Pension consolidator with £120m war chest dubs itself ‘patient buyer’ 

The 17-year-old firm’s life and pensions portfolios span the Netherlands and Sweden too, where it has made more recent acquisitions.

“We are patient buyers,” Chesnara’s outgoing chief executive, John Deane, told FTAdviser. “Having three territories allows us to make sure the deals we sign are appropriately priced.”

In the UK, where it operates under the closed book brand Countrywide Assured, Chesnara focuses on unit-linked pension policies and critical illness cover.

The merits of focusing on simple, well priced, smaller transactions should not be underestimated

Its last UK acquisition was Direct Line Life Insurance, which cost Chesnara £39m. More recent M&A activity in the Netherlands has seen it buy three companies in just two years.

“We are developing a reputation as a reliable acquirer of portfolios no longer seen as core by vendors,” the firm said in its interim results, published today (August 26).

“We remain optimistic that more substantial opportunities exist, but the merits of focusing on simple, well priced, smaller transactions should not be underestimated.”

Its most recent deals, which include the Dutch insurance portfolio of Brand New Day, have already “contributed to growth in excess of 40 per cent”.

Asked why the firm has neglected the UK for M&A deals since 2013, incoming chief executive and former chief commercial officer at Royal London, Steve Murray, said: “Just because we haven’t bought a firm in the UK recently, doesn’t mean we don’t like the UK.

“M&A is a very important part of our strategy. We are very open-minded about the strategy, and our movements are a reflection of where the attractive prospects are.”

Deane added that consolidation has been “less developed” in the Netherlands compared to the UK market, hence presenting the firm with more opportunities abroad.

What Chesnara buys it keeps and amalgamates into its existing business. Murray said Covid-19 has created time for the firm to review its portfolios thus far and spot new opportunities, referencing its £120m M&A war chest which sits in waiting.

“This is a very long-term business,” Deane explained. “What we generate is a steady cash flow. We hold about two years of future dividends in our bank account.”

The LSE-listed firm's dividend streak, which remains unbroken, enjoyed a further increase of 3 per cent to its interim dividend in 2021 to 7.88p, according to its interim results.

Its economic value, which Deane said is the best indicator of the business’ future performance, also grew by £14.2m since the start of 2020 before it issued a final 2020 dividend of £21.4m.

In the UK, Chesnara principally consists of the insurance company Countrywide Assured, which manages 230,000 policies and is in run-off. 

The firm outsources a number of its services, including its investment management, customer services, and accounting and actuarial services.

“This gives the firm a certainty of cost,” said Deane. “As well as a cost per policy which the firm is comfortable with.”

As a closed book, the division creates value through managing costs, policy attrition, investment return, and reinsurance strategy.

In the first six months of last year, the UK business made a profit before tax of just £400,000 which Deane put down to major downward shifts in the UK equity market. For the whole of 2020 it posted £35.7m.

In the first half of this year, its UK operation’s profits rebounded to £15m.

“What has changed is the way we’ve communicated with clients,” said Deane. “We’ve been more flexible - receiving forms electronically, for example. Prior to Covid-19’s impact, we’d already invested in our IT technology which allowed us to almost seamlessly move to a work from home environment.”

ruby.hinchliffe@ft.com