Chesnara Pitches Scottish Widows Europe Deal: €250M Cash Boost, Funded in Cash, 173% Solvency Pro Forma
Chesnara LON: CSN executives outlined the strategic rationale and financial profile of the company’s proposed acquisition of Scottish Widows Europe from Lloyds Banking Group during an investor presentation and Q&A session led by Group CEO Steve Murray and Group CFO Tom Howard.
Deal highlights and funding
Murray said the proposed transaction is Chesnara’s second material acquisition in the last 12 months following the HSBC Life U.K. acquisition, which completed in January. He described the deal as supportive of the group’s M&A momentum and capital allocation framework.
Management said the acquisition is expected to add around EUR 250 million of lifetime cash generation to the group, including roughly EUR 100 million in the first five years. The agreed consideration is EUR 110 million, which management said represents around 64% of Scottish Widows Europe’s eligible own funds and is expected to be “materially value accretive” at completion.
The company said the transaction will be fully funded from available cash resources, including partial use of proceeds from the group’s RT1 issuance completed last year. Post-transaction, Chesnara expects to remain “comfortably” above its normal solvency operating range of 140% to 160%.
Scottish Widows Europe overview and timetable
Howard said Scottish Widows Europe is a closed life and pensions business headquartered in Luxembourg. The unit manages around EUR 1.7 billion of assets and has approximately 46,000 policies. He said the business includes legacy unit-linked and U.K. with-profits products sold through a branch structure into Europe, “mainly into Germany.”
Howard emphasized that the products are familiar to Chesnara and that the business runs on a “proven and scalable” European administration platform with an experienced local management team. The acquisition of 100% of the share capital and associated legal arrangements remains subject to regulatory approvals. Howard said Chesnara has already been engaging with the Luxembourg regulator and is working toward closing “in and around the end of this year.”
Capital, solvency, and cash flow expectations
On a pro forma basis, Howard said Chesnara’s solvency coverage ratio would be 173%, which he said remains above the top end of the company’s operating range. He also said the deal is expected to be “slightly accretive” to leverage, with pro forma leverage “significantly below” the group’s long-term ambition of 30% or less after closing.
When asked about the annual cash profile, Howard said cash emergence would not be even year-to-year, but in broad terms the deal is expected to add about 20% to the group’s cash flow profile on average over the first five years.
Howard added that the disclosed pro forma figures do not include potential upside from integration-related capital and other synergies. In response to a later question, he described two categories of capital synergies: (1) “structural” benefits from increased size and diversification across territories at the holding company level, and (2) extending existing capital management actions used elsewhere in the group—such as mass lapse reinsurance and foreign exchange hedging—into the Scottish Widows Europe portfolio. He said Chesnara had not “baked in” new management actions it has not already deployed elsewhere.
Luxembourg market rationale
Murray said Chesnara has previously flagged interest in the wider Benelux region and considers Luxembourg an attractive market. He described Luxembourg as a stable, triple A-rated jurisdiction with around EUR 235 billion of total life insurance liabilities and a dedicated regulator with a strong supervisory framework. He also pointed to the EU passporting regime enabling Luxembourg insurers to serve customers across the single market.
Management characterized the market as fragmented, with a “long tail” of businesses that have not reached scale and “few incumbent consolidators.” Murray said Chesnara believes its track record could position it as a potential consolidator in Luxembourg and wider continental Europe, supported by local expertise and the standalone policy administration platform acquired with Scottish Widows Europe.
Product features, reinsurance, and other topics raised in Q&A
During Q&A, management addressed the valuation discount to own funds, saying Lloyds sought a counterparty with experience in U.K.-style products, regulatory relationships, and capability to look after customers over the long term. Murray also emphasized the deal differs from HSBC Life U.K. because it is a closed book in run-off.
On portfolio duration, Howard said that more than 60% of the expected cash generation would emerge after the first five years, indicating a portfolio life “significantly beyond five years.” Head of Investor Relations and Strategic Development Sam Perowne said the core product set includes U.K.-style with-profits endowments that may convert at maturity into annuities depending on product type, and he said Chesnara expects a “fairly high level” of annuity conversion over time.
Perowne also discussed reinsurance arrangements referenced during the call, including two agreements tied to the Clerical Medical with-profits fund: one covering investment risk for with-profits endowments and another covering vesting annuities. He said the reinsurance agreements are expected to remain in place until policies run off, with termination only under limited circumstances, and noted that amendments and restatements are required because Scottish Widows Europe will become part of a separate group post-transaction.
Asked about any unusual product features, Howard said the portfolio is “very, very well known” to Chesnara and added that certain features such as guaranteed annuity options are reinsured back into the with-profits fund.
Murray also addressed dividend implications, reiterating that after the HSBC Life U.K. acquisition the company had signaled an intent to accelerate its historic dividend progression by one year and lift the dividend by 6% at full-year 2025 and interim 2026. He said the added long-term cash generation from the Scottish Widows Europe acquisition supports the sustainability of cash flows that the group expects to translate into dividends over time.
The company said it expects to provide its next scheduled update at its full-year 2025 results presentation on 24 March.
About Chesnara LON: CSN
Chesnara (CSN.L) is a European life and pensions consolidator listed on the London Stock Exchange. It administers approximately one million policies and operates as Countrywide Assured in the UK, as The Waard Group and Scildon in the Netherlands, and as Movestic in Sweden. Following a three-pillar strategy, Chesnara's primary responsibility is the efficient administration of its customers' life and savings policies, ensuring good customer outcomes and providing a secure and compliant environment to protect policyholder interests.
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