Interim Management Statement

Chesnara plc Interim Management Statement

Chesnara plc

Interim Management Statement for the period from 1 January 2010 to 18 May 2010

19 May 2010

This statement relates primarily to the financial position of Chesnara plc (the
`Group') as at 31 March 2010 and to its financial performance during the first
quarter of the year. Where events and transactions have occurred since the end
of the first quarter, which are estimated to have a material impact on
management's core expectation of the financial position and/or financial
performance of the Group, then these are identified, together with a broad
indication of their impact.

EEV

The movement in Group European Embedded Value (`EEV'), since the position last
reported in the financial statements for the year ended 31 December 2009, is
set out in the following table:

                         Quarter ended    Quarter ended          Year ended        
                         31 March 2010    31 March 2009    31 December 2009  
                                  GBPm             GBPm                GBPm              
                                                                             
EEV at beginning of              262.6            182.7               182.7       
period                                                                       
                                                                             
Profit arising on                    -                -                54.2       
acquisition of Swedish                                                       
Business                                                                     
                                                                             
Earnings for the period,                                                     
net of tax                                                                   
                                                                             
- UK Business                      4.8             (6.4)               28.1       
                                                                             
- Swedish Business                 5.2                -                 8.7        
                                                                             
- Other Group Activities           0.1             (0.1)               (0.7)       
                                                                             
Foreign exchange reserve           5.2               -                  5.5        
movement                                                                     
                                                                             
Dividends paid                       -                -               (15.9)      
                                                                             
                            ----------       ----------          ----------    
                                                                             
EEV at end of period             277.9            176.2               262.6       
                                                                             
                            ----------       ----------          ----------    

EEV of GBP277.9m as at 31 March 2010 is stated before appropriation of a
dividend of GBP10.5m which will be paid on 20 May 2010.

Investment market improvements over the first quarter had a significant
positive impact on earnings for both the UK and Swedish businesses, posting
gains of GBP4.4m (GBP4.0m net of tax) and GBP2.7m (GBP2.7m net of tax)
respectively. However, since the quarter end, investment markets have been
weaker. For example, while the leading UK equity indices gained some 5% over
the first quarter, they have subsequently, up to the date of this statement,
fallen back, such that they now reflect losses approaching 2% since 31 December
2009.

Other significant influences underlying earnings for the first quarter were:

UK Business

On the adverse side, a reduction in the swap yield which is used both to set
the rate of investment return and the discount rate for future cashflows, with
little corresponding change in the market values of our fixed interest
securities and in future inflation expectations, gave rise to a reduction of
GBP5.6m (GBP5.0m net of tax) of in-force value under market-consistent
principles. This has been offset by:

 i. GBP1.8m (GBP1.6m net of tax) expected return from the unwind of the risk
    discount rate;
   
ii. GBP1.8m (GBP1.6m net of tax) favourable mortality and morbidity experience;
    and
   
iii. GBP1.5m (GBP1.3m net of tax) favourable persistency experience.
   
Swedish Business

(all amounts stated are pre-tax, tax effects for the period being immaterial)

 i. GBP1.7m expected return from the unwind of the risk discount rate;
   
ii. GBP0.9m value added by new business;
   
iii. GBP0.2m favourable mortality experience; and
   
iv. GBP0.7m favourable persistency experience
   
offset by:

 v. an expense overrun of GBP0.5m; and
   
vi. a net loss of GBP0.4m on non-covered business.
   
The foreign exchange gain of GBP5.2m, set out in the EEV table above, arises
from the effect of translating the SEK-denominated EEV of the Swedish Business
into pounds sterling, which depreciated 5.4% against the Swedish Krona over the
first quarter of 2010. The subsequent 3.1% appreciation of sterling against the
Swedish Krona has reduced this gain to GBP2.4m.

IFRS

The IFRS result arising in the quarter ended 31 March 2010 is set out in the
following table:

                         Quarter ended    Quarter ended          Year ended        
                         31 March 2010    31 March 2009    31 December 2009  
                                  GBPm             GBPm                GBPm              
                                                                             
Pre-tax earnings                                                             
                                                                             
Profit arising on                    -                -                25.1       
acquisition                                                                  
of Swedish Business                                                          
                                                                             
UK Business result                 8.9              4.2                24.7       
                                                                             
Swedish Business result            4.4                -                (2.6)       
                                                                             
Other group activities            (0.4)            (0.1)               (2.5)       
                                                                             
                            ----------       ----------          ----------    
                                                                             
Total pre-tax earnings            12.9              4.1                44.7       
                                                                             
Tax                               (7.8)            (1.1)                1.2        
                                                                             
                            ----------       ----------          ----------    
                                                                             
Post-tax earnings                  5.1              3.0                45.9       
                                                                             
                            ----------       ----------          ----------    

The total IFRS pre-tax result for the quarter ended 31 March 2010 continues to
arise mainly from the surplus arising within the UK life and pensions business,
which is in run off. This was enhanced by favourable investment market and
mortality experience of GBP2.5m and GBP2.0m respectively.

The total IFRS pre-tax earnings of the Swedish Business of GBP4.4m include
GBP5.5m deductions from policyholder unit-linked funds in respect of
policyholder tax chargeable on those funds: this amount is offset by an equal
and opposite policyholder tax item within the overall tax charge. It is more
meaningful to assess the results after reversing out these items, and, on this
basis, the Swedish Business posted a pre-tax loss of GBP1.1m for the quarter,
while the corresponding amounts at the total group level are pre-tax earnings
of GBP7.4m with a tax charge of GBP2.3m, leaving the net result unchanged at
GBP5.1m. No corresponding adjustments to the comparative fiscal 2009 periods
are necessary as the recognition of policyholder tax occurred in the
pre-acquisition period.

The following key performance indicators relating to the Swedish Business
underpin the progress which has been made during the quarter:

                         Quarter ended    Quarter ended          Year ended        
                         31 March 2010    31 March 2009*   31 December 2009* 
                                                                             
Total premium income**                                                       
                                                                             
Pensions and savings              62.8             61.3               257.6       
                                                                             
Risk insurance                     7.8              5.9                26.6       
                                                                             
                            ----------       ----------          ----------    
                                                                             
Total                          GBP70.6m         GBP67.2m           GBP284.2m     
                                                                             
                            ----------       ----------          ----------    
                                                                             
New business premium                                                         
income**                                                                     
                                                                             
Pensions and savings              14.5             15.2                49.4       
                                                                             
Risk insurance                     5.9              0.9                 3.3        
                                                                             
                            ----------       ----------          ----------    
                                                                             
Total                          GBP20.4m         GBP16.1m            GBP52.7m     
                                                                             
                            ----------       ----------          ----------    
                                                                             
Market share of                                                              
unit-linked pensions                                                         
business                                                                     
                                                                             
Total business                     3.8%             6.6%                5.7%       
                                                                             
                            ----------       ----------          ----------    
                                                                             
Company-paid                       4.6%             8.2%                7.4%       
contribution                                                                 
business                                                                     
                                                                             
                            ----------       ----------          ----------
    
                                                                             
                                          31 March 2010    31 December 2009  
                                                                             
                                             ----------          ----------        
                                                                             
Assets under management**                    GBP1,100.4m         GBP1,015.3m       
                                                                           
                                                                             
                                             ----------          ----------        

* Information in respect of the quarter ended 31 March 2009 and the year ended
31 December 2009 includes performance prior to the acquisition of the Swedish
Business on 23 July 2009 and is presented for illustrative purposes.

** Translated into sterling at a constant rate of SEK10.9 = GBP1

During the quarter, Moderna Försäkringar Liv AB ('Moderna') has continued to
seek to re-establish its sales and market share in Sweden. Pensions and savings
income has recovered, on a quarterly comparison basis, to near 2009 levels
whilst risk insurance premiums have surged following the acquisition of the
operations of Aspis Försäkrings Liv AB (`Aspis') as described below. Whilst, on
first glance, the market share figures appear disappointing, these are skewed
due to a significant one-off transaction in the market. If this particular
transaction is excluded Moderna's market shares are comparable to those in the
fourth quarter of 2009 which were 5.4% of Total business and 7.8% of the
Company paid market.

Aspis

On 19 February 2010 Chesnara plc's Swedish subsidiary, Moderna, entered into an
agreement with the Swedish regulatory authority, Finansinspektionen (`FI') to
take over the operational management of Aspis (the `Agreement'). Moderna
thereby acquired the in-force business, personnel, expertise and systems of
Aspis and will also manage, but not be responsible for, the payment of in-force
claims that occurred up to 12 November 2009.

Prior to the Agreement, the FI had determined to revoke Aspis' licence due to
issues regarding its solvency capital. By entering into the Agreement,
therefore, Moderna removed significant uncertainty for Aspis' customers, staff
and supporting intermediaries and acquired a book of protection business which
represents an excellent strategic fit with its existing pensions and savings
business. However, given the significant uncertainty faced by Aspis as a result
of the events leading up to the Agreement, the business suffered significant
negative press coverage within Sweden which had an impact on lapse rates of
policies at the date of renewal. While Moderna has moved quickly to mitigate
the effects of Aspis' legacy issues, this has impacted the quantification of
the value of the in-force intangible assets acquired by Moderna and, as a
result, the fair value of the net assets acquired and the goodwill arising on
acquisition cannot be assessed with reliability at this time. The Board
anticipates that the transaction will be earnings-enhancing in the short to
medium term.

Solvency

The underlying emergence of surplus in the UK Business, and hence the capacity
of the Group to continue to pursue its dividend policy, remains strong. This is
reflected in the ratio of regulatory capital resources to regulatory capital
requirements in the UK life company, which has improved from 197% as at 31
December 2009 to 235% as at the end of the first quarter. The Swedish life
business solvency ratio as at 31 March 2010 is estimated to be 267%, compared
with 302% as at 31 December 2009 and with a target ratio of a minimum of 150%.
As at the quarter end, the corresponding Group (IGD) position remains strong at
332% compared with 316% as at 31 December 2009.

Market Opportunity

We continue to see a decent flow of potential acquisition opportunities and, as
demonstrated with the Aspis transaction, we will readily progress these where
we see value and a clear strategic fit. As regards other opportunities, while
we remain open-minded as to location in the UK and Western Europe, we will
continue to apply strict financial and risk criteria in assessing them.

Enquiries

Graham Kettleborough
Chief Executive, Chesnara plc 07799 407519

Michael Henman, Cubitt Consulting 0207 367 5100

Notes to Editors

Chesnara plc, which listed on the London Stock Exchange in May 2004, is the
owner of Countrywide Assured plc ("CA") and Moderna Försäkringar Liv AB
("Moderna"). CA is a UK life assurance subsidiary that is substantially closed
to new business. In June 2005 Chesnara acquired a further closed life insurance
company - City of Westminster Assurance ("CWA") - for GBP47.8m. With effect
from 30 June 2006, CWA's policies and assets were transferred into CA. Moderna,
a life assurance company which focuses on pensions and savings, was acquired on
23 July 2009 for GBP20m. The company, which was launched in 2002, continues to
write new business and grow its strong position in the Swedish unit-linked
market. Moderna's market presence was increased through the acquisition of a
controlling stake in AkademikerRÃ¥dgivning I Sverige AB, an IFA, in late 2009
and the purchase of the policyholders, personnel, intellectual property and
systems of Aspis Försäkrings Liv AB, a life and health insurer, in February
2010.