performance. In some of the slides that you'll have seen earlier, we've shown the progression of the total shareholder return that we've delivered, which obviously takes into account the dividends that we've paid, but also the share capital growth that you've seen as well. And in a year when we've gone out with a material rights issue, the fact that you've seen well over a 40% total shareholder return for 2025, we would see that as a very strong result. So we continue to see -- we think the shares perform in line, if not slightly better than the peer group. And we think the results today are a strong set of financial results. We still see plenty of opportunities to grow, and it's what we're trying to do as part of the roadshow that we're on at the moment with investors is to make sure current investors and future investors understand the current business as is and also the future growth opportunities that we have. They understand this really impressive dividend track record that we've had over the last 21 years. So we'll be doing that over the next few weeks and making sure as far as we possibly can that, that sort of flows through in the share price.

Thanks, Steve. And with that, I'd just like to hand back to you for closing remarks.

Well, thank you very much for joining. Hopefully, you've enjoyed the presentation and the Q&A. We believe Chesnara is in a very strong position to grow going forward. The strong 2025 results have supported a 6% increase in our final year dividend. We've also informed investors that our expectation is that the interim dividend for '26 will also be increased by 6% as well, building on the best dividend growth track record in U.K. and European insurance. So we believe there's a lot to look forward to at Chesnara, and we hope you do as well. So thanks for dialing in.

Thank you to the management team for joining us today. That concludes the Chesnara investor presentation. Please take a short moment to complete the survey following the event. The recording of this presentation will be made available on Engage Investor. I hope you enjoyed today's webinar.