Good morning, and welcome to this Chesnara conference call, where we will cover our latest acquisition. I am Steve Murray, Group CEO, and with me are Tom Howard, our Group CFO, and Sam Perowne, Head of Investor Relations and Strategic Development. On our interim 2026 results presentation, we highlighted to investors and analysts that our M&A pipeline remained positive, and that we continue to actively evaluate opportunities. Earlier this morning, we announced the proposed acquisition of MetLife UK Limited from MetLife Group, a $65 billion market cap global financial services company. This is our fourth deal in the last two years, and 17th announced since Chesnara began. Together, we expect these recent transactions will help bring the Own Funds of the group to over GBP 1 billion. So, why is this another attractive deal for investors? It adds further scale and value to our U.K. business.
MetLife UK Limited brings 1.7 billion of AUA and around 18,000 customers. The financial returns are attractive, with an estimated uplift in Solvency II Own Funds of around GBP 45 million, with a broadly similar impact expected on the IFRS CSM. This uplift is around 5% of the group's total Own Funds, and close to 10% of the group's UT1. The acquisition is also expected to add lifetime cash flows of approximately GBP 90 million, with half of these cash flows estimated to emerge in the first five years post-deal completion. Operationally, these customers' policies are already administered via SS&C, who are a key strategic partner for us in the U.K. As part of the deal, we plan to migrate these policies from the older SS&C platform they are currently on to our more modern SS&C-supported version and the associated rate card. Within this, unit-linked policies with optional investment guarantees.
MetLife UK Limited has an existing external reinsurance agreement with an AA-rated European reinsurer, which will remain in place following completion. This provides comprehensive cover for the guarantee risk associated with the portfolio. We are highly confident that we have the capacity and capability to manage this closed book and associated separation and migration well. The acquisition is also expected to have a broadly neutral impact on the group's Solvency II ratio. For the avoidance of doubt, there is no material financing or capital contribution required from Chesnara for the deal, and there is no change to our available firepower either. Finally, the consideration payable is not expected to be material and reflects our ability to source attractive opportunities and create value as larger groups dispose of non-core portfolios.
In terms of the next steps on the proposed acquisition, the transaction is expected to complete by the end of the first half of 2027, and remains subject to customary regulatory approvals. We have already begun the work required to support change of control approval, separation of this business from the wider MetLife Group, and to ultimately move this closed book to our U.K. target operating model supported by SS&C. This work will continue at pace over the coming weeks and months. I also thought it would be useful to provide a very short update on other areas of strategic execution. We remain fully on track to deliver the migration of Chesnara Life data from HSBC onto our own target operating model by the end of the year. We continue to anticipate change of control for Scottish Widows Europe in and around the end of 2026 as well.
Looking forward, we continue to see a healthy pipeline of M&A opportunities across Europe and the U.K., and we remain highly confident in our ability to execute further transactions at attractive terms for our investors. The proposed acquisition of MetLife UK adds further scale to our U.K. business, enhances our future cash flows, and is expected to deliver a highly attractive return for investors. Our fourth announced acquisition in the last two years shows we remain the consolidation partner of choice for blue-chip financial services counterparties. I am pleased with the continued momentum in our M&A strategy with another complementary U.K. deal, and I strongly believe there is a lot to look forward to here at Chesnara. With that introduction, we will now open up for questions. Please let the operator know if you have a question.
Thank you. Ladies and gentlemen, if you would like to ask a question via the conference call, please press star one on your telephone keypad. Thank you. We will now take our first question from Michael Huttner of Berenberg. Your line is open. Please go ahead.
Fantastic. I have two. The first one is, can you talk us through, I mean, the deal sounds so attractive. What is the special sauce, if you like, that makes Chesnara the partner of choice? I am assuming it is patience, because when I spoke very briefly to your wonderful colleague, he said the talking had started around February, so we are now in November, so anything. Then, similar kind of train of thought, are there any competing buyers out there in this kind of pool? Thank you.
Thanks, Michael, and thanks for joining this morning. Yeah, so I think, look, why are we an attractive counterparty for some of these large firms? We think there are a few things. Look, stating the obvious, we now have a huge amount of experience as a group of executing M&A, and right the way across the deal spectrum from some larger deals that we have done recently, including the HSBC Life UK transaction. But we are very happy to look at deals across that deal size, and that can tend to mean that we are in a unique position to provide solutions for some of these smaller portfolios like this one. Secondly, whilst I think Chesnara is a very important firm and that we have grown materially, we are not seen as a competitor to these very large firms.
If you take MetLife, I mean, an incredibly successful global organization, over $65 billion sort of market capitalization. There's never sort of a worry, I think, around them engaging with a firm like us around whether that sort of gives a competitive advantage to somebody else, and we can work through the problem. I think we can be patient. I think we've got a playbook now where we can work through sort of complexities in a really good way with other people. The final thing, the U.K. operating platform that we have was a very, very important part of this deal. But also upfront, when we enter into these engagements, we just try and be very, very clear with the organizations we're dealing with around how we'll do things, but also what we need from a risk-return perspective and also from a migration perspective as well.
I think when you build those things together, we think that that makes us an attractive partner, and we were really pleased that MetLife have sort of chosen us to partner with them on this book. In terms of the competition, I'll probably repeat some of the things, Michael, that you will have heard us say at the half year. Certainly since I joined, and I've recently celebrated my five-year anniversary as the Group CEO of Chesnara, there's certainly a bit less competition. Thank you. Thank you. There's certainly a bit less competition than there was certainly when I joined. And I think we've always said for some of the sort of smaller deals that there's relatively limited competition there in the market. And that's what we're continuing to see as we engage with counterparties and we look across all the markets that we're operating in.
Hopefully that gives you a sense of how we're seeing things at the moment.
Thank you very much.
Thanks, Michael.
Thank you. We will now take our next question from Ben Cohen of RBC. Your line is open. Please go ahead.
Oh, hi there. Good morning, everyone. Thanks for taking my questions. I had a couple of questions. The first was just on the price that you are going to pay for the deal. Can you just talk us through what the sort of the swings and roundabouts are on completion that are going to need to be settled? I presume it relates to actually the assets that you, the net assets that you take on. The second thing I wanted to ask was just on the book that you are acquiring. I think you mentioned that the variable annuities are reinsured. How are the optional guarantees kind of treated? In terms of the book as a whole, what impact is it going to have to the Solvency II sensitivities? Presumably, it is more market risk is the main area that you are taking on here by the unit-linked policies. Thank you.
Yeah. Thanks, Ben, and thanks for joining. I think, Tom, those sound like two questions for you, if I can hand those over to you, both on the, I suppose, that sort of completion mechanism, what might move around a little bit, and then a little bit more detail on the policies and how that reinsurance protection. Can I hand to you, Tom?
Yeah. Thanks, Steve, and good morning, Ben. Yeah, thanks for the questions. I'll actually take the second one first, if that's okay. So, yeah, I mean, in terms of the product set, these were originally marketed as variable annuity contracts. They have the usual guarantees, sort of guaranteed minimum accumulation and income benefits associated with those product types. However, as you say, those optional, those features, those guaranteed features are fully reinsured to an external reinsurer. So, from our perspective and from an economic perspective, these products behave exactly like unit-linked products, and in fact, exactly like the unit-linked products that we currently have within the U.K. portfolio. And actually, as a result of that, they diversify really well and are very complementary to that U.K. portfolio.
So, the overall sensitivity of the Solvency II balance sheet to things like market risk, which you've correctly pointed out is the main risk we would look at, those sensitivities are actually largely unaffected. And you'll see as well this morning, one of the data points we brought out was the fact that the Solvency II ratio of the group is unaffected actually by this deal. And that's largely down to the fact that these risks diversify so well into the existing U.K. portfolio. In terms of the completion mechanism, I mean, in terms of process, it's a customary completion process. We'll work through change of control, and we have sort of various steps to take before we finalize that.
As we said in the announcement, I mean, in terms of pricing, there'll be various steps to go through, which may have a slight impact on the ultimate sort of economic transfer when we get to closing. But as we said, we do expect the sort of ultimate financing requirements here to be relatively immaterial. And we've looked at various different scenarios between here and closing that could affect that, and our view is that we won't see a material sort of call on financing between here and closing as we work through those steps.
Okay, great. Thank you very much.
Thank you. We will now take our next question from Abid Hussain of Panmure Liberum. Your line is open. Please go ahead.
Morning all. Hi. I have got a few questions, if I may. The first one is on the lifetime cash. Where do you see further upside to the GBP 90 million possible capital actions? I am just wondering, is mass lapse less relevant in this case down the line? The second question is on firepower. It looks like today's deal does not impact that firepower. If that is true, I am just wondering how does the pipeline look for large deals into 2027? Thirdly, I was just wondering if it is worth calling out if there is anything different about this deal. It does feel slightly different to the previous three that you did. Is anything different? For example, the policies are already on SS&C. Was that a factor? Just a final question, if I may. Apologies, there are quite a few questions.
The final question is this a sort of one-and-done deal with MetLife, or do you foresee the opportunity to come back for other things with MetLife Group? Thank you.
Thanks, Abid, and thanks for your note in the title this morning. What I will do, Tom, why do not I pick up the last couple, and then I will maybe pass back to you for the lifetime sort of cash flow and mass lapse, and you can talk about where we see sort of maybe firepower as well. If I pick up sort of pipeline, anything different in this deal, then we can do that in a sort of one-and-done piece. On the one-and-done, look, we have obviously found historically that when you work at close quarters with another partner, that can lead to other things happening, and we certainly saw that with the Canada Life team, and we were really pleased with that.
When you spend a lot of time with people and you develop a good working relationship, you hope that that means if other things become available, that you'll be well-placed to do that, and we would certainly hope that's the situation here. We've said before that the work to do smaller portfolios can be the same as larger deals, and actually it can be more complexity. I've certainly been really impressed with the way that the broader MetLife team and the broader Chesnara team has worked together very positively to find a solution for this portfolio. I think that hopefully stands in good stead going forward, and they are clearly a very, very large, successful financial services organization.
In terms of what was different on this deal, I think the one thing that was the fact that the policies are all already administered by part of SS&C, and we sometimes come across that, but I think in the U.K., it's the first time really that we've seen that in anger on a deal. All the work and investment and effort that we've been putting into building that relationship, the target operating model, executing migrations, really has been a very important supporting factor for the deal. The fact that we can move that from what's an older version of the outsourcing model there running onto our new platform has been a core part of how we're able to create value here.
I think that's the one thing, Abid, that I would probably point to here that was perhaps a little bit more different in terms of the transaction. In terms of pipeline, I sort of alluded to it in my opening remarks, but we're continuing to see a positive pipeline. There's plenty going on in our part of the market by way of transactions, so we don't see the sourcing of portfolios and companies being a challenge going forward. It's always the time that these things take. You need a willing seller, you need to sort of strike the right price and the deal parameters and what have you. But we remain positive about what we're seeing in the market. As I've said to people before, I've got enough gray hair to know that trying to predict when these things drop is a fool's errand.
We continue to be busy looking at things and continue to believe we will have some great opportunities to execute. Tom, do you want to pick up that sort of firepower question to where are we? I think we've confirmed there's no change, but we can maybe remind people how we see firepower and then where we see potential upside from the lifetime cash flow and maybe what's in there. Cheers.
Yeah, sure. From a firepower perspective, as we've been saying, I think we talked about it at our last results presentation, we retain enough firepower to do something of the size of the Scottish Widows Europe transaction. That remains the case because, as we said earlier, this deal we don't expect to give rise to any material form of financing requirements. So that firepower position still holds. In terms of the lifetime cash flows, Abid, yeah, the disclosures we put out today reflect a pretty, I would say, prudent projection of the cash flows that we expect under our ownership. So they reflect an assumption of the long-term run rate cost profile. So when we ultimately do migrate this business onto our modern SS&C platform. We've made what I would say is a pretty prudent assumption about the level of cost associated with that.
What we haven't done is assumed any future capital management actions. So you mentioned mass lapse, and obviously there are other things we could do in there as well. But we see those as potential further sources of upside, and we'll be having a look at those between here and completion. And that's one of the steps we'll be working through between signing and completion, along with the other steps I mentioned earlier on.
Thank you. Thanks for answering those.
Thanks, Abid.
Thank you. Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take a follow-up question from Michael Huttner, Berenberg. Please go ahead.
Fantastic. Thank you. Just two. One, a cheeky one is, you mentioned Europe ahead of U.K. in your opening remarks on pipeline. Is that significant or is that just because of the alphabet? The second is the GBP 45 million, is that a pre-tax or post-tax number? Thank you.
I will let Tom pick up the details. It probably is more in relation to the alphabet, Michael. What I would say is, look, we are continuing to see good opportunities across European territories and the U.K. I should probably say for the avoidance of doubt, this deal provides us with the flexibility to continue to look at U.K. acquisitions. We have got flexibility around when the migrations and things might happen because it is SS&C to SS&C. That was another important factor in the deal for us because it allows us to continue to look at interesting opportunities in the U.K. in the near term as well. As you know, if we can find opportunities, provide a nice return for investors, and we can manage them, we will certainly look at them across the territories we are currently in, and we are still open to looking at other markets as well.
Tom, do you want to sort of just pick up that sort of technical question on the Own Funds?
Yeah, Michael, I mean, straightforward actually. The balance sheet impacts of both the IFRS and the Solvency II impacts are both post-tax.
Brilliant. Wow. Okay. Thank you so much. Well done.
Thanks, Michael.
Thank you. With no further questions on the line, I will now hand it back to the management team for closing remarks.
Thanks very much. I just wanted to add my thanks to the MetLife and the Chesnara teams who have worked tirelessly over the last few months to make this deal happen. It really has been great to see two teams working so proactively together. Before we finish the call, I just wanted to make sure that I put my thanks on the record for all of them. In summary, the proposed acquisition of MetLife UK adds further scale to our U.K. business, enhances our future cash flows, and is expected to deliver a highly attractive return for investors. Our fourth announced acquisition in the last two years shows we remain the consolidation partner of choice for blue-chip financial services counterparties. Thank you for dialing in this morning, and I continue to believe there is a lot to look forward to here at Chesnara.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.