Chesnara has a “robust” capital deployment framework, said the Royal Bank of Canada (TSX:RY), which kept its 350p target price and ‘outperform’ rating.
In a management presentation to analysts, Chesnara said it expects to have £150mln of cash in the first half of 2023, with £100mln of this for deployment with a £50mln buffer.
“As a reminder, Chesnara targets all deal sizes in the sub £250mln consideration segment, where it is likely to face fewer competitors,” said the broker.
The broker also said there is a “line of sight” for the £100mln cash generation from potential management actions.
The reform to Solvency II, which is a regime for insurance and reinsurance undertakings in the EU, should result in a £10mln capital benefit from the reduction in risk margin.
“Chesnara holds a risk margin in respect of lapse risk, compared to annuity writers where it is mainly in respect of longevity risk,” said the broker.
“Even without the benefit from Solvency II reform, Chesnara’s solvency position remains strong with management highlighting that based on market movements in the year to date, its Solvency II ratio would still be in line with the financial year 20022 ratio of 182%.”
